Are relationships going, going, gone?

14 March 2002
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14 March 2002

A growing number of suppliers are opposed to the use of online reverse auctions by contractors in the construction industry. But, writes David Arminas, a boycott would be counterproductive

Major supplier organisations, including specialist subcontractors for complex machinery and assemblies, are lining up against clients that use e-auctions.

At stake, say the suppliers, are the principles laid down in the past decade and first proposed by Sir Michael Latham in his 1994 report Constructing the Team, a review of procurement and contracting in construction.

Among Latham's many recommendations was that "tenders should be evaluated on quality as well as price". He also said that clients are the core of the process and their needs must be met by the industry.

Next came Sir John Egan's report Rethinking Construction in 1998, which proposed industry-wide collective responsibility to improve performance.

Most players in the industry agree that their sector has been beset by major problems of poor budgetary control, project delays and a sad reliance on the courts to sort out soured supply chain relationships.

While e-commerce is not a panacea, the belief is that it can help increase supply chain efficiencies by saving clients' and suppliers' time and money. But as our news story shows, this great hope for efficiency has run up against a brick wall.

Suppliers and clients have come around to the Egan agenda of long-term stability in supply chains built through trust. There is a growing willingness to discuss closer relations for design collaboration, joint cost saving moves and other programmes to assure a long-term partnership.

E-auctions put all this in jeopardy, says Alan Crane, retiring chairman of the best practice umbrella organisation the Movement for Innovation.

The Egan agenda is not lost on the major e-marketplaces in the industry. Both Asite and BuildOnline say they won't offer e-auctions as they fly in the face of best practice for improving supply chain relationships.

Suppliers say clients can't have it both ways. Clients can't move towards long-term relationships where quality and performance of product and service are key indicators for successful tendering, only to then decide they will e-auction some area to save money.

Nonetheless, clients must maintain and improve their corporate performance and, on the face of it, e-auctions have an obvious appeal. Purchasers falling back on the blunt instrument of e-auctions are faced with an ethical dilemma, according to the Confederation of Construction Clients (CCC). It is not the tool that is the problem, but the circumstances in which it is used.

The CCC is not against e-auctions in principle, as long as they don't encourage a client to end a long-term relationship. To put something up for e-auction if it has previously been part of an agreement with a supplier, especially a preferred supplier, invites problems, notes the CCC.

Its general policy is that clients will act ethically to get the best solution, and that doesn't mean trying to get the supplier to shave their price irrespective of the ability to supply and meet the client's objectives.

Suppliers in many sectors have complained about e-auctions, but there has been a grudging acceptance of them. According to a study late last year by Warwick Business School, 90 per cent of automotive suppliers did not like e-auctions, but there was no call for a boycott of clients using them.

Unlike the car industry, construction has a much more fragmented supply chain, with many trade and professional organisations representing group interests. There are many major construction clients and for a supplier to withhold business with one still leaves its options open with many others.

Purchasers must use e-auctions judiciously and decide whether short-term financial gain precludes a much more profitable long-term relationship.

Suppliers, too, must bear in mind they have a responsibility to maintain their clients' corporate health and not tie their hands when it comes to use of e-auctions.

The sector will know it is on the right track when other sector bodies, such as aerospace groups, are interested in using construction as an example of best practice.

SMmar2002

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