The National Audit Office claimed last week that the government was becoming a better client. It noted that 55% of public sector projects were now completed to budget, compared with 25% in 1999. It also recommended ways to avoid the £2.6bn of waste caused by poor management. Building asked four industry experts for their reaction to the NAO’s strategy for success …

Smarten up
Smarten up

Key recommendations

  • Use payment methods that avoid prolonged retentions, such as project accounts
  • Provide greater certainty over workflow and funding
  • Use group project insurance where appropriate
  • Employ integrated teams
  • Develop greater expertise for managing projects
  • Base design and decisions on projects’ whole-life costs
  • Follow action plans on sustainability
  • Use the most appropriate procurement strategies
  • The OGC to establish a panel of government departments to enable co-ordination of programmes

How the government did it

Whole-life value: Kingsmead Primary School, Cheshire
Whole-life value: Kingsmead Primary School, Cheshire

Whole-life value: Kingsmead Primary School, Cheshire (above)

Willmott Dixon’s school for Cheshire council was designed and constructed on the basis of whole-life value rather than cheapest initial cost. Although the cost of construction was more than is usual for this size of school, its maintenance costs are only half as much. Special features include a roof with a valley to enable rainwater to be collected and re-used. However, comfort has not been sacrificed on the alter of sustainability. The building is fitted with sensors that detect temperature and weather changes; these are connected to a building management system that automatically opens and closes windows and blinds to allow fresh air to flow through the building.

Whole-life value: Dunston Innovation Centre

Built for Chesterfield council in 2001, Dunston Innovation Centre is a Constructing Excellence demonstration project that provides office space and other support for IT-based enterprises. The main theme of the scheme is sustainability. It uses a geothermal heat source to control the climate of the building and minimise its reliance on carbon-based fuels. It uses about a quarter of the energy of a typical air-conditioned office, and releases about 40% of the carbon dioxide levels of its non-sustainable counterpart. The centre costs about £10,000 a year to run, saving about £33,000 on similar sized air-conditioned premises. Because of the environmental performance of the building, tenants do not have to pay the climate change levy.

Project bank account: Defence Logistics Organisation Offices, Andover North

A project bank account was used for Defence Estates’ Andover North scheme. This not only ensured the fair and prompt payment of the supply chain, it also proved the scheme’s saviour when prime contractor Citex Project Services went into administration. The funds in the group bank account were originally claimed as a Citex asset by administrators: had the claim been successful, the client would have been left without the money to pay the rest of the project team. However, the legal position was clear. The project bank account had been set up for the entire supply chain, so it remained in operation for the benefit of those working on the scheme, including Citex’s successor, Bucknall Austin.

Shared expertise and long-term supply-chain relationships: NHS Estates and Procure 21

NHS Estates and its Procure 21 initiative have been recognised by the report as beacons of the sharing of expertise. NHS Estates is a large procurer, but most NHS trusts are inexperienced clients. To counter this lack of knowledge, NHS Estates developed Procure 21. This provides a project director for all schemes, and they in turn provide clear leadership. NHS operates a training programme to ensure all project directors are prepared for their role. Procure 21 has also chosen 12 supply-chain partners, from which the client can select a project team. This creates long-term supplier relationships and speeds up the project.

Investment in research: Stanhope

Developer Stanhope typically allocates an allowance of 0.25% of the total cost of a project for research. This investment in design quality helps to increase the value of the final construction project, minimises whole-life costs and delivers sustainable developments. Past mistakes are learned from and new methods recognised and employed. As part of its research, Stanhope evaluates how the requirements of the customer are likely to change over time, minimising the cost of future alterations to the premises. Stanhope has also introduced the idea of “hold points”; these are time-outs called at set stages during the design and are intended to allow challenges from Stanhope directors and senior representatives of the customer.

Know your supply chain

Rudi Klein
Rudi Klein

Rudi Klein, barrister and chief executive of Specialist Engineering Contractors’ Group

The National Audit Office’s report on public sector procurement – Improving Public Services Through Better Construction – demonstrates its impatience for real change. The underlying message is simple: engage with your supply chain.

Of course, some departments and agencies have made significant progress in encouraging delivery through partnering, but the NAO acknowledges that most construction procurers in the public sector are still not doing enough. The NAO is making it abundantly clear that unless key specialists – particularly the engineering disciplines – fully participate in the design process there cannot be integrated delivery.

To encourage this involvement, says the NAO, specialist contractors should be paid on a fee basis for their design. Hooray for the NAO!

Design input from such contractors is hardly acknowledged in the traditional payment process.

The real significance of this report lies in the acknowledgement that payment practices and insurance arrangements are an obstacle to achieving greater collaboration and teamwork. Adversarial payment practices such as cash retentions and outdated payment systems undermine teamworking and reduce investment in innovation and training by smaller contractors.

