Franklin + Andrews managing director Andrew Williams looks back at how private procurement methods have fared under Labour, and considers what the future might bring
During the 1980s and 1990s, the private sector was embraced by the healthcare and education sectors and the various procurement routes that now exist, reflect the maturing of that principle during both Conservative and Labour rule. There is now a range of choices open for the delivery of capital construction projects. With that, inevitably, come a number of issues that we have had to address – and are still having to address.
First, it has taken a long time to achieve any real progress with some of the initial procurement routes. Particularly in healthcare, huge investments in time (and therefore cost) were made to facilitate the process but the go-ahead kept stalling and, as a result, a number of firms suffered financially. We need to learn the lessons from that in terms of some of the newer initiatives such as Procure21, LIFT and Building Schools for the Future. Testing the system with pilot projects such as pathfinders is one way of achieving that. For all contractors, understanding the level of investment that brings the best solution will only come with experience. For some of the smaller organisations, the investment required to learn the system – and the jargon that goes with it – can be prohibitive.
They either don’t participate or find out too late that they shouldn’t have.
Second, one of the interesting features of the changing face of public sector procurement is the allocation of risk. Historically, this sat with the public bodies, but that is now changing. I am not convinced that the balance is right yet – and in many instances only time will tell if it is or not. Whether it is in relation to TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 1981), energy costs or technology advancements, someone needs to own the risks and be allowed to make provision for them.
Finally, these new processes have led to a greater commitment to costs (including fees) in the early stages of projects. Some have complained that the industry is taking advantage of the situation, but I don’t think this is the case. The degree of competition in the marketplace sees to that. The fact is that the emphasis on best value, not lowest cost, has placed a greater onus on the initial decisions. I am not suggesting this didn’t happen before but the risks attached to the longer term are now more clearly a focus, especially with private sector investment. Add to that the fact that this is a learning process, which makes an impression on the initial cost base, and it is not surprising that there is a price to pay. Over time, cost will reduce and the benefits will come through.
So much for the issues we are still grappling with – what about the upsides? Top of the list is the impact of the partnering culture that most of the processes adhere to. We can all identify reasons for this not happening historically – competition, lowest price selection and so on – but an environment that actively encourages collaboration is finally emerging.
In healthcare and education we also have two sectors that between them spend more than £10bn on capital projects every year and that are developing a structure for procurement that works for them. The alignment of capital spend with operational requirements is becoming much better.
So does the outcome of the election matter? Education and healthcare are such pivotal issues for the country that none of the political parties can afford not to ensure that they are a success. Therefore all claim to be committed
But what does this mean for the future? Even if we gain the ability to deliver more as we get more experienced at the process, that still leaves two questions. First, where will it be funded from? More taxes? More commercially-based facilities? Diverting funds from other sectors? Second, does the construction industry have the capacity to deliver? We already have a skill base that in many areas is overstretched and we are not drawing in enough new blood to create a significant increase in capacity. I would expect some capacity to emerge from an improvement in productivity but if the government stimulated a £30bn-a-year spend in these two sectors, I am sure we would struggle.
We also have to recognise that progress is being made in all walks of life all the time. As a result, the challenge for us in providing a “25-year solution” is to ensure we have future-proofed the product. For example, what advances will technology make over that period and what impact will that have on the service delivery in either sector? Whether we provide for it through a sinking fund provision, the creation of flexible space or a pragmatic approach to the design life of the products we use will depend on the particular circumstances. One thing is certain – we must consider the issue.
It will also be interesting to see how the experience of these two sectors spreads to others. The energy, rail and nuclear industries have all adopted the partnering culture to some extent and with varying degrees of success. Whether we can translate what is learned in these sectors into others remains to be seen.
So does the outcome of the election matter in terms of the current situation or the future? Education and healthcare are such pivotal issues for the country that none of the political parties can afford not to ensure that they are a success. Therefore all claim to be committed. How they plan to deliver varies and a total reliance on quantitative measurement is questionable for these service-led sectors. Education that brings the best out of pupils both in respect of exam results and in their broader education isn’t just about league tables measuring how many pupils got straight As.
Likewise, healthcare isn’t only about how long the waiting lists are – it’s also about the quality of the care and advice before, during and after treatment. Such subjective issues are difficult to quantify but for most of us they are important. The construction industry would do well to remember that we too are a service industry, and our patients and pupils need to feel they have received good value from us.