13 March 2014 | Gurjit Degun
Last month, the UK government introduced draft guidance for procurement, encouraging public sector bodies to implement one of three models. It also called on construction firms to make sure that their suppliers are prepared for the government’s £24 billion investment to improve Britain’s roads (see p11).
In January, the Welsh Government introduced ‘Project Bank Accounts’ – a faster way of paying suppliers working on public sector construction projects. The Scottish Government has also been working to improve construction procurement, by taking on recommendations from an independent review last year.
Ciaran Molloy, policy and public affairs officer at the Construction Industry Council, explains there is no “sudden interest” but “controlling procurement costs is an important element in the overall strategy of cutting down the costs of construction”. Instead, he explains, the draft guidance is “the latest in a series of moves to promote more innovative procurement methods”.
Alan Muse, director of built environment professional groups at the Royal Institution for Chartered Surveyors (RICS), explains the government is trying to simplify construction procurement. He believes the Cabinet Office has picked up “recurring themes” that show best practice from the private sector and past public sector procurement.
“The recurring themes are things like early contractor involvement, early supply chain engagement, designing to cost rather than costing a design – so the client needs to be very informed about the cost of the project, and a whole-life approach to procurement so it’s not just awarding on capital cost,” explains Muse.
He thinks the models are a precursor to other government strategies such as building information modelling. “The procurement models are a necessary link to other issues which will make them work better because they’re more collaborative and integrated,” he says.
A push to introduce guidelines can often be seen as an attempt to remedy perceived problems. It’s no secret that the construction industry has issues with late payment and suicide bidding. The CBI says that the public sector sets “very high hurdles” and some businesses find it difficult to work with the government. And the Federation of Master Builders (FMB) has long been lobbying for a fair deal for small businesses. Central government and the Local Government Association have recently agreed to a number of its recommendations, including using a single set of PQQs.
But Antony Faughnan, head of operations at EC Harris, believes the interest is to do with the economy. The UK construction industry has experienced strong growth – the Markit/CIPS UK Construction Purchasing Managers’ Index indicated expansion for nine successive months in February, and its sharpest rise since 2007.
“My sense is that perhaps the focus has been on areas like banking but as the economy improves and we look to stimulate growth, this is now an opportunity for construction to show what it can do,” says Faughnan. Many of the challenges that are being faced are simply a product of moving out of a fairly prolonged time of recession, with the resultant reduction of stock levels, workforce numbers, and moving in to a growth phase, albeit still patchy.”
Molloy also takes note of the economic crisis but says it has led to reports of an increase in “single stage design and build tendering where designs are worked up to an intermediate level before tendering for a contractor, which contractors often feel operates against them”. He adds that this is now changing with some “major developers moving towards two-stage tendering”.
Muse says there are “fundamental issues” in construction procurement because of the complexities. He says it can be a long process, which is “often promulgated on information that is not necessarily complete”.
“People need to recognise the uncertainty inherent in construction procurement, hence the need for risk management and an honest appraisal for risk transfer and best value so it’s not always awarding to lowest price,” he adds. “The interpretation of the brief and what you’re offered for the price can vary and evaluation of that is often more complicated.”
Julia Fancourt, head of procurement and supplier management at the Coventry Building Society, has 10 years’ experience in the construction industry. Her biggest area of concern is with late payments. “The biggest pain for small companies is cash flow because when they do a job they will usually have to pay for materials upfront. I’ve heard of some cases where companies have had delays of up to 120 days.”
She does not think there is a real need for guidance from the government but says it will not do the industry any harm to follow a set of rules.
One former construction buyer, who wished to remain anonymous, goes further, and believes there is a real lack of trust in the sector. “Construction teams have one drive and that’s to make money,” he tells SM. “There isn’t much fat to be milked out of margins. The actual business itself is very inefficient.
“I think what the government is trying to do is to improve the efficiency of the overall project, so the costs come down and the contractor has his 2 per cent margin. But most of these methodologies allow the main contractor an opportunity to drive out more margin.”
He adds: “There is no such thing as open book. We used to let contracts on one project but we’d also let contracts on other projects and say, ‘add the money onto project A’ – the open book project – ‘and knock the money off project B’ the competitive tender we really needed to reduce the price of.” He believes this to be normal practice in the construction industry, having only left it just over two years ago. Unsurprisingly, he does not think the government’s guidelines will help.
So what can buyers do to improve the situation? Sarah McMonagle, policy and public affairs manager at the Federation of Master Builders (FMB), says buyers have a great responsibility in driving best practice in construction procurement. “They can set the tone and culture,” she says.
The FMB is also calling on buyers to give feedback to unsuccessful bidders within 15 days when requested. McMonagle says that a lot of businesses do not know that is the law, and understands procurement teams are being squeezed so they cannot find the time to respond.
Diana Montgomery, chief executive of the Construction Products Association says her members regard forward planning by buyers very important. “The supply chain should have a good discussion about where and when materials are needed, and be able to plan things like haulage,” she says.
Faughnan says having contracts that encourage early professional engagement and greater collaboration is important. “Consistency is also helpful for planning and investment decisions,” he explains. “Completing projects on time and on budget is fundamental to building a strong brand for UK construction.”
The government’s proposed procurement models are:
• Two Stage Open Book: the bidding stage is followed by a collaboration between the successful bidder and the client to build up a proposal before the contract is awarded.
• Cost Led Procurement: the client “clearly states the outputs and outcomes in a strategic brief and industry responds by proposing solutions and committing to a price and a set of rules under which that price can be achieved”.
• Integrated Project Insurance: the client and selected partners form an “integrated project team” to carry out the project, fostering joint ownership and eliminating the “blame/claim culture” by limiting risks for members.