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Supplier Selection in EPC Projects: An Overview of the Process and Its Main
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Conference Paper · May 2016

DOI: 10.1061/9780784479827.022

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 Construction Research Congress 2016 – Pages 209-218

Supplier Selection in EPC Projects: An Overview of the Process and its Main
Activities

Thais da C. L. ALVES1, Kioomars RAVAGHI2, and Kim LaScola NEEDY3

1 Associate Professor, J. R. Filanc Construction Eng. and Mgmt. Program, Dept. of

Civil, Constr., and Env. Eng., San Diego State University, San Diego, CA, USA,
talves@mail.sdsu.edu
2 Former Graduate Student, J. R. Filanc Construction Eng. and Mgmt. Program, Dept.
of Civil, Constr., and Env. Eng., San Diego State University, San Diego, CA, USA,
kioomars.ravaghi@gmail.com
3 Dean Graduate School and International Education, University of Arkansas,
Fayetteville, AR, USA, kneedy@uark.edu

ABSTRACT
The process of selecting suppliers is a strategic process involving multiple
departments within an organization. It directly impacts the performance of time,
safety, quality, and cost indicators, and if properly performed can give a competitive
edge to companies delivering Engineering Procure Construct (EPC) projects. This
paper presents the results of a research project sponsored by the Construction
Industry Institute (CII) on the topic of supplier quality surveillance (SQS) and
suppliers’ ability to provide products that conform to specifications. The paper
specifically addresses the need to better understand the process of supplier selection
and evaluation in the EPC industry using data gathered from multiple sources:
literature, purchase orders (POs), procedures provided by CII member organizations,
and face-to-face discussions with subject matter experts (SMEs). Supplier selection
process maps were developed to illustrate how the process in the EPC industry
unfolds and compares to what is found in the industry at large. Additionally, the study
revealed that quality and delivery time are the most important characteristics of prior
performance of suppliers, considered by EPC purchasers, followed by experience and
cost. In general, items grouped under Procurement and Quality are the categories of
prior performance that contain characteristics used most often to select suppliers.

INTRODUCTION
There has been an extensive range of changes in the relationships between
manufacturers and suppliers over the last few decades. A marked trend towards
broader involvement of suppliers is a result of manufacturers’ tendencies for smaller
and more effective operations (Prahalad and Hamel 1990). Manufacturing companies
have downsized their own operations by imposing on suppliers’ technical capabilities
in order to increase product quality and reduce product development lead times
(Kannan and Tan 2002). This has made supplier selection and evaluation more
crucial. There is more reliance on suppliers; therefore companies and suppliers should
work more collaboratively in a structured network to satisfy end-customer needs
(Tommelein et al. 2003).
Supply chain management practices have changed over the last few decades
and the basis of sourcing decisions relies more on the performance history of the
supplier than in price, as it used to be. In this environment, information is exchanged

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in both ways between customer and supplier, contrary to the traditional approaches in
which information exchange was mainly one-way and restricted (Lamming 1993). It
is expected that frequent, transparent, and mutual communications between entities
within a supply chain add value to the whole process and lead to customer’s
satisfaction. When suppliers receive feedback about the selection process and/or how
they performed on a specific job they learn about their strengths and weaknesses and
can work towards improving their products and services (Prahinski and Fan 2007).
Research on the EPC industry has also shown that frequent communication
with suppliers early in the life of a purchase order yields better quality outcomes, as
do the development of quality control and inspection plans with suppliers (Neuman et
al. 2015). This reinforces the notion that selecting suppliers who are willing to engage
in conversations with the client before production starts is an important characteristic
to be considered during supplier selection. Similarly, the use of supplier selection
criteria translates to improved supplier and manufacturing performance, and
represents an opportunity of improvement for companies seeking to improve their
manufacturing performance (Vonderembse and Tracey 1999). When suppliers know
the criteria that they are being evaluated on and what is important to the buying
organizations (represented by purchasers), they can develop the capability to meet or
exceed the client’s expectations (Prahinski and Fan 2007).
Supplier selection can be done based on various factors. Some of these factors
such as management and cultural compatibility, strategic direction of the supplier
firm and goal similarities are hard to quantify as these are considered “soft” factors.
On the other hand, price, delivery time, and quality are more commonly used criteria,
which are easier to quantify (Hahn et al. 1990).
However, despite these findings, communication and feedback about
performance indicators from contractors and owners to suppliers in the EPC industry
remain an area where improvement is much needed. Suppliers in the EPC industry
have indicated that they wish they could engage with clients earlier in the life of a PO
to develop quality plans and build trust, receive timely feedback during the life of a
PO, and have periodic reviews to support continuous improvement and better serve
their clients (Walsh et al. 2014). In this context, this paper addresses the need to
understand the supplier selection and evaluation process developed by EPC
contractors, and which characteristics they currently use to evaluate suppliers.

