Improving Construction Outcomes Through New Procurement Systems

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• Improving Construction Outcomes Through New
  Procurement Systems
• Salford City Council/ Urban Vision Partnership
  Forum
• 24th September 2007
• Paul Mallinder
• Director of Urban Vision

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Traditional Contracting Problems (1)

• Tender every scheme irrespective of value, slow,
  costly and bureaucratic and wasted valuable
  resources
• Select on lowest price - risk created by the use
  of fixed tendered rates
• A slow process for getting projects on site and
  hence completed, impact on spend targets
• Little incentive to perform well as the next
  project will still be tendered
• The Council is at the mercy of the market

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Traditional Contracting Problems (2)

• Insufficient resource planning
• Unable to involve the constructor at the planning
  and design stage
• Different designer/ constructor teams on each
  project
• Does not encourage flexibility or innovation
• Little incentive to develop new ways of working
  which reduce costs/improve systems/processes etc
• No collaborative working on supply chains/local
  employment / environmental issues

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The Impact of Fixed Price Tendering

• Highly competitive
• Rates and prelims are often cut to the bone or
  subject to a mistake
• The value of risk is often reduced/excluded to
  win reducing quality
• Other means are used to recover from a low bid
• Exploit variations/delays/disruption
• Minimise on site labour/supervision costs
• Cut subcontractor costs
• Cut supplier costs
• Delay payment
• Adverse impact of a souring of relationships

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Improvements required by Salfords clients in 2003

• Buildings fit for purpose
• Customer satisfaction
• Completion on time and budget
• Reduced conflict
• Zero defects/ good quality of Build
• Sympathy with social regeneration issues
• Added Value quality environment
• Whole life costs

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Results of Salfords schemes in 2003
Results 2002-03
Completion within programme 60
Completion within estimated cost 33
Average customer score on quality (out of 10) 7.7
Number of defects at handover Significant,
Number of reportable accidents Nil
Period from sending out tenders to start on site 16 weeks
Constructors mobilisation period after appointment 6 weeks
Percentage of projects with early constructor input 0
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The National Drivers of Change

• Constructing the Team, Latham (1994)
• Rethinking Construction, Egan , ODPM,(1998)
• Modernising Construction, National Audit Office
  (2001)
• National Procurement Strategy for Local
  Government, ODPM(2003)
• Comprehensive Performance Assessment, Audit
  Commission (2004)
• Skills for Sustainable Communities, Egan/ODPM(
  2004)
• Sustainable Construction, Constructing
  Excellence, (2004
• Improving Services through Better Procurement,
  National Audit Office (2005)
• UK Government Sustainable Procurement Action Plan
  (2007)

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New Practices in Procurement

• Removal of project by project tendering and
  select lists to create more certainty providing
  performance standards and value for money remain
  high
• Getting projects on site much faster, with
  greater flexibility due to the creation of long
  term partnerships as a result of a robust
  selection process
• Greater use of payment linked to performance
• More emphasis on quality
• Increased use of target cost/open-book payment
  systems

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New Practices in supply chain management

• Greater use of a standardised component design
  policy to achieve volume and supply benefits
• Greater consideration of off site fabrication
  techniques
• Consideration given to where the construction
  expenditure is going to enhance the social and
  economic regeneration of a locality
• New forms of collaborative working involving the
  entire supply chain

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Where the savings come from (1)

• Egan envisaged INDUSTRY wide, not just the
  construction phase.
• No tendering preparation/evaluation time/costs
• More time for option appraisals/ cost
  modelling/whole life cost analysis
• Avoidance/reduced delay claims and settlement
  costs
• Advanced ordering of materials, eg. steelwork
• Value reviews during the design and construction
  process to reduce the target cost

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Where the savings come from (2)

• Supply chain management
• Volume purchase agreements with suppliers
• Increase in standard component use
• More streamlined approval/ legal processes
• Proximity of projects may lead to site
  establishment savings
• Final account settlement time/costs
• Reducing journey time and transport/ fuel costs
  through local supply

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Conclusions from the July 2007 workshop with
Blackpool Council

