Builders stumble over the price block

28 November 2002
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28 November 2002

Purchasers in the construction industry have been accused of focusing too much on cost. David Arminas asks whether the criticism is justified

Procurement professionals in the construction sector are being asked to rethink how they carry out their duties and to focus on the longer-term costs of purchasing building work.

Professor Adrian Long, the new head of the Institution of Civil Engineers (ICE), has started his term in office by throwing down the gauntlet to purchasing and supply chain professionals.

His comments could be explained as being those of someone wanting to make an impact on his first public outing as president of the ICE.

But his remarks coincide with a report by Civil Engineering Contractors Association (CECA) that also calls into question the degree to which best-practice procurement methods - partnering, in particular - have been adopted.

Partnering, with its emphasis on transparency of activities, such as accounting and contracting as well as teamwork and collective responsibility for project delivery, is seen as a way to make the sector less adversarial. The goal is to increase supply-chain efficiencies to keep the client's cost down.

Long's comments and the CECA's call for a charter setting standards for behaviour and practice raise the key question of whether, after a decade of focusing on changes to procurement methods, the profession is any better off. Has it changed, in what way, and where are improvements headed?

The quest for best practice and improved supply chain relations began in 1994 with the groundbreaking report by Sir Michael Latham, Constructing the Team, a major review of procurement and contracting in construction. A central recommendation was that tenders should be evaluated on quality as well as price.

Next came Sir John Egan's 1998 report, Rethinking Construction, which proposed an industry-wide collective responsibility for ensuring procurement throughout the supply chain improved.

Accelerating Change, a consultation paper by the Strategic Forum for Construction (SFC), was released in September. This attempted to set targets and promised to measure how the major issues were received.

The issues, which until now have been measured mostly anecdotally, include partnering, payment on time, use of the courts to settle disputes and adoption of e-auctions.

Partnership problems

Take-up of partnering has been less than hoped for as construction tries to shed its adversarial supply chain relations, according to the Construction Industry Council (CIC), a representative forum for the industry's professional bodies, research organisations and specialist trade associations.

For its part, the CIC is to produce a survey of professional services including contractors and consultancies, and it will have information on how popular partnering has been.

If there is one stumbling block to beginning discussions about partnering, it is that late payment remains endemic and construction is one of the worst sectors for it in the UK. This must be brought under control before people are willing to talk about partnership, according to one industry consultant. If this is overcome, fewer disputes are likely to be settled in court.

In many sectors, online reverse auctions have been said to ruin suppliers' relationships with clients as their margins are driven down in an effort to get the lowest price. This has been most problematic with construction's specialist subcontractors, such as heating and ventilating firms.

Last spring, the Heating and Ventilating Contractors Association was advising its members to boycott e-tendering in protest at clients' use of reverse auctions.

Despite these obstacles, it would be wrong to conclude that nothing has changed.

The fact that a supply chain issue is one of the first things the new president of the ICE chose to speak about shows it is high on the agenda.

Note, too, that the CECA is a contractor organisation whose services are bought by procurement professionals. The fact it is a supplier's group that wants to establish better supply chain relations shows that the message is getting through.

What it needs now is a major benchmarking survey, so the SFC is commissioning a report to "provide a sound basis for the measurement of change", according to Accelerating Change. It will include public and private-sector clients, contractors, and other suppliers, totalling around 1,300 respondents.

When the results of the forum's report are published, there can be a more informed discussion on what areas have been improved and which ones still lag behind.

SMnov2002

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