Last week I went to a presentation at the Centre for Construction Innovation to hear Paul Meigh talk about the Government Construction Strategy. Paul is the deputy director for construction and efficiency reform in the Cabinet Office and introduced himself as the “the officer responsible for publication of the paper”. (The Chief Construction Adviser, Paul Morrell, is the architect behind the paper and Paul indicated that many have contributed to its content including industry, private and public representatives.)
The strategy document follows a flurry of papers from the government over the last few months. The Infrastructure Cost Review published in December 2010 envisaged potential savings of £2 -3 billion per year from reducing the costs of delivery of the UK’s economic infrastructure projects and programmes. The Implementation Plan published in March 2011 set out the measures to be taken by Government and industry to realise those savings. The McNulty report relating to the rail industry was published in May 2011 and covered much of the same ground.
This all sounds a bit heavy, but in fact the papers are not as long as you would expect and are well worth a read.
Strategic planning for a predictable workflow
Construction is an unusual industry, the main differences from other fields being the extent to which projects (and project teams) are a one-off. Whether and when any individual project will proceed is often unpredictable. Stop-start investment programmes and the lack of a visible and continuous pipeline of forward work are common. This is counter-intuitive, given the long lead-in times before work starts and the long operational life of the buildings and infrastructure constructed. The result is that we have an industry that invests tactically rather than strategically.
The government hopes that a more predictable workflow for individual contractors will result in a strategic rather than a tactical approach to investment on the their part. You cannot make innovative long term investment decisions if you are constantly reeling from one bidding opportunity to the next.
So the plan is to provide improved transparency and certainty around the infrastructure forward programme and to group projects into more efficient longer-term programmes. There will be a quarterly rolling two-year forward programme of public infrastructure and construction projects.
This just sounds like more frameworks, but the idea is to apply this approach to all procurement methods.
In fact, there was a lively discussion about frameworks during the presentation. One of the findings on the McNulty report was that new entrants to the sector do not have an easy time. The rail supplier assurance process was found to be cumbersome, and gaining recognition as an established and “approved” supplier is seen as a barrier to entry by suppliers. Accelerating the introduction of a new Supplier Assurance Framework was recommended to reduce the cost and time to assure new suppliers.
One suggestion (and I have seen this in practice) is that framework agreements should include the ability to place up to 20% of the work “off-panel”. This would enable new entrants to bid for work and their performance could be used to benchmark the performance of the framework contractors. A criticism of the framework system is that although it encourages innovation at inception, the “guaranteed” workflow results in low margin bids which then leave little room for innovation or “wriggle room” when things don’t go quite as planned.
Frameworks and partnering can work if based on a long term business relationship, but my experience is that if partnering is simply a statement in a contract – paper promises – then it is much less likely to succeed. If things go badly, contracting parties can be quick to revert to adversarial methods. Low margins and just in time or inadequately resourced project management will exacerbate this problem.
More haste less speed
How often do we hear of project sponsors or procurement teams moving from “not at all sure about this” to “why haven’t we done it yet” in less than a nanosecond? Many of the government papers look at this problem, which manifests itself in procurement processes being rushed, projects being started before the design is sufficiently complete and an excessive focus on a lump sum price instead of the whole life outturn cost. This is especially true during recessions. One of the speakers at the event was from a public sector procurement department. He said that during the last recession tender prices fell considerably but the outturn costs (even to practical completion, never mind whole life) actually increased.
We hear a lot in the construction press about so-called suicide bids. Building recently reported a RICS survey finding that over half of consultants have seen clients accepting a “sub-economic tender” in the knowledge that it was “potentially unviable”. To their credit, two thirds of those responding had advised their clients not to accept such bids. There must be an ethical issue about accepting a below-cost bid without reporting internally that this is dangerous. Even in the unlikely event that the outturn cost does not exceed the bid, there must be a risk of poor quality work or even the contractor going bust half way through the project.
There is a lot to be said for standardisation, but within limits. We don’t want every school in the country to look exactly the same, but there can be little objection to standardising things like light switches and internal doors.
Standardisation can also apply to procurement methods and it is proposed that the best projects are used as a reference point and a catalyst in achieving best practice. Again this is fine in theory, but I can’t help having visions of Jim Hacker in the Department of Administrative Affairs debating with Sir Humphrey Appleby whether procuring departments should be allowed to amend NEC3. The fact is that projects are not homogeneous. Standardisation is good and useful, providing it does not become an end in itself.
Standardisation can also deal with social issues which are more difficult to achieve if left to individual participants. For example, there are clear economic and social benefits from employing apprentices on projects but these benefits manifest themselves at the macro scale. The government can easily see that requiring contractors to take on apprentices will reduce youth unemployment and they can factor this into the overall savings.
Something new or same old same old?
Paul Meigh accepted that there was nothing “desperately new” in the proposals. They are a recognition of good practice – things that we all knew we should be doing anyway – but with a number of innovations.
The difference is the need to implement them, as opposed to an aspiration. How many times do we sit down at the beginning of each financial year and set out what we intend to do and what we need to change? We might even go to an away-day and write it all out on flip charts. Then we carry on just as before.
Paul’s point was that the government needs “to catalyse a step change across clients and industry”. The proposals are “not about taking advantage of the current situation”. The idea is to reduce inefficiency and to “stimulate growth by enabling more to be constructed with the funds available”.
Let’s hope he’s right.