It seems that clients are reverting to the primitive practice of lowest cost single-stage tendering. Trouble is, lowest cost means guaranteed minimum quality
In my column on 28 November last year, I wrote about the recession in the industry. Some things have improved since then, but others have got worse.
There appears to have been some growth in the private housing market in the last couple of months, though from a low base. There has also been a continuing demand for education authorities for more school building, though whether that will be so strong in 2010/11 is another matter, irrespective of which party forms the government after the general election.
Some official promises have not been fulfilled. The government undertook last year to bring forward planned public sector construction projects, but this does not seem to have taken place. As many consultants and contractors realise, the rebuilding or refurbishment of many colleges of further education have ground to a halt, because the Learning and Skills Council (LSC) ran out of money. Although the government has offered more money to the colleges, the amount is well below the total which the LSC had approved and for which the industry had geared up.
I tell clients that if they pay peanuts, they will get monkeys. Then I add another sentence. If they get monkeys, the monkeys will be up to monkey business
The truth is that the industry has been overtaken by events. The last few weeks have been totally dominated by the expenses of MPs, which has left all members of the House of Commons running for cover, and unconcerned about the problems of the construction industry. The only section of business and commerce which is still being supported by the government and the Bank of England – apart from the banks, which have been lent countless billions – is the car making industry, and that because of the crisis for General Motors in the US.
Meanwhile, clients have been going back to their old ways, both in the public and private sectors. So I want to exchange some ideas that I have also shared with clients, especially those in the public sector, to whom I speak regularly in various capacities. I say to them that if they pay peanuts, they will get monkeys. Then I add another sentence. If they get monkeys, the monkeys will be up to monkey business.
Contractors know well how to cope with a downturn. They sense that clients – usually advised by their QSs and project managers – are abandoning framework arrangements and reverting to lowest cost single-stage tendering, with little or no emphasis on quality and people.
Contractors will keep quiet when they see problems arising, and will then claim an extension of time When the difficulty is clear
Of course, price is important, but if the integrated team, led by the client, does not make at least two-thirds of the consultant or contractor selection on the basis of quality and the actual personnel involved in the project, they will be facing real problems in the contract as it proceeds. Such a requirement has been directed by the Office of Government Commerce and the Treasury in recent years and, as National Audit Office reports in 2001 and 2005 have shown, where public sector clients have adopted best practice, the project has come in to quality and budget.
So, contractors, if faced with a client that only wants lowest price, will price low. They may be awarded the contract because their quotation is lower than their competitors, but the quotation will not be the outturn price. The contractor will be looking continually for claims and variations that will allow for extensions of time and more money. They will be keeping quiet when they see problems arising, and will then serve an extension of time notice on the architect or the engineer when the difficulty is clear.
In partnered work, done as an integrated team, all the players will be working together to avoid the problem, not to get more money from it. In lowest price, some main contractors will be telling their subcontractors – who now do 95% of the actual site work – to cut their prices, or pay them slowly, claiming set-offs without explanation or not paying them anything like the sum that they are owed and that the surveyors have correctly valued.
So, peanuts, monkeys and monkey business. Why should we go back to that? It will cost us all – taxpayers, clients and the whole industry – far more than we budgeted for. If we had a chief construction officer, which we do not and I suspect will not, that would have been their advice to the Treasury. Best practice is, and remains, best for us all.