The government intends to turn itself into a model construction client within the next three years – and prime contracting is being touted as the procurement route to do it.
Defence Estates quality director Clive Cain sees a lot of new army, navy and air force buildings and he is often disappointed by the performance of the construction team that produces them. For example, the layout of one refurbished army kitchen was so bad that two extra workers had to be employed to compensate for its deficiencies. The cost of employing these people over the 25-year life of the unit could have paid for another kitchen.

Cain and his Ministry of Defence colleagues are working on new, more efficient ways of buying buildings. And next week, hundreds of industry figures will attend a conference where Cain and his counterparts from the Treasury and the Department of Health will unveil the government's new procurement strategy, spearheaded by the Treasury to ensure it becomes a better client.

An architect by training, Cain wants to stamp out buildings that do not work. He believes the problem can be rectified only if the client drives change in construction. He says the design procedure must become more thorough and the tender process should assess the whole-life cost of a building. Supply-chain management must also be introduced for the change to work, so the MOD is piloting prime contracting, which hinges on one firm being the single point of contact for the client.

Cain is not alone. In March, the Treasury launched new targets for improving efficiency in government procurement. By 2002, its Achieving Excellence strategy aims to cut construction costs and times by 10% every year.

Mike Burt, head of procurement practice and development at the Treasury, describes the government's attempt to become a better client as "turning an oil tanker round in mid-stream". It is a question of persuading government departments not to opt for lowest price, perpetuating the adversarial building culture.

Changing government attitudes involves training departmental staff to demand value for money over the life of a building. This can be done by making sure the design suits the clients' needs and increasing the use of standardisation.

The move will be helped along by a shift in the way the government counts its cash. Government departments are in the process of changing their accounting systems so that they resemble a public company's procedures. They are adopting resource accounting, where the accounts show the value of a building over its life rather that the one-off capital cost. This is expected to release more funds for capital projects.

buildings that don’t work can be rectified only if the client drives change in construction

Clive Cain

But the main thrust of the Treasury strategy to turn government into a best-practice client is to encourage the use of more creative forms of procurement. Mike Burt wants more private finance initiative, design and build, partnering and prime contracting.

Prime contracting has come from the car industry. It means the client has a single contractual relationship with the construction team. The contract is held by the prime contractor (usually a main contractor). The team is stable and consists of designers, the prime contractor and suppliers that have a long-term contract with the client for a series of projects. This is meant to improve the team's performance from project to project.

It is Defence Estates that is pioneering prime contracting through its Building Down Barriers initiative. This is a joint venture with the DETR and contractors Amec and Laing. Two pilot projects are now under way at Aldershot Barracks and Wattisham Airfield, with the aim of developing a new approach to procurement (How the projects are shaping up, overleaf). Defence Estates will reveal the first round of pilot projects to go out to competitive tender on 16 June. Industry sources say these include a £30m submarine jetty at Faslane in west Scotland, a £15m nationwide airfield lighting project and a £10m housing maintenance scheme at Colchester in Essex. Although the projects may not provide quite the swathes of work originally envisaged, they have caused excitement among potential prime contractors.

What makes a prime contractor? The MOD says firms need a history of innovative supply-chain management. Ted Pearson, commercial director at Defence Estates, says: "Part of the selection criteria will be determined by the extent of work bidders have done to establish long-term relationships in the supply chain. Those that have already done work will be in a better position."

Some contractors are already making the necessary internal cultural changes and diligently attending prime contracting workshops run by the Construction Industry Research and Information Association. Vaughan Burnand, procurement and estimating director at Shepherd Construction, which plans to be in the vanguard of prime contracting, has spent the past 18 months overhauling the firm's supplier base. He aims to produce a shortlist of fewer than 100 preferred firms that will be used for MOD prime contracts, partnering and PFI deals.

From a database of 1400 firms, which he calls his Yellow Pages, Burnand invited 500 firms to "get-to-know-you" workshops. He is now in the process of reducing the list.

the government’s attempt to improve is like “turning an oil tanker round in mid-stream”

Mike Burt

Where do the consultants fit in? They will be contracted to the prime contractor rather than the client. Tony Harden, a director at multidisciplinary firm Symonds, thinks consultants should ask how they can benefit from changes rather than bemoaning their changing role. "They should be working out how to respond to the challenge that Egan and the MOD have thrown down," he says.

