Trends in Procurement

Fortunately the industry is no longer alone in thinking there must be a better way. In the wake of the two life-affirming Latham and Egan reports, government has moved away from promoting lowest cost to adding value.

Procurement is now a strategic issue. Main contractors have become pseudo-clients. Choice of system or product must now be made on any combination of capital cost, whole life cost or operating cost.

Can main contractors be trusted with such responsibility? Should clients have closer relationships with their supply chain? What role will standardisation and pre-assembly play in procurement decisions, and can a fragmented industry ever overcome its skills shortage and adversarial nature to work in true harmony?

To answer these questions the BSRIA and BSJ hosted two round table debates with key industry professionals to identify the barriers and opportunities for improving procurement. The following exchanges are an amalgam of those debates, and where possible opinions that were expressed separately have been linked to form a consistent narrative.

Identifying the problem
Chris Marsh: Building services procurement is the least understood subject in construction. We are being asked to move towards whole life costing and partnering, but there is almost a total lack of knowledge on how to do it.

With the shift towards prime contracting and pfi, the body now responsible for procuring building services is now the main contractor, and I have met very few main contractors who understand building services, let alone how to procure it properly. So what do we need to do?

Don Leeper: There are five key drivers. Egan said clients were paying too much for their buildings. Investors think there is more profit in it and too much waste. Third, we are facing increased competition from overseas, with different standards, different contracts and different views of quality. Then there's information technology and finally legislation.

The most obvious step [to deal with these] is for designers, installers, builders and maintainers to come together for the whole life of the building. What we are searching for is a guarantee of performance and a fair market price for a decent return, so that together we can knock 2% off the cost and 1% off the price.

Bill Colledge: As a small specialist contractor the major issue for me is fierce competitive pressures and downward pressure on prices. There has to be a limit to that, so I think we need to form some strategic alliances with immediate customers and suppliers.

Jim Faulkner: We have to change our whole attitude. Jobs should be design-led and centred on the needs of the client rather than on those who are delivering the job. We have got to stop making money out of each other and find a fairer, way of getting paid by the client while giving value for money. It has to start with culture then the process, and third, the information technology has to suit the process.

The future for partnering
Chris Monson: The construction industry is fond of using fine words like partnering, but in the real world I don't see it. Specialist suppliers are rarely involved in the design stage of projects. And as they are not involved in the design risk they do not enjoy the rewards. But why not? What is it that precludes specialists from assisting a client in getting what he wants?

I would love to see us get closer to suppliers as it would put the installer element firmly alongside the design element

Don Leeper

Martin Davis: The reason is because a lot of people down the supply chain have not been able to give anything like their full contribution. The manufacturers have got every reason to have the biggest gripe about that. Very often what you need is a clear expression of what the user really wants and a clear direct addressing of it by the manufacturer.

Between that are parties who don't actually understand those things and muddy the message. It's no wonder we've got into a mess with long supply chains.

Don Leeper: The way we often try and make partnering operate is to partner up and knock six bells down, and really it should be the reverse. We should start partnering by looking down and finding people who can help us.

I would love to see us get closer to suppliers as it would put the installer element firmly alongside the design element, and also make buildability an issue.

Ron Jeeves: If you can combine the procurement of a building with its operation, in a pfi-type situation, then you will get a project where the constructor has a long-term interest.

Flan McNamara: I've used many good contractors over the years, and have no problem using them again, but as soon I put their name down I'm accused of using my mates. So if I stack the deck in my favour, thinking someone will be good, someone else will ask me to prove that they're cheaper.

Bill Colledge: Every time we build we have a new set of rules [in the contract], we work with a different set of people, a different set of designers, and use different materials. The uncertainties in the project increase, and the probability of it being successful is reduced.

The Japanese car industry concentrated on processes: efficient supply chains and continuous improvement. We haven't learned that yet.

Mike Burgoyne: It is always a pleasant surprise to go to site and meet the same people from the last job. You don't have to start the battles again – you start from a higher plane. And you can create that through frameworks where you build-up and choose your partners carefully.

Eric Ostrowski: Nothing would please me more than to be able to say that I belong to a Brand x club that has 100 suppliers, installers, and product manufacturers in it, and we have already identified as part of that process a supply chain that will deliver the project, whether it is in terms of manufacturing opportunities or a contractor with labour coming off one project and ready to do the next one.

Flan McNamara: I would like to see an arrangement whereby the manufacturers of fan coils get together with users and specifiers and once and for all categorise those products. Maybe it's a project group: cells of specialist products, more or less, [who subscribe to] common standards. You would then be able to ask simple questions on product availability and staffing capability, a sort of pre-qualification without having to issue questionnaires that take too much time.

Respecting everyone’s input and trying to get the best solutions will make the industry better

Ken Dalton

Jim Faulkner: Yes, the products would become known standards, set parameters that you would know up-front. We all waste a lot of time comparing catalogues.

Eric Ostrowski: I spend a lot of time doing front-end cost plans for clients, and while I know we don't have the technology, I would like a Windows program with a slide option so I can see four pipe fan coils with details of procurement costs, materials and delivery times. I could then see immediately the effect on a product choice on the cost plan.

Jim Faulkner: A commitment by a specialist contractor to a level of cost?

Eric Ostrowski: That's the Utopia. It should be immediately apparent – that's the point. The client wants to spend this much, then out pops a supply chain to deliver that and lock onto the availability of kit.

Chris Marsh: But how many m&e quantity surveyors really understand building services costs?

Eric Ostrowski: This is a big problem for me, daily. Can one predict and report the ramifications of making a [product] decision? The key to good procurement has to be individuals coming together as a family, operating as one and trusting each other. You know about design, I know about costs, and these guys know about building it.

