Can prime contracting bring benefits to your projects? The Defence Estates' procurement method is set to influence other sectors, argues Gary Edwards.

The most overused and misunderstood term in the construction industry is partnership. Everyone's eager to find another project to work on together when a partnered scheme has gone well. There's a feeling that it can be done again in the hope that it will be an equal, if not better, success.

But people's attitudes and actions really start to change if one of those projects doesn't work out. The reality of the financial losses kicks in; ‘partners' become more focused on protecting their own interests and relationships change. You need to ask if that's really a partnering project: the answer is no.

What is partnering?

Our understanding of partnership is that it's about one agenda where everyone shares the same mindset and buy-in. It's about each partner depending on the others to make things happen. And it all starts with taking responsibility and ownership of others' actions as well as your own and following through as part of a genuine team. Sadly, there isn't enough of that about.

At the moment, it's commonplace for the client and suppliers to have entirely different sets of agendas. That's becoming a dated approach. It is more obvious that the supplier is simply dreaming up new ways to maximise their profits, which sets up adversaries.

Public buyers have a range of procurement tools at their disposal. PFI has varied press, with a great number of industry commentators for and against it. The jury's out on whether real value for money is achieved.

Prime contracting provides a real alternative. It arose out of MoD/Defence Estates' feeling that it could secure greater value for money for its building and estate management projects. While your base profit is capped, a pain/gain mechanism offers an incentive to mutually improve returns collectively as one team. Equally, if one member of the project team makes a mistake, everyone is exposed. Everyone, including the client, has to work together to resolve the issues. This certainly focuses the mind and, for some, it's a real culture shock.

Prime contracting: the benefits

If the delivery of real value for money solutions is what you're looking for, this mechanism delivers that. Financially, it's built around setting a maximum target cost with all risk identified and included in the cost modelling. Prime Contracting looks at and calculates risk using a computer model, affectionately called the Monte Carlo simulator.

As a supplier, you commit to making year-on-year savings, new solutions, product innovations, process efficiencies and removal of duplications. Overheads and profit are ring-fenced and a pain/gain incentivisation mechanism is included.

There are other aspects. The most important commitment of all is the much-needed industry shift away from "it's them, my bit's fine," towards a more challenging "how can we get this right?"

The price is set by benchmarking similar developments. Wherever possible, costs are standardised. With the MoD's Single Living Accommodation Modernisation (SLAM) programme, it's measured on a cost per bed basis. On this programme we've also reduced some elemental costs by up to 30% by better sequencing, use of product and collaboration. Under the SLAM Prime Contract Lorne Stewart is committed to saving 3% year-on-year - I can't think of another method of procurement that delivers that.

Working together

Real partnerships are like good marriages - after all, it's about teamwork. We all feel the pain if one job suffers, whereas motivations tend to be aligned if we're all on the same page. It's initially more time-consuming, but the client gets a better job at the end of it for a predictable price and time is saved down the line when people's motivations are aligned. Less time arguing, more productive time.

The client and all the partners are fully collaborative - that's why Prime contracting works. If you are transparent with a client with regard to your costs and profits, in turn, the client is happy because the system's auditable. Collectively, projects become a lot more predictable and time and money tends to be saved.

Prime contracting: reaping the rewards

  • Prime contracting arose out of the Defence Estates’ desire to secure greater value and higher quality buildings

  • The procurement method works on a collective pain:gain reward sharing mechanism, bringing a sense of equality to construction team members

  • Team members are encouraged to work together to solve project issues rather than assign blame, removing adversity

  • The client and partners work together and must buy-in to the Prime contracting ethos for the rewards to be gained

  • On the MoD’s Project SLAM, Prime contracting has reduced costs by up to 30%

Project SLAM – the two year review

The MoD wanted to improve the retention of personnel and the standard of accommodation was cited as a key problem. Project SLAM was introduced as a vehicle to construct quality accommodation to help personnel feel they were ‘coming home’.

Defence Estates appointed Debut (a joint venture formed between Bovis Lendlease and Babcock International) to work on SLAM. The prime contract was born downstream of Debut – a selected supply chain of trades from groundwork, roofers, m&e specialists, brickwork experts and internal fitters that joined together as a construction team. Lorne Stewart picked up the gauntlet for the m&e installation as a cluster leader.

A recent success of Project SLAM is RSS Blandford in Dorset. This 120-bedroom new build project came in early and under budget by working together and working smarter.
c Careful management of labour was critical to the success of the project. Everyone involved was incentivised through a target bonus scheme. This ensured all team members bought into the concept as they could see that client satisfaction would result in more work over the coming years. It’s a cliché but it was a win-win situation – good workmanship would be rewarded with more work and that’s what everyone wants.

  • Costs were driven down through a managed supply chain consisting of major m&e suppliers and a team of specialist subcontractors. They all bought into the prime contracting principles and the long-term view of the project. They were involved at the tender stage and are still involved today supplying progressively enhanced quality products and services.

  • The traditional methods and processes were constantly innovated and challenged. For example, the introduction of modern pipework installations significantly reduced labour time and costs on site.

  • True teamwork on site also made a difference.

Traditionally m&e interfaces with all trades and by taking the time to understand the impact of its actions on others.

Lorne Stewart developed best working practices. It structured its first and second-fix procedures that have brought in real efficiencies that are reflected in the out-turn cost.

Source

Electrical and Mechanical Contractor

Postscript

Gary Edwards is business development director for Lorne Stewart's building services engineering group.