• Clients at Blackpool would not go back to
  tendering, however expectations have been raised.
• The flexibility, qualitative and added value
  benefits of partnering have been demonstrated.
  There has been Insufficient recording of those
  benefits.
• The main benefits are the ability to get projects
  on site quickly, the vastly improved quality and
  loss of fear of costly claims
• Blackpools experiment with market testing and
  tendering within the framework have provided
  mixed results
• Partnering has been wrongly blamed for project
  problems which we caused by management
  /administrative issues that would have had a far
  worse result with a tendered project
• More work needs to be done to get construction
  costs down ( negotiations, robust challenge on
  value matters)
• Partnering can work for all types and values of
  schemes
• Understanding about partnering, training and
  up-skilling are crucial

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Creating a Robust Approach

• Hands on Leadership and clear communication
• Know your strengths/areas for improvement
• Adopt a strategic approach (Strategic Brief)
• Consider packaging and number of frameworks very
  carefully
• Assess how buoyant the local market is
• Open day with contractors on select list
• Extensive staff training (Partnering Open book,
  negotiating )
• Extensive training workshops (4 days each team
  member!)
• Risk assessments
• Design robust selection evaluation system
• Wholesale review of roles and responsibilities of
  the team

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Salfords Supply Chain Model
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Salfords Construction Framework

• Work categories ( 52 yrs or 4 year terms)
• Major New Build and Refurbishments
  500k - 5m (2)
• Other New Build and Refurbishments
  125k - 500k (2)
• Landscape Work All values (2)
• Highways Civil Engineering Up to 2m (3)
• Highway Responsive/ routine maintenance
  All values (1)( Urban Vision)
• Electrical All values (1)
• Responsive and Routine Building Maintenance All
  values (2)
• Minor Building Works 20k - 125k (2)
• Mechanical All values (1)
• Major new build and refurbishments
  5m-30m (3)
• Demolition
  All values (1)

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Improved Performance
Results 2003-04 2006/7
Completion within programme 60 100
Completion within estimated cost 33 85
Average customer score on quality (out of 100) 77 84
Number of defects at handover Significant, but not measured 100 defect free
Percentage of projects free of reportable accidents - 86
Period from sending out tenders to start on site. NB. This means get projects are on site much sooner. 16 weeks Planning start on site commeces very early
Constructors mobilisation period. 6 weeks 4 months or greater
Percentage of projects with early constructor input 0 100
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Design Stage Savings

• Ordsall Primary Schools- 45,000 was saved (2 of
  construction costs) by working with the
  contractor early on the project to arrive at the
  pre cast plank and insitu beam and wall solution
• Salford Sports Village- Steel was ordered very
  early to minimise the incurring increases in
  costs and encountering supply difficulties
  leading to delay and extra cost. This would not
  have been possible on a tendered scheme.

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Tendering/contract Stage Savings and Efficiencies

• Urban Vision is no longer spending time on the
  tendering process for each project. This has
  saved 250 days (2000 hours) in staff time per
  annum allowing more projects to be undertaken
  without using agency staff .
• Legal agreements are now completed via a letter
  referring to a pre agreed standard contract.
  This has saved c.200 hours per annum ( 10,000)
• As a result of not tendering the 32 schemes
  approx 50,000 A4 pages and 4000 drawings have not
  had to be copied. This has saved approx 15,000
• Companies have not incurred 1.3m of abortive
  costs as a result of unsuccessful tenders. This
  amounts to 4300 days (34,400 hours) of capacity
  created

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Construction Stage Savings

• Salford traditionally paid out 350,000 per annum
  in claims plus 100 days ( 800 hours) per annum
  settlement time/fees. There have been no claims
  on any partnered project.
• The Cadishead Way Phase 2 partnered scheme
  completed 9 months early and 1m below target
  cost
• The 7 architectural projects completed to date
  have achieved an average saving of 14.
• On competitively tendered engineering projects it
  was normal for there to be a long schedule of
  defects at practical completion and for the
  contractor to take the full defects liability
  period (normally 6 or 12 months) to rectify them.
  This is now not the case under partnering.
• Under tendering only 26 of projects had final
  accounts settled within 18 months of practical
  completion. Final accounts are now settled as
  part of the valuation work . This has saved time
  as now agreed close to the end of completion.

