A shift towards collaborative procurement models in the construction industry is leading to savings, improved designs and potential profit rises, says Noah Maheya.
There is growing realisation among public sector organisations of the need for the long-term sustainability of contractors, in the wake of recent troubles with outsourcing and construction works providers such as Carillion and Interserve.
Short-termism focused on immediate gains for contractor performance failures that essentially go after contractors’ profits is being tempered by a more collaborative mindset.
In the construction industry, innovative collaborative procurement models such as two-stage open book, cost-led procurement and alliancing (with the associated integrated project insurance) are being trialled to move away from traditional adversarial client-contractor relationships. While these are not for every project, these models refocus the lens on win-win collaborations.
Two-stage open book sees an integrated project team consisting of the client, design and cost consultants, the contractor and subcontractors appointed on an open-book basis at or before the Royal Institute of British Architects plan of work stage 3 (Developed Design) or stage 2 (Delivery Strategy) of the Office of Government Commerce gateway process.
The team will work collaboratively on provisional contracts during the pre-construction phase. At this stage a firm price or target cost for the construction phase is set on an open-book basis and an authority to proceed granted to the team on a timetable.
Under cost-led procurement, the client engages design and cost consultants, the contractor and supply chain members early in the project to leverage their experience to set a cost ceiling for the project. Projects are cost-focused and should not proceed at any point where forecasted project outturn cost is greater than the budgetary amount.
The successful team is selected on demonstrable ability to provide innovative design solutions and work collaboratively. A key feature is a commitment of the team to beat the project cost ceiling, and to use previous experience
of the team members to promote a continuous improvement culture.
The alliancing model joins the client and
key members of the supply chain in a truly collective ownership of risk, decision making and project outcomes. The interests of the alliance are aligned on a legally enforceable basis, with collective insurance covering public liability, latent defects and financial loss.
There are obvious complexities in adopting these models, not least running a tender process compliant with the Public Contracts Regulations (PCR) 2015. There should be flexibility in the pre-construction phase contracts. Various forms of contracts are available to handle these complexities.
A change in behaviour is also required from the integrated project team to move away from a silo mentality in favour of a collaborative open-book approach underpinned by the following mutual efforts:
- Risk management and right-sizing project risk contingencies
- Programme management to ensure realistic timescales
- Budgetary management so there is an adequate budget for the project
- Improvements to strip out inefficiencies driven by gain share mechanisms that reward delivering under budget
- Lessons learned from one project are cross-pollinated.
When set up correctly there are numerous benefits to adopting the procurement models:
- Procurement savings for the client and a reduction in bid costs for contractors
- Improved designs due to the involvement of works contractors
- Robust risk management instead of relying on contractors to build risks in their pricing
- Wider stakeholder consultation
- Improved viability of the supply chain
- Improved opportunities for SMEs to become embedded into the integrated
- Contribution to the government soft landings where clients are supported by the integrated project team into the operational phases of projects.
Noah Maheya MCIPS is a commercial and procurement consultant working with public sector organisations.