Martin Davis: We need to be able to look around the table, and see what skills are in the industry, where they are, recognise what is needed in terms of m&e and whole life cost, and then build a team around that.

We ought to get rid of the current hierarchy, create a flat structure, and assemble a team early on that has an alignment of interests and where leadership can change through the construction process.

Information technology
Eric Ostrowski: Partnering is all very good, and a great move forward. But in my eyes it is an old-hat, single-dimension thing.

What we need is an infinite net of like-minded people that create buildings.

Jim Faulkner: You might start to build virtual companies, groups of firms that can offer complete building solutions.

Contractors.. ...should work more together to provide tailored solutions for the whole life cycle of a project

Paul Reader

Bill Colledge If you could put a proposition together which sells a more standard proposition to first time buyers, and one-off buyers, you could do that in a shell company with all the specialisms. Mace has this branded office building where it has standardised the process and the components – with freedom for customisation – together with a briefing tool that takes the client through the options. That has a guaranteed price at a very early stage.

Don Leeper: I was involved in the Teamwork 2000 project at the Building Centre last year, where we participated in a virtual design using a real-time 3D model of the building. The next step is to create a virtual company.

Eric Ostrowski: You could go one step further and create a model office building or a school where you have all the bits, and advice that manufacturer A is best suited for doing, for example, radiators for certain types of building.

Flan McNamara: It's an "Ask Jeeves" type service, isn't it? If you could go to a human interface and find radiators suitable for low pressure hot water, you could download the information as a schedule of radiators. We should be able to download not just the technical information, but also the pricing information from the web. It should be regularly updated and not labour intensive. I don't think it should be left to the manufacturers to finance this. A lot of developers want commonality of products.

Martin Holt: We are in danger of going down the e-commerce route without fixing the fundamental process. We have to sort that out before we turn it into an IT process.

Brian Herbert: The question for me is: how do I break into that party? We may have better products. A mechanism would need to exist so I can demonstrate my products [to specifiers].

Don Leeper: There are two issues to address: does it do what it says it will, and how much it is. When products are interchangeable, it's difficult to lock into one particular outfit. For more sophisticated products, you need to partner down to build a product into the brand process.

Trust and communication
Martin Davis: I am involved with the M4I working group on supply chain management and partnering. While all the reports talk about supply chain management, whole life costing and partnering, there is a huge danger that this is just between the discerning client and the switched on contractor, and the message isn't getting down below that...to manufacturers with all the r&d and capability who are not part of the process.

Some demonstration projects have specialist contractors who are part of the supply chain, but there are others where the specialist contractors don't even know they are on a demonstration project. That means it is shallow, short-lived and of no use whatsoever.

Paul Reader: It's time that contractors – including trade and sub contractors – work more together to provide tailored solutions for the life cycle of a project, for particular clients.

Roy Morledge: I do wonder whether the main contractor is relevant any more. They manage the process, but they don't influence the skilled trades. It is really important [to the client] to have a finger on those people with the skills...and even employing the people direct. The big boys are sussing this – they are employing the suppliers directly, and not leaving it to the subcontractor without the asset base to appoint the supplier with the asset base.

We are in danger of going down the e-commerce route without fixing the fundamental process

Martin Holt

All main contractors do is provide a management function and allege they take risk, when all they really do is pass it anyway they can.

Ken Dalton: Not only do we need to build and sustain relationships with clients, we also need to do that with team members. By building that relationship, with trust and understanding, there is a opportunity to deliver better results.

Chris Monson: I come from the bottom of the food chain in all of this, and it doesn't happen. People who supply specialist subcontracted services are still treated exactly the way they were treated 10 years ago.

Paul Reader: I agree. When we talk about two-stage tendering with services and cladding contractors, they are still brought on a long way down design and development. The big clients spend tremendous amounts on r&d and prefabrication, but the contractors are not brought on board when the building is being designed.

Ken Dalton: PFI can make a project go much smoother because everyone has an input. It is being able to respect everyone's input and try and get the best solutions that will make the industry better.

Principal contractors have become main contractors as they have been punching their weight with funding, and an increasing number of them now have the financial capacity to...pull a team together. Until [there is] more of that, then I think we will always be fragmented.

Andrew Taylor: In my firm we go right down to the level of personnel and we list the people in that organisation that we want to work with. If when there is the wrong project manager on a job, strangely those people don't materialise. Other times, these people will come off another job and help us out, even when our job is a third of the value.

Eric Ostrowski: Yes, we need to know who is available, and at what point.

Five years from now...
Flan McNamara: I would like to see consultants, contractors and construction managers providing information to a central no-blame database of...collective experience, because we are all doing the same exercises in isolation.

Eric Ostrowski: I think we will need vetting for people in the team. Maybe not a passport, but vetting or accreditation so we know that we are dealing with people on the same wavelength.

Bill Colledge: I hope we will see a culture change where there is greater willingness to trust each other more. I'd like to see design and construction integrate and the client to be more engaged with the supply chain.

Andrew Taylor: I would like to see parity between m&e contracting and construction. Too often we are buying products that we know little about because it is done on price.

Don Leeper: Value is very important, and I'd like to feel that it would apply to clients as well. The signs of clients buying into what we are saying are not as strong as I would like. Clients like the idea of getting it [sic] cheaper and for us to put our house in order, but clients ought to be doing something to bring about real relationship improvements.

Brian Herbert: Trust is fundamental to a changing process. Every journey starts with a small step. But we have to recognise that we have to change or die. We are facing quite a crisis in the industry, and unless we make some significant moves we are going to have a lot of problems.