THE SUPPLIER SELECTION AND EVALUATION PROCESS

The main goal of the supplier selection and evaluation process is to reduce the
purchase risk and increase value to the purchaser (Monczka et al. 2016). The supplier
selection and evaluation process consists of seven different critical steps described by
Monczka et al. (2016), outlined in an abridged version in Figure 1. This process map
was developed early in the research effort to support a discussion by RT308 members
on how the process in the industry at large compares and contrasts to what is done by
EPC contractors.
Initially, the purchaser should recognize the need for supplier selection (1).
The purchaser might begin the selection and evaluation process when the contract
period ends or when the current supplier has insufficient capacity. Also, if the
purchaser is buying new equipment or developing a new product, then there is a need
to select and evaluate a supplier. At this point, the purchaser needs to provide some
preliminary information so that potential suppliers can initially be identified. If there

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 Construction Research Congress 2016 – Pages 209-218

is no need to select a supplier, the process ends (1.1). The next step is to identify key
sourcing requirements. The purchaser clarifies requirements for the purchase so that
the supplier can have a better understanding of what is involved in the process and
can add more value towards the final product or service (1.2) (Monczka et al. 2016).
The following step is to identify potential supply sources based on value and
complexity of the purchase (2). Current supplier’s capabilities and importance of the
purchase dictate the depth of information search needed (3). For instance, low
capability of the current suppliers and high strategic importance of purchase require
major information search (3.1) (Monczka et al. 2016). On the other hand, if the
current supplier has the required capability, it can be used for the future purchase
(3.2), therefore, eliminating the time and resources needed to search for other
potential suppliers and evaluate them. However, it reduces the chance of identifying
new potential suppliers. Purchasers usually do not want to spend time and resources
to look for another supplier as long as the current supplier is capable of meeting
performance and safety standards set by the buying organization (Monczka et al.
2016).
By this time the purchaser has developed a list of prequalified suppliers that
might be considered for further evaluation (4). Next, the purchaser needs to determine
the sourcing strategy (5). If there is only one supplier that the purchaser accepts its
products or services from, then that supplier will be selected (6). Otherwise the
purchaser should choose whether it wants to do business with manufacturer or
distributer, single or multiple suppliers, international or local suppliers and small or
large suppliers (7).
Developing a closer relationship with the supplier and optimum leverage over
the supplier are some of the advantages of single sourcing. On the contrary, multiple
sourcing can lead to a competition between suppliers that encourage them to be more
efficient. International suppliers might be the cheaper options when only purchase
price is considered, but they might not be as flexible as local suppliers to needs and
fluctuations. If the purchaser does not want to leverage its purchases from one
supplier, then the size of the supplier does not play a key role as long as the supplier
has enough capacity to meet the purchaser’s requirements (Monczka et al. 2016).
The next step is to perform the preliminary evaluation to cut down some of
the suppliers from the list of potential suppliers. By narrowing the list, the purchaser
can go through a more extensive evaluation process for remaining suppliers. At this
stage, supplier risk management becomes more prominent (8) as the purchaser tries to
recognize potential negative outcomes related to a specific supplier and prevent them
to eliminate unwanted consequences. These negative events might arise from lack of
overall financial health and stability or lack of operational capability and flexibility.
Based on the outcomes of supplier risk management, a supplier selection and
evaluation method is selected (9).

