Procurement: Following the fashions

There is a perception among some that until relatively recently “traditional contracting” was all there was and that most projects were contracted on a single-stage lump sum tender basis. This is wide of the mark - two-stage tendering, cost reimbursement, partnering and package deals, to name but a few, have been used for decades.

Nevertheless, the government believes there has been insufficient change and as a part of its strategy is committed to streamlining its procurement. What might this mean?
In the sixties, few practitioners thought in terms of procurement - it was simply a matter of preparing documents. This over-simplifies the situation but then the concept of procurement was unstated. To criticise procurement it is necessary to define it. JWE Masterman’s Introduction to Building Procurement Systems refers to defining these systems by apportionment of risk, level of information when entering the contract, means of reimbursement and the interaction between design and construction (sometimes funding and operation). Such categorisation helps but it is incomplete.

The procurement strategy is a significant contributory factor to the success of a project but an inappropriate strategy is not the only reason for poor project performance. Poor management is the main problem and clients are just as likely as the supply chain to fall short - something governments recognised many years ago.

The precise nature of the changes observed in the RICS’ Contracts in Use surveys are difficult to express because of our imprecise definitions. Procurement is also much wider and includes concepts such as PFI and frameworks. However we can get a feel of the changes in the way work has been procured. For instance between 1989 and 2007 traditional lump sum contracting had, by value, shrunk dramatically, whereas design and build and partnering had grown. In 2007 design and build and the traditional approach were each taking about a third of the market by value. By contrast if one looks at the numbers of projects, one sees a much smaller drop in traditional contracting.

During this period both design and build and partnering had grown in number but at a much slower rate than when compared by value. But possibly the greatest change is the much wider appreciation of the need to identify clearly what the client wishes to achieve before selecting contractual frameworks.

The drop in the value of contracts using management contracting and construction management is surprising in an ‘age of collaboration’

By number, the other procurement routes, with the exception of target cost (a rise from 0 to 4.5%), show little change. Clearly, traditional approaches are in decline but much more so on larger scale projects. The principal shift has been from traditional to design and build. This shift is most notable at the higher end of the project scale where design and build accounts for over 50% of projects in the £10-50m value range.

Management-oriented procurement systems have during the past 20 years come and gone, with an occasional very large project using such an approach. The significant drop in the value of contracts using management contracting and construction management is surprising in an “age of collaboration”. In the last few years partnering projects have declined in number but increased in value.

When analysing procurement patterns, it should be noted that the volume of repair work has hardly moved during a 20-year period, whereas new works rose by around 25%. The patterns that emerge for new work indicate a greater change in approach at the higher end of the market and that much of that change is transient. This may suggest there is an element of following fashion with little or nothing gained. It may mean that change at the top of the market, particularly in the public sector, occurs because results are not as expected. If so, it would not be surprising because securing the required management (including client management) for major building works is more difficult.

The government’s Construction Strategy, if implemented as intended, could in its search for better value (especially through adopting BIM) significantly change aspects of government procurement. Earlier this year, the Cabinet Office issued a paper, Government Construction - Construction Trial Projects, which sets out three “new” procurement models, namely cost-led, integrated project insurance and two-stage open book. The latter is being trialled using the JCT-CE contract, which also could readily have been used with the cost-led approach. However, although construction contracts are an important part of the procurement process, they should not unduly influence it. Management of the process and expertise are more important.

Perhaps private sector experience offers other insights into how procurement might be managed, or is it mainly a matter of scale that presents the greatest difficulty?

Peter Hibberd is the chairman of the Joint Contracts Tribunal