Contracts expert casts doubt on Egan and Latham agendas in new book

A new book by venerable QS James Nisbet has questioned the public sector’s move from traditional contracts and procurement to new forms such as PFI, cost-plus and framework deals.

Building Contracts Reformed claims there has been a lack of supporting evidence to justify and prove the worth of the “momentous” move away traditional procurement, which had been a hitherto an established industry practice for 200 years.

The move follows landmark industry reports written by Sir Michael Latham and Sir John Egan in the 1990s, called Constructing the team and Rethinking Construction respectively, that led the government to recommend the new forms should be used by public clients unless traditional forms provided better value.

Nisbet writes that criticisms of traditional contracting to justify the wholesale move to new forms of contracts were based on “general statements and references to exceptional cases”. He says it breeds adversarial relationships and leads to delayed and overbudget projects. “Thoroughly researched records of actual circumstances and details of causes of individual cases have supported none of the allegations,” Nisbet writes. “Hearsay and anecdotal evidence appears to have been sufficient.”

Nisbet, who has written extensively on building contracts during his 60-year career, takes issue with evidence from the government of both the inefficiency of contracts before PFI was introduced and on how PFI schemes themselves have performed. One report, the National Audit Office’s Modernising Construction in 2001, claimed 73% of government construction contracts were over budget and 70% were delivered late. Nisbet questions those findings and points to another report he claims was disregarded that gave a very different view of the performance of public contracts. The Government Procurement Progress Report to the Prime Minister 1995-96 surveyed performance so far in that decade and found that the average overspend for the period was 13.6% while the time overrun was 10.6%.

He also raises a fundamental issue with cost plus contracts, that of open book accounting. Nisbet contends that without a proper system that matches records of expenditure with works and services “there is no assurance that expenditure reimbursed by the client represents the fair cost of the works and services supplied”.

In a further statement to QS News Nisbet said the book was written in the context of a huge change in industry practice since the 1980s. This has seen the influence of architects, established since the middle of the 17th century, and engineers wane at the expense of major contractors.

The statement says: “There are many questions about why a relationship that had developed over 300 years should have been transformed in less than 30 years without so much as a mild protest.”

Nisbet on fragmentation

“Without detailed evidence it is too glib to claim that fragmentation is the cause of construction’s shortcomings. More cynical observers might conclude that the criticism is used to encourage the adoption of procurement systems that require the combination of design and construction within one organisation.”

Nisbet on traditional procurement

“By the 1980’s competitive tendering practice had probably reached its peak of development. The system was considered to be open, to facilitate prompt decisions on awards and generally free from abuse.”

Nisbet on claims

“...there have been few studies devoted to establishing the underlying reasons for them. It has not been substantiated with factual evidence that the traditional procurement system is the cause.”

Nisbet on cost-plus contracts

“Formerly cost reimbursable contracts were regarded as undesirable and last ditch measures. They were to be used only in dire circumstances – in emergencies, catastrophes and urgencies.”