London Underground to bypass main contractors and take on more construction risk in £331m station programme

London Underground

London Underground will take on a much higher proportion of construction risk under its radical new approach to procuring work that will see it bypass main contractors.

Speaking to Building this week, Miles Ashley, programme director of Crossrail and stations at London Underground, said London Underground’s new approach, which involves bypassing tier one contractors and entering into direct relationships with trade contractors, will lead to the client taking on a much greater level of construction risk.

He said: “Historically we have tended to contract in these long chains. The public sector tends towards these arrangements because it’s very low risk.

“If we are going to access better outcomes in terms of value, we are going to have to take more risk.”

Last month, Building revealed London Underground was in the process of setting up the new system that will mean engaging directly with lower levels of the supply chain on its seven-year £331m station upgrade programme.

Three consortiums are in the running to form the client’s delivery partner for the new system, called Stake (see above).

Ashley said the delivery partner would run the £331m programme of works across 71 stations and assist London Underground with all its construction work. It will also help develop skills in construction management, construction planning and commercial management.

London Underground expects to achieve cost savings of at least 12% and up to 25% through the Stake system with contractors due to be appointed between September and the end of this year.

Ashley said he wanted to restore “a sense of craftsmanship to the workplace” and that contractors with tradespeople directly on their books would be at an advantage in bidding for work on the seven-year programme.  

“The question we are going to be asking is what people have you got? It’s going to favour people who can bring us that capability,” he said.

“If we can get a capable, incentivised, engaged and consistent workforce at that [tradespeople] level and then build the rest of the system around that, then we can get a good result.”

Suzannah Nichol, chief executive of the National Specialist Contractors Council, said major clients were questioning the value they were getting from main contractors.

“People are realising there’s much more to be got out of tier two and three contractors. If you appoint someone on price where’s their incentive to do things much better?” she said.

But Graham Watts, chief executive of the Construction Industry Council, said only the small number of clients with a large enough construction workload to keep a construction management arm busy would find an advantage in such an approach.

“I’m sure most of the major clients have been thinking along these lines for quite a while,” he added.

Is this the end of the line for main contractors?

Miles Ashley, programme director of Crossrail and stations at London Underground, said main contractors would not be prohibited from winning work on the new £331m station upgrade programme, despite the new approach that favours tier two and three contractors. “I’m putting construction management capability in here [at London Underground] and engaging with tier two and three suppliers,” he said.

“If a main contractor can come to me and demonstrate that it can add value in that matrix, then we’ll talk. The model isn’t a fixed thing.”

But he did say main contractors would have a greater role on major projects, such as London Underground’s £500m upgrade to Bank station, which Spanish contractor Dragados is competing for against a joint venture between Costain and Vinci.

Ashley said that on larger schemes he wanted to see more “intellectual input” from bidders to “solve our operational issues in imaginative ways”.