Why Nisbet is right

Anyone who seeks to challenge the perceived wisdom of the day risks being labelled a stoneage man. James Nisbet, a well respected figure in the quantity surveying world, has written a book, Building Contracts Reformed, in which he does just that. Nisbet has questioned the wisdom of changing the basis on which construction contracts are awarded in the public sector from lowest price to best value.

There have been murmurings in dark corners which accord with the opinions expressed in the book but, until now, nobody has gone public on the matter. Perhaps now is the time for a public debate to seek opinions from those involved on a day to day basis in the construction industry. I think I can speak for many QSs who were shocked at the idea of contractors on major projects being paid on the basis of their recorded costs. Many thought such a method could be a recipe for costs spiralling out of control – which proved to be the case. It wasn’t long before the idea arose of a cap on the amount to be paid. However, where a pain/share system applies employers can find themselves paying more than the target cost.

Unfortunately the fixing of the target lacks a uniform method of calculation. It is usually prepared in a similar way to a budget or cost plan. With the drawings or schedules of work, which frequently comprise hazy contract documents and often no bill of quantities, the adjustment of the target is less than a precise science.

Silver lining

It might be that one will never be forgiven for whispering that in many cases lowest price is best value

Further methods have now been introduced to assist in controlling a contractor’s costs such as a proper definition of cost and disallowed costs. These new methods have spawned a better understanding of risk analysis, whole life costing and value engineering. Dispute resolution has come on leaps and bounds and with the advent of statutory adjudication and other methods of ADR such as mediation, long running and expensive disputes are well behind us. However it would be wrong for those who promote best value to claim these advances have resulted in the change in which construction work is procured in the public sector, as they would have occurred in any event.

Attitudes on construction projects have changed for the better, confrontation has made way for collaboration which is all to the good but proves nothing. The new ideas are very much an employer and main contractor affair but where does this leave the subcontractor who on most contracts produces over 75% of the construction work? Some of the major players in the structural steel and M&E sectors enjoy procurement systems similar to those of main contractor particularly where framework contracts are involved. As for the remainder contractors place the order with the subcontractor who submits the lowest price. The University of West of England has undertaken a study of comments and views of specialist contractors on partnering contracts which makes for salutary reading. Few see any difference in attitudes by main contractors, it seems a matter of business as usual. One may be forgiven for asking, if the methods of procurement between the employer and contractor produce best value, why are they seldom used on many of the subcontracts? With all the experience of subletting work it would be easier to place orders with all the subcontractors on a project on a back to back basis by fixing a target and making payment on a cost reimbursable basis.

Despite all the rhetoric, the jury is still out as to whether the current methods of procurement deliver best value. It might be that one will never be forgiven for whispering that in many cases lowest price is best value.