Despite the abundance of evidence that good clients get cheaper projects, many still insist on lowest price and highest cost. Councils, for example. Sir Michael Latham asks, why?
I was glad to read Jon Rouse’s column in Building on 27 June (page 52). I regularly met him when he was chief executive of the Housing Corporation, where he did an excellent job. But I did not agree with some of the conclusions that he drew in that column about the behaviour of clients, and I want to put forward an alternative view.
I recently attended a meeting to celebrate the 10th anniversary of John Egan’s Rethinking Construction report in the House of Commons. Egan spoke about how there had been some progress, but not as much as there should have been. He blamed both clients and the industry. The Egan report was a clients’ document. Virtually all the members of the committee were clients or academics, and much of the report was influenced by what had been happening at BAA, where John Egan had been chief executive.
There are still too many clients who neither know nor care about best practice. They just want the lowest price. The day after my Constructing the Team report was launched at a conference at the QE2 Centre in Westminster in July 1994, I was a guest at lunch with the president of the RICS. There were about a dozen guests, and much of the discussion over lunch was about my report. One of those present was the chief executive of a very large construction company, now retired. He said: “Michael, I like your report. I want to do it, but I’m worried that while I’m doing it my competitors won’t be and they will steal a march on me. So, I will do it when the Highways Agency tells me to do so.” I have often thought about that, and frequently repeated it at seminars and workshops.
He said: ‘Michael, I like your report. I want to do it, but I’m worried that while I’m doing it my competitors won’t be
and they will steal a march on me’
Another true story. In early 1996, I was sitting at a Building editorial advisory board dinner next to Sir John Bourn, the head of the National Audit Office (NAO). We knew each other well, because I had served on the Public Accounts Committee of the House of Commons from 1983 to 1992, and for much of that time Sir John was comptroller and auditor general.
He said to me: “This partnering sounds a good idea. Why aren’t more public sector clients doing it?” I replied, “Because they don’t know the difference between the two tenders.” He asked, “What do you mean, two tenders?” I answered, “One is the lowest price that wins. The other is the actual outturn cost, and they are very rarely the same.” Sir John took out his notepad and wrote down “two tenders”. After that, NAO reports regularly stressed the need to get it right the first time, not spend umpteen thousands of pounds on court cases or arbitration afterwards.
The NAO has since been producing very persuasive reports. One, in 2001, called Modernising Construction, reported on a survey of central government construction contracts carried out in 1999. It found that about two-thirds were seriously late and very heavily overspent, and it recommended the use of best procurement practice.
Tell him it’s better to have a community centre that isn’t six months late and £1m overspent because he took the lowest price. Appeal to his worst instincts. It usually works
Exactly four years later, the NAO produced another report, which showed that where central government clients had followed best practice, £700m had been saved, performance both of cost and time had greatly improved and another £2.5bn could have been saved if all departments had procured effectively.
Jon said in his column that most of local government had moved away from lowest price. I am sure that is true of forward-looking local authorities, but it is not the case with many smaller ones, which still have standing orders saying they must take lowest price.
I hear this regularly, and I reply, “Change your standing orders. Many other councils have.” The officers shake their heads and say, “Our majority political group will not like that.” I reply, “Well, persuade the leader that it’s better to have a community centre in the most deprived ward come in to time and cost, rather than six months late and £1m overspent because he took the lowest price and the money has all gone on claims and variations. Appeal to his worst instincts. It usually works.”
Finally, a thought. When I was writing my report, I had a meeting in Northern Ireland in 1994 with a large group of consultants. One of them said to me, “I don’t want clients involved. The client is a nuisance.” We must get away from that approach, but the clients should always give a lead – and many do not.