Procuring agencies are urged to put in place project bank accounts to ensure security of payment. “The approach of using a single project bank account for the entire construction project ensures that the timely payment of all parties mitigates the risk of the main contractor unfairly withholding payments from suppliers further down the chain.”

Feedback is still bolted on at the end of the project

In the next three years I would like every public sector project to have a project bank account. This will help engender a genuine team spirit and remove the distractions arising from the lack of payment security.

Current insurance arrangements encourage adversarial and inefficient working practices. When a problem emerges, the focus is on blame avoidance rather than solving the problem. Departments and agencies are asked to work with the insurance industry to develop policies of project insurance that will underwrite teams rather than individual parties.

NAO estimates that introducing project bank accounts and project insurance, and integrating design teams will achieve savings of more than £1bn across the public sector. I believe this to be a conservative figure.

Let’s standardise schools

Stef Stefanou, chairman, John Doyle Group

The report is to be applauded for showing that the construction industry has made relentless efforts in the past 10 years to improve its sector in terms of buildability, deliverability, quality, costs and in trying to be generally client-friendly. Indeed the industry has been trying to deliver for clients who often expect the impossible in respect of cost and programme. The report shows that the industry has responded to this with professionalism and realism.

However it has to be stated that the case studies are the good news from the good clients with successful projects. Good news is always welcome, but one does feel that the other end of the scale should have been reported as well so one can learn from the failures as well as from the successes.

One surprising omission in my view concerns the construction programme for schools. The report should have made a stronger case in promoting the standardisation of their construction. Despite all the exercises, conferences and seminars, at which the rhetoric promised standardisation, and despite the exemplar school designs that numerous contractors and organisations have produced at considerable cost, only a handful have been built under this banner. Instead, each education authority and each headteacher has become an individual client with varied requirements and demands.

If the schools programme is to take place at the speed that is needed, somebody somewhere along the procurement process will have to have the courage to stand up and impose standard schools procurement without any hesitation, without “ifs or buts”. Only then would the construction industry have the confidence to improve the process and invest in manufacturing the elements that could be produced off site.

Feedback is fundamental

Mark Way, chairman of lifelong learning at the Construction Industry Council

The National Audit Office report focuses on the headline statistics so beloved of ministers. Laudable as some of these might be, they signal that the more qualitative measures are being pushed down the agenda.

The key issue in my view is feedback. Although the NAO has acknowledged that feedback is one of their key “actions that government departments need to take to improve their construction delivery performance”, it is disappointing that they have placed it sixth in their list of six actions, and at the back of the report, where only the most dedicated readers will find it.

The implication is that, in government minds, feedback is still being thought of as something to be bolted on at the end of the project. In reality, it has to be embedded from the beginning if it is to succeed.

The “Soft Landings” system, developed by Cambridge University and used by enlightened clients such as, is one of the few to cover a project from design to three years after practical completion.

This makes the design team and the contractors legally bound to look at defects and energy use for three years after the practical completion. The capturing and dissemination of lessons learned from a scheme is the only way to achieve a systematic improvement of the end product.

The danger is that as the NAO has added feedback to the end of its list, users will only bolt it onto the end of their project – if at all.

Designing the system

Brian Norton, co-founder of programme management company Precept

The report describes a journey from an adversarial and fragmented project-based approach to one that is much more programmatic and collaborative. This transition has been taking place at a time of significant growth in public sector construction investment (from £24bn in 1999 to £33.5bn in 2003). With further a growth of 64% planned by 2007/08 and demands for greater efficiency across government, the pressure for progress is growing.

The report contains a number of good recommendations that will be vital for public sector projects.

  • Sustainable funding that supports programme investment. The report points out that a number of the new framework approaches adopted over recent years have been frustrated by volatile funding levels. Programmes often have funding for the only first few years, which undermines the purpose of collaborative working relationships.
  • Co-ordination and consistency across the public sector. The report points out that there is no longer a “single voice” representing government clients, nor a forum to co-ordinate programmes and policies.
  • Comprehensive performance measurement and benchmarking. If improvement is to be measured there needs to be a cultural change to create an environment that allows mistakes to be made and lesson learned.
  • Integrating different skills. Construction and information technology must be integrated. The skills required to act as intelligent client go beyond more technically focused construction management skills. Likewise framework contractors and private sector partners will increasingly be required to provide corresponding skills when working in partnership with their public sector clients.

Breakdown of where the savings can be made

More effective construction programmes and streamlined procurement, including

  • Off-site fabrication

  • Incorporating work into larger programmes

Potential savings per year: Central government £220m Local government £500m

Collaborative working approaches, including

  • Employ integrated teams

  • Minimise claims and disputes by using non-adversarial forms of contract

  • Earlier contractor involvement

  • Project-wide insurance

  • Use of project bank accounts

Potential savings per year: Central government £325m

Local government £760m

Savings in the whole-life costs of buildings, including

  • Reduced energy and maintenance costs

  • Greater user satisfaction and productivity

  • Better environmental sustainability

Potential savings per year: (central and local government combined) £770m