Reform of public sector procurement long overdue but we need action on the ground to make the change happen, says Paul Nash
In December 2020, the government published the Construction Playbook which sets out its guidance on sourcing and contracting public works projects and programmes.
The term “playbook” originates from the sport of American football where it describes “a book containing a team’s strategies and plays”, but the concept itself is relatively simple. Specify a range of options but leave the final choices to the players on the field.
But the Construction Playbook is more than just a book of ideas. While much of what it contains is not new - the issues and solutions have been debated as long as I have been in the industry - the principles that underpin it have the potential to disrupt the industry, and come at a time when failures of quality and building safety in our industry are in the headlines, and the role that procurement has played in this is under increasing scrutiny.
It is no longer ethically, socially, or economically sustainable to do what we have always done. It is time for change.
At the core of the Construction Playbook is an ambition to reform public sector procurement by providing a best practice framework for engaging with industry that aims to improve project outcomes.
There needs to be a better understanding of how the market responds to onerous contract conditions and poor payment terms
The focus on outcomes is important because it implies that government is looking at the long-term benefits in making procurement decisions and not just lowest cost. It might be surprising to some that government is only just coming to realise that procurement based on the lowest price is unlikely to promote the right behaviours from bidders or result in best value over a buildings lifecycle, but the timing cannot be coincidental.
And, to underline how seriously government is taking this, the playbook is mandatory for central government and arm’s length bodies on a “comply or explain” basis.
The playbook, which is well structured, sets out 14 key policies with three cross-cutting themes: health, safety and wellbeing; building safety; and building back greener.
Rather than review each policy here, I have selected five that I think demonstrate what best practice procurement looks like:
1. Early supply chain involvement
Modern construction projects are complex undertakings that involve multiple stakeholders and require a wide range of expertise to plan, design, procure and manage their delivery.
Set this against a backdrop of a regulatory system that seeks to ensure that the buildings we create are built to the right performance standards, and it is apparent why it makes sense to involve the supply chain early in the project lifecycle to ensure that the design, specification and price reflect the required outcomes.
2. Outcome based approach
It has long been accepted wisdom that investment decisions should be based on whole-life costs and not just capital cost. An approach to procurement that embeds that principle will lead to better outcomes over the life of the building.
In programme management the concept of an outcomes-based approach is well understood and supported by tools that help clients to define the benefits they want to realise. In my experience, projects are less familiar with this type of approach and language, so a change will be needed, which begins with how the briefing process is undertaken.
3. Benchmarking and ’should cost models
If you don’t know what something should cost, how can you know whether the price you are quoted is the right one? It seems obvious, but far too often in my experience clients rely on the market to tell them what something should cost and equate low price with best value. They are two different things.
The use of benchmarking data and cost modelling techniques to inform the procurement process is, in my view, an essential part of making the right investment decision.
4. Risk allocation and ‘fair return’
Historically, our industry has managed risk by transferring it down the supply chain, with little thought as to whether the supplier is able to bear, or best placed to manage, that risk. And with competition driving low margins, the price rarely reflects the true risk that is being transferred.
An approach that seeks to place risk with the party best able to manage it, and that recognises that contractors are entitled to make a fair return, is essential if we are to create an industry that is sustainable and profitable over the long term.
5. Payment mechanism and pricing approach
The recognition that different methods of evaluating tender price drives different bidder behaviours is at the centre of a recent report by Trowers & Hamlin, which makes clear that the use of relative price evaluation models, that award the highest marks for the lowest price, is likely to lead to a race to the bottom where “clients are effectively asking bidders to guess the lowest price to win the contract – not the actual price they think is necessary to perform the contract”.
Likewise, there needs to be a better understanding of how the market responds to onerous contract conditions and poor payment terms. The lawyers who draft these contracts are not concerned with market behaviour. Procurement professionals should be. In construction, as with other types of business, cash flow is everything. Which is why there continues to be call from the supply chain for project bank accounts and retention bonds as ways to mitigate this risk.
The spotlight is on procurement teams, and while an easy to navigate Construction Playbook is an important document, it will be the actions of procurement teams which will ultimately drive and shape much needed change in our industry
Paul Nash is a construction consultant at Jansons Property and past president of the CIOB