Since 2001 the Office of Government Commerce has been quietly plodding away without anyone taking much notice. But now, as Katie Puckett reports, two seemingly very different procurement reforms are set to grab the attention of the government and the industry.
“There is absolutely no evidence that the private sector is any better than the public sector at procurement,” says david adamson. “If you look at the stats and compare apples with apples, that’s a myth.” It’s not a common perspective but then Adamson and his colleagues at the Office of Government Commerce are paid by the Treasury to challenge the status quo as far as government building projects are concerned.
Most people are not entirely sure what the OGC does, even though it is in theory responsible for shaping procurement strategies for £125bn worth of combined government spending. Until now, there have been questions over how much influence the OGC actually has over the very disparate government client base. “It has got a massive task trying to persuade different parts of government and local authorities to behave differently,” says one source. “The government doesn’t need to pay much attention to the OGC if it doesn’t want to,” echoes Graham Watts, chief executive of the Construction Industry Council. “It doesn’t have any real teeth.”
However, in recent weeks two major procurement reforms have been introduced that could make the OGC a very noisy presence indeed. Adamson is director of “smarter construction”, and top of his list right now is getting every central and local government body to base decisions on the costs of new buildings over their whole lifecycle rather than the cheapest upfront cost – an approach heralded as excellent news right across the industry.
Less welcome are the noises coming from Adamson’s colleagues in the OGC’s “solutions division”, which is after quicker wins. Against vehement opposition from the Construction Products Association, ex-NHS procurement chief Peter Woolliscroft is aiming to cut 25% from materials costs by forcing suppliers to compete to offer the lowest prices in online auctions. Adamson and Woolliscroft deny there’s a contradiction in their approaches, but some in the industry point to a characteristic lack of harmony between the two halves of the organisation.
Since the OGC’s inception in 2001, its most notable development as far as construction is concerned was to introduce “gateway reviews” at key stages of projects – a National Audit Office report published in March 2005 found it had doubled the number of government projects delivered on time and on budget, and saved an estimated £800m.
It was originally established to encourage more effective procurement across central government, but its remit has been widened twice, to deliver the £21.5bn annual efficiency savings in the Gershon report and to work across local government – albeit without any commensurate increase in resources.
The OGC now has a core team that’s very experienced in the client role
Despite its increased workload, today’s OGC is a much easier organisation for construction bodies to deal with. “The OGC used to be run by experienced civil servants who had no experience of construction procurement,” says Watts. “Now it has a core team that’s very experienced in the client role.”
David Adamson is a case in point. He was seconded to the OGC eight months ago, having been director of estates at Cambridge University since 1998. Adamson is hoping to use the purchasing power of the government to further the causes of supply chain integration, fair payment terms, forms of contract and proper briefs. The power of the OGC will come not from the organisation itself, he contends, but from the Public Sector Construction Clients Forum it set up last December – a group of senior people from some of the largest government clients who will develop and disseminate best practice. The forum is chaired by senior civil servant Sir Christopher Kelly and includes the Department of Health, Defence Estates, the Highways Agency and CABE. Within it there are five working groups looking at industry capacity, embedding best practice, fair payment, procurement methods and whole-life costing, which Adamson chairs.
“There has been a tendency in public expenditure to go for the cheapest initial price, but that’s proved not to be the best policy,” he says. “There’s no correlation between the best outturn costs and cheapest quoted price.” At Cambridge, he adds, 75% of contracts went to designers and contractors who didn’t offer the cheapest bid.
Adamson is drafting a supplement to the Treasury’s green book, the guidance that all government projects must show they have followed. Whole-life costs are already taken into account on PFI projects, so the tools are well developed. But this will mean a change in mindset and extra work for government procurement heads, particularly for the occasional clients in the nether reaches of the local authority sphere. “I have been at meetings with councils who don’t do it and who don’t know how to do it,” says Dr Trevor Lowe, Gleeds’ whole-life costing expert.
“I expect a lot of local authorities may not be up to speed.”
If Adamson gets his way, buildings will be cheaper to run, the market for sustainable materials and technologies will grow and relationships between client and construction company will flourish as suppliers are no longer forced to scalpel their bids to the lowest price regardless of quality.
You can’t have reverse e-auctions and say you’re going for best value rather than lowest cost
Michael Ankers, CPA
But Michael Ankers, CPA chief executive, fears Peter Woolliscroft’s e-auctions will have the opposite effect. “I cannot understand how reverse e-auctions are consistent with Latham and Egan,” he says. “You can’t have reverse e-auctions and say you’re going for best value rather than lowest cost.”
In an e-auction, suppliers are forced to bid against each other in real time over the internet to offer the best deal. There have been several attempts to introduce e-auctions for construction suppliers and services over the past 10 years, but they have always met with vociferous opposition from the industry.
The OGC has already held one auction for computer suppliers. It lasted seven-and-a-half hours and Woolliscroft believes it saved them 41%. The solutions division’s first experiment in construction is a framework deal for northern housing organisations worth £2.45bn over four years, with others to follow for the education and highways sector (see “How e-auctions work”, below).
Woolliscroft argues that this method of procurement brings much greater collaboration between client and supplier, cutting out the layers of contractors in between, just as Latham and Egan wanted.
E-auctions are just a transparent way of bidding, he says. “It’s about manufacturers understanding customers’ needs and customers understanding the product range and then sourcing it at the cheapest price.”
It is almost this transparency that’s the problem, though. Because suppliers can see how much their competitors have bid, it puts pressure on them to match it, no matter what compromises in quality they would have to make. And in the virtual boiler-room atmosphere of an online auction, Ankers fears people will end up stitching themselves into agreements that will damage the service quality and standards of the industry.
Of course, whether any of this takes place depends on whether the OGC’s ideas catch on with government clients – and that’s still a big “if”. Woolliscroft says: “We demonstrate how they can make savings; they may want to, they may not. All we can do is facilitate them.”
Adamson is optimistic that the OGC’s ideas will catch on as the clients forum gets into its stride. As well as big-name co-operation, he says there are up to 80 people working behind the scenes on the working groups. Central government bodies are well represented, but the 600-odd local authorities in the UK are represented only by Nottinghamshire council and the South West Regional Development Agency.
The OGC does seem to command increasing respect among this notoriously varied sector too, though. “It has got more work to do in getting the public sector to engage with it, but it’s becoming more and more influential as people realise the advantage its procurement solutions bring,” says Paul Foster, head of education at cost consultant EC Harris. It may have been slow to get going but, as Foster says, “The OGC will really start to pick up a head of steam now.”