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 Construction Research Congress 2016 – Pages 209-218

Figure 1. Supplier Selection and Evaluation Map (After Monczka et al. 2016)

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 Construction Research Congress 2016 – Pages 209-218

Information provided by the supplier (9.1) contained in the Request for Quote
(RFQ) in response to the Request for Proposal (RFP) can be used to evaluate the
suppliers’ capabilities more in depth. Information related to a detailed cost
breakdown of the quoted price by the supplier might include cost composition, cost
drivers, and justification of fuel surcharges (Monczka et al. 2016). Supplier visits
(9.2) can be considered as another option which requires more time and effort from
the purchaser, but can lead to a better understanding of the supplier’s capabilities.
Supplier visits should be performed to gather the information regarding multiple
facets of the supplier’s business including but not limited to: management capability,
total quality management, technical capability, operational and scheduling capability,
financial strength, personnel relations, e-system capabilities, technical sophistication
and efficiency of the equipment, ISO certification, caliber of the supervision and
inspection personnel, evidence of good management and housekeeping practices,
types of inventory systems, nature of the receiving, storeroom and shipping areas,
quality control philosophy, environmental practices, representation of white-and blue-
collar staff, employee contract expiration dates and contact information of decision
makers (Monczka et al. 2016).
Finally, third-party information (9.3) also gives more information about the
supplier from a different perspective. Dun and Bradstreet’s Supplier Qualifier Report
is one example of third-party information provider (available at
http://www.dnb.com/). At the end of this process, the purchaser should perform the
final selection and reach an agreement with the supplier (10), selecting one or
multiple suppliers depending on sourcing alternative selected by the purchaser earlier
(11).
Next, we describe the research efforts by RT 308 to develop a supplier
selection and evaluation process map for the EPC industry, and to identify the
characteristics of prior performance most often considered by EPC contractors when
selecting suppliers.

RESEARCH METHOD
A Purchase Order (PO) data collection instrument was developed by RT 308
and used during the first phase of the project (June 2012 – August 2014) to
investigate practices used by suppliers to assure products are delivered without
rework within the EPC industry. Results from the first phase have been published
extensively by the research team (e.g., Walsh et al.2014, Almaian et al. 2015,
Neuman et al. 2015). The project was extended and re-started in January 2015 with
the intent to investigate in more detail how the fabrication and inspection capability
of suppliers are defined and how they impact the quality of the final product. The
team decided to revisit the PO data collection instrument and analyze a few questions
of interest that had not been extensively discussed in the first phase of the project.
More specifically, the team decided to take a closer look at the supplier selection
process and the data provided by respondents about their practices related to supplier
selection and assessment.
The team received 108 responses from the PO instrument that was sent out to
CII member companies during 2013. Four questions were used to specifically analyze
the background of respondents and their supplier selection and assessment practices
(Table 1). Parallel to the analysis of the questions indicated in Table 1, the team
examined the literature (partially addressed in this paper) to identify important factors

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 Construction Research Congress 2016 – Pages 209-218

and results related to supplier selection and evaluation, and developed a process map
outlining how the EPC industry conducts the supplier selection process. These will
be discussed next.

Table 1. P.O. questions analyzed during second phase

Question
Q6. Indicate your role in the project (contractor, owner, supplier,
owner/contractor).
Q32. Did you include ratings of prior performance in determining whether
or not to select this supplier for this specific P.O.? (yes/no)
Q33. If yes for question 32, what characteristics of the prior performance
did you consider? (give a list)
Q40. What other practices that you believe are critical to your procurement
quality process were not identified or recognized by (previous) questions?
Explain.

PO INSTRUMENT DATA ANALYSIS

The analysis of the PO instrument indicated that 63% of the respondents were
EPC contractors, 15% were owners, 11% were suppliers, and 11% were
owner/contractor (i.e., owners who also take the role of building their projects).
When asked if they included ratings of prior performance in determining whether or
not to select the supplier for the specific purchase order being analyzed (Question
32), respondents were split almost in half as 51% did take into account ratings of
prior performance versus 49% who did not. Results were then analyzed to reflect the
responses considering the role of the respondent in the project (Figure 2).
Approximately 94% of the owners did not rate the supplier based on the prior
performance whereas 54% of the contractors did consider the previous performance
of the supplier. Suppliers were split equally, and the owner/contractor category
reported that almost 92% of their POs factored the supplier’s previous performance
into the decision. The low number of owners indicating the use of prior performance
ratings might be attributable to the low number of owners answering the survey.

