The procurement jigsaw

Central government is responsible for almost £25bn of construction business, which accounts for about 40% of the industry’s output. In the past four years, government procurement policy has undergone a transformation, which began with the publication in the summer of 1995 of Sir (now Lord) Peter Levene’s Efficiency Scrutiny Unit report on construction procurement by government.

The impetus for change was initially provided by Sir Michael Latham, who recommended that the government become a best-practice client, and latterly by Sir John Egan’s report, Rethinking Construction.

Lord Levene’s report lambasted the practices of government and urged a radical shake-up. He did not mince his words: “As key clients of the industry, government bodies are far from blameless for the way in which they behave. The industry’s behaviour is in part a reaction to the way in which those bodies relate to it. To get the industry to change its way, government will have to change its own behaviour, practice and procedures. The issue is not one-sided.”

Lord Levene put the Treasury in charge of bringing about the recommended changes. Earlier this year, the Treasury introduced Achieving Excellence, a programme of action for the next three years agreed by the Government Construction Client Panel. The GCCP represents 50 government departments, executive agencies and non-departmental public bodies.

The action plan’s list of targets to be achieved by March 2002 is breathtaking. Those targets are grouped under four headings:

• management (culture change)

• measurement

• standardisation

• integration.

Here are some of the targets:

• 100% of departments will apply best-practice project management

• 100% of departments will use key performance indicators

• 100% of departments will standardise procurement practices around total value-for-money criteria

  • Government departments should check contractors are selected using the CIB codes of practice
  • The majority of clients still use the ‘lowest-price’ criterion

• 100% of departments will use team working/partnering as appropriate.

This is good stuff. Deputy prime minister John Prescott has added these objectives to his own political agenda. But there is a little bit of the jigsaw still missing. I am loath to add to the burden of those involved in promulgating all this change, but I would like to add a few extra action plan items to ensure that change actually comes about.

Treasury and/or government departments should:

• develop key performance indicators for payment and ensure that these are adhered to downstream

• be more selective about the contracts to be used; outlaw contracts that require lengthy and unnecessary financing by one party of another higher up the contractual chain – this is costly and inefficient

• ensure that risk allocation in contracts reflects the notions of equality and team working

• monitor the extent to which the supply side is fully engaged and integrated

• check that the Construction Industry Board’s codes of practice for the selection of contractors and subcontractors are being applied.

Departments should consider appointing an independent adjudicator to deal with complaints about non-compliance and, if necessary, award the cost of tendering to the abortive tenderer.

One of the major monitoring tasks will be to assess progress in awarding contracts on a value-for-money rather than lowest-price basis. At a recent seminar organised by the Manchester office of Hammond Suddards, I was informed by most of the 150-strong audience – a cross-section of the industry – that lowest-price-wins was still being applied by most clients. The point is that government departments should improve their treatment of and relationships with those that will be supplying most of the added value – specialist contractors.

A report provided for the Treasury at the end of last year by the Agile Construction Initiative at the University of Bath stated:

“A widespread improvement in the treatment of suppliers and subcontractors is still needed. The Construction Act is expected to force improvement, but even this will not provide a substitute for a wider interest [by government departments] in the engagement terms and needs of subcontract organisations. The use of partnering, framework agreements and similar approaches, such as those practised by the most enlightened private sector clients, for instance BAA or privatised utilities, are likely to improve supplier commitment and promote an overall change in culture.”

Departments are advised to set up monitoring units to ensure that good practice is being maintained down the contractual chain. This would involve the deployment of extra resources but, in the long run, the return should justify the outlay.