Why 'Should Cost Models' are vital to public procurement

9 December 2020

Public construction projects should use “Should Cost Models” (SCMs) to ensure better understanding around whole life costs and risks, according to new guidance. 

The Construction Playbook, launched by the Cabinet Office, highlighted the use of SCMs as a key tool in benchmarking processes when delivering public infrastructure projects.

The guidance is the result of collaboration between the public and private sector and aims to improve how public infrastructure projects are assessed, procured, and managed.

Benchmarking data from past projects around costs, schedule, carbon emissions and outcomes at each stage can help generate a SCM.  This will “forecast what a project or programme should cost over its whole life, including both the build phase and the expected design life”, said the playbook.

It added that “all projects and programmes should produce a SCM”, but the level of investment in a SCM depends on the size of project and “complexity and significance of the procurement”.

This model is expected to inform engagement with bidders, as well as commercial strategies around “incentivising the supply chain to focus on whole life cost”, and bring “more realistic budgets” due to better understanding of risk and uncertainty.

With a focus on bringing “industry reform through buying actions”, the playbook highlighted 14 key policies, including early supply chain improvement, contracting on an outcome-based approach, effective contracting, and risk allocation.

The guidance covers keeping bidding costs down, including ensuring “procurement processes are of proportionate duration and effort to the size and complexity of the contract opportunity”, in order to make public contracts more accessible to SMEs and prevent the “risk of minimising the pool of bidders and stifling competition”.

The playbook is mandated for central government departments and public bodies on a ‘comply or explain’ basis and the government has committed to a multi‐year implementation programme, recognising that there is no one‐size‐fits‐all approach.

The playbook referred to the events of the Grenfell tragedy of 2017 and the building safety guidance outlined by Dame Judith Hackitt’s report Building a Safer Future, adding that projects “need to be procured and contract managed in a way that ensures regulatory requirements are consistently achieved and the safety case can be demonstrated at every stage”.

Alex Chisholm, chief operating officer for the civil service and permanent secretary at the Cabinet Office, said: “From building schools, hospitals and prisons, to major infrastructure and the wide range of construction, engineering and other works projects and programmes undertaken by the public sector, we are committed to delivering better, faster and greener solutions that support our recovery from the Covid‐19 pandemic and build the economy of the future while improving building and workplace safety.”

He added that up to £37bn of public contracts across economic and social infrastructure will be brought to market over the next year.

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