100$
8.3$
80$ 45.6$ 50.0$
Percentage)(%))

60$
93.8$
91.7$
40$
54.4$ 50.0$
20$

0$ 6.3$
Owner$ Contractor$ Supplier$ Owner$&$Contractor$
Role)

Yes$ No$

Figure 2. Use of prior performance rating during supplier selection by role of

respondent (%)

Next, respondents whose answer was yes to Question 32 were asked about the
characteristics of the prior performance they consider (Question 33). Open-ended

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 Construction Research Congress 2016 – Pages 209-218

answers were received by the research team and were grouped into 21 different
characteristics as shown in Table 2. Traditionally, cost, delivery time, and quality are
among the most critical factors to the purchasers. Data also showed that quality and
delivery time are the most important characteristics for the purchasers followed by
experience and cost.
RT 308’s SMEs suggested that the data should be divided into four major
categories, namely: Procurement, Quality, Engineering, and Health, Safety &
Environment (HSE). As shown in the Table 2, Procurement consists of delivery
performance, experience and reputation, cost, service support, capacity and
competitiveness, financial stability, compliance and acceptance of terms and
conditions (T&Cs), and shop loading. Quality includes the quality of fabrication,
packaging and documentation, cooperation during production and order execution
and material storage and control. Engineering is related to technical engineering
project, performance, design capabilities, compliance with specification, document
control system and compliance to specifications. HSE includes safety, cleanliness of
facility and environmental health. A total of 57 entries (47%) were categorized by the
SMEs as Procurement-related, followed by 39 entries as Quality (32%), 18 as
Engineering (15%), and 8 as HSE (7%). In summary, Procurement and Quality are
the categories of prior performance that contain characteristics used most often to
select suppliers.
Finally, the researchers reviewed answers related to any other critical
procurement quality practices used by the respondents (Question 40). A sample of the
responses provided included:
• The complexities of coordination of inspections and deliveries based on the
amount of sub-suppliers.
• Criticality of item, quantity of items, PO value.
• Reliability, quality and reputation of supplier on previous jobs.
• Project reviews of suppliers weld procedures, welder qualifications,
inspection and testing plans (ITPs) and quality plans.
• Sub-suppliers, location of sub-suppliers, more planning of sub-suppliers.
• Budgeting of supplier quality, sub-tiers poorly identified, shipping.
• Financial stability of the supplier, verification of the suppliers’ ability to
produce the required products to the satisfaction of <company name>’s
technical specifications.
• Importance and value of <company name>. Contract flowdown clauses being
imposed on the supplier and consequently being passed on to eventual
supplier sub-vendors.
• Were proper notifications provided for witness/hold points? Were critical
issues identified during execution of witness and hold [points]?
• Compliance check, HSE Performance.

Table 2. Characteristics of prior performance taken into account

Reported characteristic Category Entries Percent

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 Construction Research Congress 2016 – Pages 209-218

Quality (Fabrication, packaging OVERALL) Quality 28 23

Delivery time (schedule) Procurement 21 17
Experience (Reputation, project reference, history) Procurement 12 10
Cost (Price, Price level for CO) Procurement 11 9
Technical, engineering. Project MNGT Capabilities Engineering 8 7
(Equipment and/or machinery adequate for type of
work performed, workers abilities)
Cooperation during production, order execution, PO Quality 6 5
execution, trending
Performance Engineering 5 4
Safety HSE 4 3
Service support Procurement 4 3
Quality (Documentation) Quality 3 2
Environmental Health HSE 3 2
Capacity Procurement 3 2
Competitiveness Procurement 2 2
Material Storage and Control Quality 2 2
Design Capabilities Engineering 2 2
Compliance with specification Engineering 2 2
Financial Stability (Status) Procurement 2 2
Compliance/Acceptance of T&C's Procurement 1 1
Cleanliness of facility HSE 1 1
Shop loading Procurement 1 1
Document Control System Engineering 1 1
Total 122 100

SUPPLIER SELECTION PROCESS MAP

Based on this analysis, a supplier selection process map developed by RT308
as shown in Figure 3, as an attempt to illustrate how this process works in the EPC
industry and also provide the basis for comparison between the practices used in the
industry at large and those used at the EPC industry. Bold numbers indicate a
reference to Figure 3. Similar to the map presented in Figure 1, in (1) the purchaser
identifies the need to select a supplier, and depending on whether or not qualified
suppliers are available (2), the purchaser will either release an RFQ (3) or prequalify
new suppliers (2b).
It is worth noting that suppliers that are not prequalified by the buying
organization, represented by the purchaser, will not be able to submit responses to the
RFQ. This is somewhat related to (3), (3.1), and (3.2) in Figure 1 as the purchaser
defines how much work will have to be done in terms of information gathering before
a supplier can be qualified and able to submit responses to an RFQ.

