Out with lowest tenders, roll on partnering and alliances. Andrew Brister listens in to the CLG conference on achieving better value in construction.
It has been seven years since Sir Michael Latham's landmark review of the construction industry and three years since Sir John Egan's client-led Rethinking construction report. Has much changed?

The sceptics could have done worse than attend the recent CLG conference which promoted the positive moves being made to bring about the recommendations of the reports of the two Sirs.

UK construction accounts for some £60 billion expenditure each year – 10% of gdp. CLG chairman John Harrower estimates that only 10% of this output has been affected by the improvements suggested by Rethinking construction with far fewer than 10% of firms working to its principles. "It is the duty of the CLG to help bring about a wider and deeper understanding and application of those principles – particularly among SMEs and small and occasional clients," said Harrower.

To that end the CLG is playing a prime role within the new Strategic Forum for Construction by, jointly with the HSE, leading the subgroup investigating integrated supply teams. "We recognise that there are three key strategies that will improve the contribution of specialist contractors to the design and construction process, raise performance and provide better value: teamwork and collaboration, a process-oriented approach to design and construction, and making customer requirements the central focus," said Harrower.

CLG must help bring about a wider and deeper understanding of Rethinking construction

Harrower

How might these strategies be realised? According to Harrower, by: "Recognising the strengths of specialists and ensuring they are involved as early as possible in projects; thinking about the process to identify and reduce waste, control time and cost and add value; enabling all in the supply chain to understand customers' expectations, meet objectives and deliver final outcomes."

Are these views shared by the leading players within construction? Andrew Smith is chief secretary to the Treasury who, together with the Office of Government Commerce, is currently seeking improvements in the performance of the construction sector. "To rebuild the national infrastructure we have to become equal partners with the construction industry – working together to ensure that public facilities are well designed, safely built, and cost- effective over the life cycle of the project," said Smith.

One of the tools being used to achieve this is the Public Private Partnership (PPP). "The OGC is facilitating a move away from old adversarial principles, and they are engineering reform at all levels of government – from the top down."

The Office of Government Commerce is facilitating a move away from adversarial principles

Smith

While few m&e contractors recite positive experiences from working with the Government as a client, Smith promised an attitudinal and cultural transformation and demanded that the construction industry do likewise.

"Value for money is at the heart of the relationship between government and the construction industry," said Smith. "Value for money does not mean lowest cost. It means the optimum combination of value over the whole life of the facility and the quality of the service, product and design.

"We argue that PPP forces the public sector to engage with stakeholders early in the life cycle of the project: by identifying their needs and agreeing outputs we can ensure that the benefits of good design are built into the procurement process, helping us to deliver on our value for money objectives," said Smith.

The KPI to focus on is safety. It’s time to stop killing the people we employ

Egan

No CLG conference would be complete without discussion of public enemy number one – retentions. "We believe this is a quality issue related to the level of defects outstanding on completion of a project and only by tackling the level of defects will we remove the underlying cause or demand for retentions," said Smith. "To achieve zero defects we need to: implement selection procedures designed to identify the contractors best able to deliver the necessary quality required by clients; design procurement arrangements that promote teamworking and partnership; put in place assurance of quality at the outset."

Further evidence that the Government is moving away from its reputation as a worst practice client was provided by Kate Priestley, chief executive of Inventures, formerly known by the rather more descriptive name of NHS Estates. The NHS spends about £3 billion each year on construction, and knows full well that the old ways do not work. Procure 21 is the name of its overhauled procurement practices which adopts a partnership philosophy, promotes benchmarking, design excellence and effective supply chain management. If the government is to achieve its target of 100 new hospitals over the next decade, then taking the lessons learnt from Rethinking construction is the only option.

Noel Foley, housing procurement manager with the London Borough of Hackney, and Gordon Bateman, contracts manager with Thames Water, gave further positive examples of alliances on their respective programmes. "We are embarking on long-term, often 10-15 year, relationships with our suppliers," said Foley. "There is early involvement of specialist contractors, with early risk identification and risk and reward mechanisms. We now focus on risk management and value for money, partnering and integrated supply teams." The benefits are clear: Foley predicts a £80 million saving over 15 years, with 16-20% savings on major works and 30% savings on his maintenance programme.

Procure 21 will adopt partnering, benchmarking and supply chain management

Priestley

Bateman has also dropped the adversarial approach of old. Alliances with just six contractors now account for 80% of Thames Water's capital expenditure. Those six enjoy five-year agreements and are employed on a cost-reimbursable basis with target-cost mechanisms.

Bateman does not believe in retentions: "Better to have a bonus for zero defects than to retain sums. Working on a cost-reimbursable basis means that retentions are meaningless."

All of which is music to the ears of the final speaker: Sir John Egan. The former BAA boss was of course asked by the government to pen the Rethinking construction report because of the changes he instigated while at BAA. Yes, you guessed it: pre-planning, the importance of design, partnering the supply chain, standardised components and key performance indicators featured heavily both at BAA and in his ground-breaking report on the ills of the construction industry.

Three years on and Egan is back. He is chair of the newly-formed Strategic Forum for Construction: "Change is not widespread enough. The Movement for Innovation [set up to drive forward the Rethinking construction recommendations] probably only reached about 5-10% of the industry."

The Forum will have three key principles: integrate the team before the project starts, the client should drive the process and the KPI to focus on is safety. "We are killing two people every week and a member of the public every month. Let's really get to grips with the disgraceful position we are faced with, this brutality of killing the people we employ."

The Forum is to write a process map for clients of all shapes and sizes to follow – how to achieve value for money, how to put a team in place, how to follow the principles of Rethinking construction. "Equally important will be how the industry responds to a client wanting to procure according to the principles of Rethinking construction," said Egan.