The MoD's £1bn accommodation programme will create 45,000 bed spaces over the next 10 years. We look at the procurement of a key scheme, and finds out how technical fixes can make all the difference
Code name: Emma. Mission: to instigate single living accommodation. Location: HMS Nelson. Route: prime contracting. To the uninitiated, the Ministry of Defence talks in jargon. Crack the code, however, and what is revealed is a solution to the MoD's urgent accommodation needs. And given the fact that this sector of the state has not, in the past, been noted for its blue skies, avant-garde thinking, what is happening can just about be described as a revolution.

The focus of this revolution is now HMS Nelson, the Royal Navy's Portsmouth base. Despite its nautical name, Nelson is a land-based fleet accommodation centre, where ratings are temporarily housed between spells afloat. The base also has a stable population of landlubbers, including maintenance engineers and other providers of support services.

Project Emma is a stand-alone prime contract to design, build and operate four accommodation blocks containing 584 bedrooms for junior ratings and a support services building. The development will form part of the MoD's single-living accommodation project, which is intended to make military life more attractive to potential recruits by replacing barracks with private rooms.

Defence Estates, the MoD's property arm, is executing this programme using prime contracting. As you may know, this method puts the onus for managing works on the contractor. For the past four years, client and suppliers have been working out just what that means in practice.

The process began in 1999, when Defence Estates launched its Building Down Barriers initiative. This was an exercise to get contractors to manage their supply chains more effectively, above all by getting them involved in planning the works. The hope was that this in turn would give the MoD more bricks for its bucks. The initiative then evolved through more than 20 different prime contracting projects until it arrived at the version being used for Project Emma.

"Prime contracting is about applying the MoD's existing best value equipment procurement principles to construction procurement," says Malcolm Ives, project manager for Emma and works adviser for Defence Estates. "It's all about trying to deliver a better end product."

Two years ago, Defence Estates asked for expressions of interest from contractors in Project Emma. To encourage innovation, it kept its brief for the scheme generic. "We just said that we required improved accommodation for 584 men on this site," Ives says.

It then assembled a shortlist of suitable contractors and invited them to tender for the project in September 2001. Again, the brief was kept vague to encourage contractors to submit a diverse range of solutions.

One of the consortiums bidding was made up of Balfour Beatty, architect Watkins Gray International, structural engineer Roscoe Capita, M&E contractor Crown House Engineering, volumetric module manufacturer Rollalong and Haden Building Management, which would have the responsibility of managing the accommodation over the next 10 years.

Balfour Beatty was one of the three bidders whose schemes were selected in February 2002 for further development.

Defence Estates and the navy then worked with each bidder's team, in isolation, over a four-month period to refine their design. Ives admits working with each contractor is "resource intensive" for Defence Estates, but he says this solution saves time when it comes to evaluating the suitability, quality, design and likely whole-life cost over a 25-year period for each final design. The proposals were then evaluated and Balfour Beatty was selected as preferred bidder in April 2002 with a £32m scheme.

With Balfour Beatty on board as the prime contractor, the scheme was developed to its final form. "We worked together to refine the scheme until Defence Estates and the prime contractor were confident enough to move forward to contract award," says Ives. "It is a fairly lengthy process," admits Nick French, a director at Balfour Beatty Construction. However, the MoD did at least pay the contractor's costs for the final stage of design development.

On site, Balfour Beatty's plan of attack is being put into practice. The contractor opted for a modular solution to the congested site. All the bedroom modules have been craned into position at one four-storey accommodation block and a team is busy working to erect its brick and composite-board cladding. Meanwhile, construction of a second block has commenced (see "A prime example on site", page 60).

Once the contract was awarded, Balfour Beatty then moved to an open book accounting arrangement with Defence Estates, whereby the client pays for the cost of the works and adds an agreed profit margin for the contractor. Ives explains that the reason behind open book accounting is "not to pinch the contractor but so that the contractor knows that if he does a reasonable job he is guaranteed his costs".

Deciding when Balfour Beatty would get paid was also agreed beforehand. Prior to construction starting, a series of payment milestones were established between Balfour Beatty and Defence Estates. "These are the completion of clearly defined pieces of work – which can be supported by cost information," explains Ives. He says this concept breaks down the capital cost of the scheme into bite-sized chunks. It also has the advantage of giving both sides a good idea of how spending and cash flow will pan out.

The milestones are also used as a cost incentive by Defence Estates to drive value into the project. Ives says that the client sets "achievable targets for the contractor". Once a milestone has been agreed between contractor and client, the challenge for the contractor is to better it – any cost savings are then split equally.