8
 Construction Research Congress 2016 – Pages 209-218

No$

1.$Purchaser$iden:fies$ 2.$Are$there$$ Yes$

3.$Releases$Request$ 4.$Suppliers$submit$
the$need$to$select$a$ qualified$
for$Quota:on$(RFQ).$$ responses$to$the$RFQ.$
Supplier.$ $suppliers?$

Yes$ 5.$Evaluates$
acceptable$suppliers$
by$conduc:ng$
2a.$Prequalify$new$ 2b.$Are$ technical$and$
supplier.$ $suppliers$prequalified?$ commercial$(T&Cs)$
bid$analyses$.$
No$

12.#Supplier# No$
not# 6.$Is$supplier$$
considered.# RFQ$acceptable?$$
END#

No$ Yes$

8.$Conduct$site$ No$
10.$Is$supplier$$ survey$and$
7.$Is$supplier$qualified?$
acceptable?$ assessment$as$
needed$

Yes$

Yes$

9.$Procurement$team$
11.#Purchaser#
nego:ates$with$the$
Issues#PO.#
supplier.$(Including$
END#
supplier$development)$

Figure 3. Supplier Selection and Evaluation Map for the EPC Industry -
Developed by RT308

In (4), suppliers submit responses to the RFQ, and the purchaser evaluates
acceptable suppliers by conducting technical and commercial (T&C) analyses (5).
This portion of the map in Figure 3 (5) compares to the analysis shown in Figure 1
and indicated in item (8). SMEs indicated that they initially verify if the RFQ is
acceptable (6) before verifying if the supplier is qualified for that specific PO (7).
SMEs highlighted that suppliers might be on the list of prequalified suppliers for
different jobs, but need to be vetted for different types of POs and products to be
supplied. Next, if a supplier is qualified, the Procurement team negotiates with the
supplier (9), similarly to item (10) in Figure 1. If the supplier is not qualified, a site
survey and an assessment are conducted (8), and these activities relate to items (9),
(9.1), (9.2), and (9.3) Figure 1. If the supplier meets the survey and assessment
requirements the Procurement team follows up with the negotiation (9), if not the
supplier is not considered and the process ends (12).
In general, the maps shown in Figure 2 (industry at large) and Figure 3 (EPC)
are similar in the way they conduct the process and do their due diligence to select
suppliers. However, the main difference is that the SMEs indicated that early in the
process they look for prequalified suppliers already vetted by their organization or the
owner’s.

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 Construction Research Congress 2016 – Pages 209-218

CONCLUSION
The analysis of the literature reviewed when contrasted with the results from
the PO instrument display similarities in terms of what matters to EPC organizations
and the industry at large, as displayed in the Table 2. However, despite the fact that
supplier selection criteria are important in the supplier selection process, previous
performance of suppliers is not considered by a large number of EPC firms.
Procurement (47%) and quality (32%) are the categories of prior performance that
contain characteristics used most often to select suppliers. These are characteristics
used to perform the analyses outlined in the supplier selection map shown in Figure 3.
More specifically, the study revealed that quality and delivery time are the
most important characteristics of prior supplier performance considered by EPC
purchasers, followed by experience and cost. Even though suppliers indicate the need
for more timely and frequent feedback coming from evaluations, so they can better
serve their customers, the information generated by the supplier selection and
evaluation process is not routinely shared with suppliers, as documented in RT308’s
report, for confidentiality purposes and even fear of litigation (Walsh et al. 2014).
Finally, the comparison between the two maps shown in Figures 1 and 3, developed
respectively based on information collected from the literature and RT308, serves as a
validation for the data collected from SMEs as the activities outlined in both are
similar.

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Data Analysis for Supplier Quality Management Practices within the
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Kannan, V. R., and Tan, K.C. (2002) "Supplier Selection and Assessment: Their
Impact on Business Performance." J. of Supply Chain Mgmt., Nov., 11-21.
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Monczka, R. M. Handfield, R. B., Giunipero, L. C. and Patterson, J.L. (2016).
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Neuman, Y., Alves, T.C.L., Walsh, K.D., and Needy, K.L. (2015) “Quantitative
Analysis of Supplier Quality Surveillance Practices in EPC Projects.” Journal
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Prahalad, C.K. and G. Hamel. (1990). “The Core Competence of the Corporation,”
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Tommelein, I. D., Walsh, K. D., and Hershauer, J. C. (2003). Improving Capital
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