You’ve been warned: the dangers of advising traditional procurement

Here is an examination question: Barchester council wants a new leisure centre. Third Ear Architects, a local firm, is called in to advise. It is the same advice that it gives to all its clients. It will do the design alongside a consulting engineer, which will need to be appointed to design the structural steelwork. The council approaches a solicitor who reinforces this approach but also advises that, once the design work is done, the architect and engineer should be novated to the builder. The solicitor draws up the terms of appointment for the designers, using the JCT’s design and build contract.

Eventually the builder that puts in the lowest price bid is appointed. It sublets the steelwork to the subcontractor that puts in the lowest price bid. The steelwork contractor then complains that there are shortcomings in the designs of the architect and the consultant engineer. The steelwork contractor is told that it tendered on the design information that was provided and, therefore, it must deliver. It responds that it asked for more information about the design at tender stage but was told to price what was on offer.

There are then delays, which lead to substantial cost overruns and disputes; the council’s budgeted cost for the project more than doubles.

So, the question is: Were Third Ear Architects and the solicitor being negligent when they advised the council to use that particular procurement approach?

My examination question is not made up. The scenario - in either large or small measure - occurs on most UK projects.

Traditional procurement is wasteful; it is a fragmented process with countless interfaces. It is hierarchical. Appointments are sequential. Those delivering the project do not have a chance to buy into key decisions on design, cost and risk, even though design cannot be fit for manufacture (and, therefore, cost effective) unless those who do the making have a say in what they’re making. The role of traditional contracts is to buttress this state of affairs by shifting blame and encouraging confrontation.

If you want further evidence, look at the experience of the hundreds of demonstration projects captured by Constructing Excellence. Also look at the business case for delivering projects using integrated and collaborative project teams, which was recently published by the Strategic Forum for Construction. But we continue to ignore the evidence and give the same advice to clients that our forefathers gave 200 years ago.

Wembley is a classic example. The cost of the stadium almost trebled. Remember Multiplex’s (now settled) claim against Mott MacDonald? It was for £253m in respect of alleged deficiencies in Mott’s design for the steelwork structure. Four years earlier, the steelwork contractor, Cleveland Bridge, had walked off the site after disputes over variations to the design of the steelwork.

One of the allegations against Mott was that there had been 11,000 changes to the drawings, which meant the steelwork could only be erected well outside the budget.

Back to my exam question. Could it now be considered negligent to advise a client that it procure its construction work using a traditional procurement approach and select the designers, contractors and the subcontractors on the basis of lowest price? In pursuing a claim for negligent advice there has to be a breach of a legal duty to take care.

Government departments have been on notice since a 2001 report by the National Audit Office that “a succession of major studies have highlighted the inefficiencies of traditional methods of procuring and managing major projects - in particular the fallacy of awarding contracts solely on the basis of the lowest price bid, only to see the final price for the work escalate significantly”.

It is clear that tough contracts cannot be relied upon to enforce the performance of fragmented lowest cost packages. Instead, they create a huge surcharge on top of the basic cost of design and construction. In principle, all the weight of modern recommended practice supports the case that there has been a breach of the duty to take care.

The final issue concerns causation. If the advice was negligent, was it the cause - both in fact and in law - of the cost overrun? Here the factual test would be the critical one. Could the overruns have been avoided if traditional procurement had not been used?

I suggest it would be necessary to establish what a realistic cost plan would have been using a best practice procurement strategy under which there is early buy-in of an integrated project team to the design outcomes, programme, cost plans and so on; all delays and costs over and above this basis could, and should, have been avoided.

My advice to those advising clients on traditional procurement methods is - be careful. Over the next few years you could run the risk of a negligence claim.

Rudi Klein is a barrister and chief executive of SEC Group