Procurement update: revolution

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Two decades on from the Egan report and with a construction sector deal on the way, will 2018 be the year for construction’s procurement revolution?

01 / Introduction

This year is an important time for construction. The construction sector deal will soon be launched, and with the promise of investment from government comes the recognition that industry also must grasp this one-off opportunity for change. One of the most encouraging aspects of recent developments is the launch of a set of related procurement initiatives demonstrating that major clients are determined to use their buying power to drive the transformation of the construction supply chain.

This procurement feature looks at the initiatives launched by clients including central government, Network Rail, Heathrow airport and HS2 that are acting as a co-ordinated effort to drive industry change. We explain what the initiatives are, how they link together and what the implications could be for industry. Although this feature is published before the launch of the construction sector deal, now expected after local elections in May,  the elements that have been announced so far – procurement for value, industry-led innovation and skills for the future – are all closely aligned to the thinking behind these change programmes.

02 / The challenge - how do you change a fragmented industry?

Everyone in the industry is familiar with construction’s performance problem – productivity is low, the profitability of many contractors is dismal, and the industry fails to invest in its future – either in its people or in productivity-boosting research and development. Mark Farmer’s 2016 report, Modernise or Die, neatly summarised the challenges of the industry in 10 symptoms.

Part of the industry’s challenge relates to its diversity and fragmentation. This means the interests of various parts of the supply chain are rarely aligned and as a result, there is rarely agreement about what the best solutions to improve performance might be. The absence of the large, dominant lead suppliers seen in other industries such as defence, aerospace and automotive has also led to the industry adopting a piecemeal, project-by-project, client-by-client approach to improvement and innovation.

The continuation of the status quo cannot be assured. The rapid growth of US firm Katerra, a Silicon Valley construction technology start-up that has only taken three years to grow into an end-to-end business with a $3bn (£2.6bn) pipeline, demonstrates that even construction business cannot assume that they are protected from industry disruption. 

Most contractors, specialist contractors and consultants can highlight great projects in their portfolios – schemes featuring a challenging brief, great teamwork and innovation excellence. The problem is that these projects tend to be exceptions rather than the norm. Furthermore, no attempt at industry self-improvement, from Constructing the Team (1994) to Never Waste a Good Crisis (2009), has been successful in creating sufficient momentum to break construction out of its negative behaviours.

In 2018, with the Grenfell Tower disaster and the collapse of Carillion both casting long shadows, current business models no longer look sustainable. Procurement models do not protect clients from risk, enable a profitable supply chain or deliver valued outcomes to clients. Left to its own devices, although individual businesses would thrive, it is unlikely that construction could undertake its own step change. Fortunately, clients from infrastructure, the public sector and government are considering how they can use their positions to drive change.

A series of separate but linked initiatives are set to put clients in the driving seat for industry change. Construction’s ability to respond to these initiatives and how far reform can be driven into the supply chain will help to determine whether we can reinvent our industry for the 21st century.

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