Support Tool for Effective Procurement Strategies (STEPS)

STEPS addresses procurement contexts in which the buyer must specify, design, or engineer the output before it can be built, manufactured, or delivered. This design-led nature fundamentally differentiates bespoke outputs from routine purchases of standardised goods and introduces additional challenges related to uncertainty, risk allocation, market engagement, and incentives.

Public infrastructure illustrates these challenges well: projects may pursue different—and sometimes competing—objectives, such as speed of delivery, cost or schedule certainty, risk sharing, or the stimulation of innovation. Achieving these objectives requires aligning them with the characteristics of the project, the structure and capacity of the supply market, and the buyer’s own institutional and technical capabilities.

STEPS supports this alignment by providing a structured analytical process grounded in operationalised economic theory. It helps buyers assemble evidence, clarify objectives, and make trade-offs explicit when selecting among procurement and delivery options.

By shifting decision-making from implicit judgement to transparent, evidence-based analysis, STEPS also reinforces the objectives of related OECD work, including improving value for money, mitigating risks such as bid rigging, and strengthening integrity in public procurement.

How STEPS works is illustrated through a series of short videos, best watched in sequence:

Video 1: Introduction to infrastructure procurement

Video 2: Understanding the STEPS methodology

Video 3: Steps 1-3 - Understanding your project

Video 4: Steps 4-6 - From understanding to action

For readers with limited time, the methodology consists of six sequential steps, which are iterative in depending on the challenges met in elaborating the procurement strategy options and trade-offs, they can be repeated or adjusted.

The first three are the preparation of the evidence-base, the last three represent the mapping of procurement strategy options and trade-offs.

1. Project Breakdown and Work Package Identification: The project is divided into technologically distinct work packages using existing industry standards if available or throughexpert guidance. Work packages speak to the highest level of market specialisation (there is a firm specialising in type of work “X”), avoiding trivial financial components.
2. Network and Standalone Work Package Analysis: Work packages are categorised as either standalone or part of a recurring network. For instance, maintenance work packages tied to existing infrastructure networks can be analysed for potential economies of scale and trade-offs.
3. Economic Attribute Analysis: Utilising Transaction Cost Economics (TCE) and Resource-Based Theory (RBT) as complements. The work packages are assessed based on:
   • Supplier switching cost (asset specificity): The uniqueness of investments tied to specific transactions. This characteristic is related to hold-up (very high bargaining power) from the supplier during the execution of his contract.
   • Uncertainty: The extent of unforeseen risks impacting contracts (known unknowns).
   • Frequency: Regularity of work package demand.
   • Rarity: low count of potential suppliers.
   • Costly-to-imitate: A complementary characteristic to Rarity, costly-to-imitate relates to unique market capabilities (e.g. technology or skills) that can lead to competition failure.
   • Phase 1-3 already involves market engagement at the work package level. The capacity of potential suppliers to deliver a particular scale and order book status for the near future is also investigated.   
4. Make-or-Buy Analysis: Work packages are evaluated to decide whether they should be insourced or outsourced. Outsourcing is preferred unless significant market failures or hold-up risks are identified, where insourcing becomes more efficient.
5. Contract Scoping (Work Package Bundling): Work packages are bundled into contracts based on their economic characteristics. The bundling aims to minimise project interfaces, improve contract completeness, and leverage synergies across project phases. The economic characteristics will reveal whether including a particular work package in a bundle could increase the chances of a procurement failure (e.g. including a work package which has one supplier in a bundle with other work packages, that have many suppliers).
6. Delivery Model Assignment (The Nature of Contractual Relationships): Risk allocation fit at the work package level is investigated (e.g. not applying a lump sum pricing to work packages with a high level of uncertainty). Suitable incentive mechanisms for each work package bundle are determined. These include for example:
   • Price-based competition delivery models and different payment mechanisms (e.g. rate-based, lump-sum, etc.) where work packages are exhibiting low uncertainty.
   • Collaborative delivery models contracts for work packages requiring joint problem-solving due to high uncertainty.

At present, the STEPS methodology has reached a level of conceptual maturity but has not yet been digitalised. The method has the potential to interface with a broad category management system and could over time accommodate a range of AI applications, including interfacing with existing solutions in the space of Quantitative Schedule Risk Assessment.

The OECD will continue to deploy the methodology in real projects through capacity building activities, demonstrating its value and evolving it with practical experience gained on projects or any new theoretical or empirical advances that may be relevant to the method.

Over time, the OECD envisions the establishment of a group of practitioners and academics, which would help to evolve the STEPS standard further. 

STEPS is an operationalisation of the insights of economic theory. The methodology behind STEPS was developed based on the work of dr. Adrian Bridge, dr. Pauline Teo, as part of their research at the Queensland University of Technology (QUT) in Australia, and dr. Dejan Makovšek, as part of his research within and outside of the OECD.  

The conceptual origins of the approach go back to prof. Adrian Bridge and his 2004 paper with prof. Clem Tisdell – The Determinants of the Vertical Boundaries of the Construction Firm.

The OECD’s 2021 pilot study in Norway represents the formal “launch” of the OECD’s STEPS methodology, which also documents where it departs from the original QUT work.