Itemized sourcing: everybody else is doing it, so why can't we?

Itemized sourcing is the new mantra in the business. Basically, it means that you should split the BoP (Civil and Electrical works) in as many lots as possible, in order to achieve substantial savings. This strategy is the opposite of the “single subcontractor” approach, where you give the full package to a unique contractor or at least few of them.

What are the benefits of itemized sourcing? In addition to the possibility of achieving a lower price you also have more control on the purchase of critical items (for instance the main transformer).

Additionally, our friends in Procurement (for instance my role model Ignacio) can create PowerPoint slides showing huge savings to the rest of the organization.

The untold story is that there is no free lunch. What you are achieving is simply a different risk profile for your project: if the truck driver destroy your transformer against a bridge that is a few centimeters too low or if the foundations are build in the wrong place (believe me, both example are from real projects) you will have an hard time to recover your losses - because you purchased the transformer by yourself, or because you have in your pocket many small contracts with low liquidated damages.

Don’t get me wrong – I understand that sometime there is no real alternative to make the project fly. However, before you embrace the itemized sourcing of the BoP as the solution for all your problems, you should keep in mind the additional work (try to negotiate 10 contracts in parallel) and risk that you are taking on board.

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About Francesco Miceli

Hello! My name is Francesco and I'm a civil engineer specialized in EPC (that is, "turnkey") wind farms projects. I'm currently based in Hamburg, Germany and I'm developing several interesting project all around the world - southern Europe, LATAM and various other countries. If you want to contact me please don't leave a comment in the blog (I don't check them very often) - you can use the contact form. You can write me in English, Spanish and Italian. To find a (somewhat concise) description of my non-wind business activities you can visit my webpage - If you want to know more about my work, here you can download my CV - Hope you like the blog! Francesco

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