Let’s get radical

It’s all very well for high-profile commentators to call for increased investment in infrastructure to kick-start the wider economy - most of us in construction will support that idea.

The big question is, will the procurement of this investment kick-start or cripple our own industry?

In the current market, where firms are desperate for work, it is tempting for clients to push for ever lower prices and we see this justified by the need to achieve maximum value for money. However, by focusing almost entirely on the capital cost of construction, the opportunity is lost to deliver long-term value for clients and the industry alike. The pressure to constantly deliver the lowest price squeezes everyone and is destroying our supply chains. This approach is short-sighted and, as well as seriously harming our industry, is also harming the long-term interests of clients.

The government’s Construction Strategy states: “The principal barrier to reduced cost and increased growth is the lack of integration in the industry, compounded by a lack of standardisation and repetition in the product.” The previous OGC guidance, Achieving Excellence In Construction Procurement, was published back in 2007 and argued, with limited success, for public sector bodies to fully embrace partnership working.

Despite this, we all too often still see public clients developing projects traditionally to the point where they can be tendered competitively and expensively between five or six main contractors. Each main contractor relies on competitive pricing from within its supply chain. The principal deciding factor in which team is successful is usually lowest cost. Very rarely is a project awarded on the basis of whole-life cost or local economic benefit. Too often, we lose the potential for ensuring that local people and SMEs benefit from investments being made
in their areas.

In building, the cost of actually designing and constructing a facility is tiny in comparison to the costs involved in maintaining and operating it. Nevertheless, the decisions made at the outset can have enormous consequences for the operational cost-effectiveness of the facility produced. Clients therefore should be able to establish teams at the outset which can focus on delivering improved service outcomes and maximising long-term value for money - including local economic benefits.

When we’re trying to make savings in the order of 20% or more of a public sector body’s revenue budget, we will not do this simply by sharpening pencils during procurement

The almost inevitable result of not doing this is likely to be an increase in disputes as people try to recover margins lost in bidding, and a decrease in quality as people try to cut corners.
We have the evidence from existing partnerships to show that working collaboratively produces better outcomes than working traditionally. For our supply chains to invest in innovative ways of working, using BIM, standardisation and off-site manufacture, they need to know that their investment will generate real returns and this can only happen if they can see a
pipeline of opportunities ahead of them at predictable prices.

We can see that, when we trust our supply chains, they can deliver efficiencies which help us to deliver long-term value. There are some excellent examples of best practice around the country where collaboration has been adopted as the norm and where we have seen year on year improvements in cost, quality and customer satisfaction.

When we’re trying to make savings in the order of 20% or more of a public sector body’s revenue budget, we will not do this simply by sharpening pencils during procurement or by tweaking the specification and battering the supply chain. We have to do things radically different and more enlightened procurement must become the rule rather than the exception.

Ken Gillespie is group managing director of construction at Galliford Try