He is also optimistic that prime contracting will lead to improved margins. "If there is no more money to be made by the contractor, there is no reason to invest in change. Profit levels are likely to be significantly higher if one moves away from the lack of continuity in the construction process." This extra money will come from a more efficient design process, fewer defects and less waste on site.

Another consultant backing prime contracting is Bucknall Austin managing director Tony Bevan. He believes it will improve the relationship between designers and the rest of the project team and says this will help increase profits – not from charging higher fees but from cutting out unnecessary costs. "A lot of time is spent covering your backside. If we could eliminate that, we could make more money and the client gets a building more efficiently."

In theory, the industry is welcoming prime contracting and the government's bid to become a best-practice client. The initiative encourages contractors, consultants and architects to improve their working practices, but potential prime contractors cannot expect immediate returns. Like any other new idea, it involves risk. The investment in research and development required to convince Defence Estates that a bid is serious is extensive. Staff need to be trained in non-adversarial practices. Subcontractors need to be whittled down into a manageable supply chain.

Richard Saxon, chairman of architect BDP and the Construction Industry Board's best practice panel, believes any financial benefits will only materialise much further down the line. As an architect, the firm is looking to play a major role in prime contracting. "It will take a few jobs to reap the rewards, and not all of it will come back to the players," he says. "You have to feed a research and development budget that is financed by the team."

Changing NHS spending habits

NHS Estates chief executive Kate Priestley will be one of the key speakers at next week’s conference on government procurement methods, and will outline major changes to the way her organisation spends its £1.8bn-a-year budget. In line with recommendations made in Sir John Egan’s Rethinking Construction report, NHS Estates, like the MOD, is exploring increased use of partnering, supply-chain management and life-cycle costing. Priestley’s outfit, which advises NHS trusts all over the UK, is keen to ensure that all conventionally funded healthcare construction work is carried out efficiently. The NHS portfolio is worth £76bn and includes all UK hospitals, clinics and health administration buildings. NHS Estates has now established a project, Rethinking the Procurement of Buildings in the NHS, which has been set three main tasks. These are:
  • to establish the current performance of the NHS against targets set earlier this year in deputy prime minister John Prescott’s letter to public sector clients
  • to examine the way it manages projects to ensure its best people are best placed to achieve these targets
  • to identify best practice in the public and private sectors and see how it could be applied in the NHS.
A “reference group” including Treasury officials and representatives from trusts, contractors, architects, engineers, project managers, lawyers and subcontractors has been set up to run the project. The group also includes NHS suppliers, members of the Institution of Hospital Engineering and Estates Management and universities and colleges. The idea is to produce an action plan, probably involving pilot projects, to identify alternative procurement plans for conventionally funded projects. This will also involve drawing up IT strategies and training programmes. However, industry sources say that with the Treasury leaning towards making prime contracting its recommended form of procurement, it is almost inevitable that this group will do the same. Major contractors had a meeting with Priestley late last month and were impressed with her plans. However, they emphasised that, in its bid to improve efficiency, NHS Estates must not confuse procurement principles on conventionally funded buildings and PFI projects, where the emphasis is on maintaining a building over 25 years. The industry has some way to go before it starts impressing NHS Estates. In the organisation’s latest quarterly briefing to trusts, it explained why it is following Egan and outlined its experiences with construction. It complained of:
  • reversion to type: construction’s “blame culture” resurfaces when there is a problem
  • lack of innovation: lack of investment in research and development and training, limited commitment to staff and the practice of blaming everyone else, all lead to an industry that is averse to trying anything new
  • adversarial relationships: the relationship between subcontractors and contractors affects the quality of the end product. Subcontractors and suppliers are not part of the team – yet
  • lack of teamwork: consultants, contractors, and subcontractors, for example, do not work as a team, responding instead to problems as individuals.