Completion of Project Emma is scheduled for March 2004. On this date, one of the more interesting cost aspects of this project, particularly from Balfour Beatty's perspective, will then come into effect – a 10-year compliance period. Throughout this period Balfour Beatty has to prove to Defence Estates that the scheme costs what the contractor claimed it would cost to maintain. "If the contractor gets it wrong he'll have to put it right at his expense," says Ives, smugly. He says it makes the selection of wall finishes and carpets, for example, critical for the contractor, which is one reason Balfour Beatty ensured its FM arm Haden was on board at the start of the project.

With Project Emma now successfully under way, Balfour Beatty is working on the design of its next two prime contracting jobs, the MoD's Thorney Island and Marchwood accommodation centres. Prime contracting is only part of the MoD's armoury for procuring construction work. For larger schemes, over £30m, PFI is still the preferred procurement route. However, for medium-sized schemes, prime contracting is the Defence Estates procurement vehicle of choice. Because of this, some contractors have criticised the length of the bid process. Ives admits that there have been criticisms in the past, but says Defence Estates is addressing them: "In the early days the bid process has taken longer than we would have liked," he says. "However, Defence Estates is holding regular meetings with the Major Contractors' Group to look at ways of streamlining the process."

In the future, prime contracting is set to evolve still further to meet the MoD's stated aim of having just six prime contractors nationally, one for each region. Each prime contractor will be appointed for seven years, during which they are responsible for the construction of capital works and the management of the facilities for all the army, navy and air force establishments in their region. A prime contractor for Scotland is already in place and an announcement is expected later in the year for the prime contractor for the South-west region. For those contractors hoping to win this contract – now is the time to start brushing up on MoD code-speak.

A prime example on site: Project Emma

Logistics are a fundamental part of the success of Project Emma. HMS Nelson is a bustling, working base with accommodation for 1100 personnel most of which is housed in two 12-storey tower blocks and a smaller four-storey building. One of the key parts of Balfour Beatty’s successful bid for Project Emma was that the proposed solution would allow the navy to maintain a minimum of 875 beds on the site throughout the construction period.

Unfortunately for the contractor, the site is very cramped and there was insufficient land to build the new accommodation in advance of demolishing the existing blocks, so Balfour Beatty’s bid allowed for construction to be phased along with the demolition of the existing blocks. The design incorporated the new bedrooms into a series of four blocks, which are being constructed in phases as the old accommodation is progressively demolished.

Because each of the 584 bedrooms is identical, Balfour Beatty’s bid proposed using off-site manufacturing techniques. This solution helps minimise the amount of work carried out on site and speeds construction. Each bedroom is constructed as a steel-framed volumetric module at Rollalong’s Ringwood factory and is delivered to site fully fitted out with wiring, plumbing and furnishings in place.

Since module manufacture accounts for 80% of the construction cost, it was important that these were built cost effectively. To achieve this Nick French, a director of Balfour Beatty Construction, says Rollalong’s production plant was “revolutionised by the introduction of production line manufacturing processes to enable six modules to be completed a day. We spent three months with Rollalong and M&E installer Crown House Engineering, planning how to change the factory before we started to build the modules.”

Balfour Beatty was helped in value engineering the modules by having Crown House Engineering and Rollalong as part of the contractor’s team from the start of the project. “These were the two parts of the supply chain with the most influence on the project,” says French. However, the specialists were given a further incentive to cut costs by putting them on a pain/gain share arrangement. The same deal was offered to the design team, but they declined it. “Consultants don’t earn enough money on a scheme to take the pain,” says French. “If we had got into a pain scenario, their fees are so small the pain could have been too much.”

By the time Balfour Beatty had achieved preferred bidder status the module design had been worked up to a high level of detail. “We spent a lot of time looking at the detail connections between modules, such as the drainage connections,” says French. In addition, a mock-up was constructed at Rollalong’s factory. This allowed Defence Estates to get feedback on the design, to sample its quality and to use the module as a benchmark for all future bedrooms.

The units are being delivered to site on a just-in-time basis because of the lack of site storage. Time spent detailing the connections ensured the modules installation progressed smoothly: “They went up like Lego bricks,” says French.

Because modular construction is relatively new, Malcolm Ives of Defence Estates says he recommended that Balfour Beatty incorporate a counterterrorist expert in its team. “Counterterrorist measures are important and it is easier to apply them to traditional construction,” he says. Ives says Defence Estates needed to be convinced that modular construction could be made to comply with the MoD’s counterterrorist measures. As a result, consultant David Goode Associates became part of Balfour Beatty’s team during the tender process.

One result of the counterterrorism assessment was that steel plates had to be incorporated into the walls of the modules to protect their occupants against bomb and bullet attack. To prove it was an effective solution, the MoD “took the cladding away and fired bullets at it”, says Ives. The consultants also recommended that a refuge be constructed in the core of each block to create a space for personnel to retreat in a bomb threat. One final requirement was that the modules had to be clamped to the concrete foundations to hold the building in position in a bomb blast.

Construction of the block started in October 2002. Occupation of the first block is scheduled for next month.