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Project Examples

• Salford Sports Village
• Commenced on site much sooner than a tendered
  project would have.
• Achievement of spend targets helped to secure
  additional funding
• Completed on time and 1 over budget despite
  encountering unforseen ground conditions and
  delays by statutory bodies. This could have led
  to a delay and disruption claim of tens of
  thousands of pounds.

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Comparison of final project costs (per property)
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Comparison of final project costs (per m2)
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Conclusions on project costs

• The cost of construction work is about the same,
  perhaps slightly lower
• Tender ,estimators have a tendency to inflate
  rates where risk is uncertain or overestimate the
  time to undertake a task.
• Tender, Contractors tend to price materials at a
  high level and then seek lower cost suppliers
  during the construction phase.
• Open book eliminates this situation
• We cannot be certain whether preliminaries may be
  slightly higher or lower than a tendered project
  as they tend to be cut in a competitive local
  market or increased during buoyant times.
• Open book working may well have protected the
  council from the costs of a buoyant market ( and
  may do so in the future)

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Analysis of the local Market

• Since Salfords partnership began in 2004 tender
  prices have risen on 'average' by 16.3 (Source
  BCIS)- an average of 5.4 per year.
• The Olympics and BSF programme will result in
  skilled labour shortages, particularly in the
  bricklaying, carpentry and plastering trades.
• BCIS are currently forecasting a further increase
  in 'average' tender prices over the next two
  years of 12.1an average of 6 per year.
• There will also be particular hotspot
  areas.These areas will see a greater rise in
  tenders than the national average above. It is
  considered that the North West of England is such
  a region due to major works going on in both
  Liverpool and Manchester.

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How we intend to continue to improve value for
money

• Early projects have provided opportunities to
  learn
• Use of rates for target cost negotiation
• Contractors eager to please
• Target costs have been coming down
• Rigorous negotiation
• Capping share of savings
• Tightening up when savings are eligible to be
  shared
• Target cost for the next scheme are based on the
  actual cost of the previous scheme
• Considering ways to tighten up arrangements
  further
• a mini competition at an early stage of all
  schemes
• Preliminaries ( security and supervision costs)
• Fixed price preliminaries
• Why the company should be awarded the project
• Programme review
• Primary schools extensive use of off site
  fabrication

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Added Value

• Many local sub-contractors and suppliers are
  involved in the supply chain
• Constructors have become involved with community
  events
• Working with closely with companies and local
  supply chains produces environmental benefits in
  the form of more sustainable product choices,
  increased recycling and reduced transport miles
  and fuel used with associated cost benefits

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Added Value

• The City Academy access road scheme in Eccles has
  been recently nominated to receive an award under
  the Considerate Constructors scheme, the
  assessor commenting an exceptionally high
  standard especially with environmental and good
  neighbour issues.
• The partnership is also committed to supporting
  the local community, assisting with an
  antibullying initiative and by providing
  assistance with the purchase of school playground
  equipment. It is also hoping to contribute to a
  future safer routes to school project.
• Companies have demonstrated active support for
  the training initiatives delivered by the Salford
  Construction Partnership in May / June last year
  and the STEP 1 IN Salford training programme
  launched in January 2006.

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Recognition for the Council

• Procurement has contributed to the Councils CPA
  rating
• Procurement Commendation LGC National Awards
  2005.
• Salford Sports Village -
• Won the Builder and Engineer award for Public
  Project of the Year 2006
• Won Gold award from the Considerate Constructors
  organisation in 2006
• Highly commended in the I.C.E Merit awards 2006
• Highly commended in the Quality in Construction
  awards 2006
• Won Silver award from the Considerate
  Constructors organisation in 2005 and 2007

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Regenerative impact of 100m construction
investment

• 7m profit/ohd recovery to main contractors/
  developers
• 4m Profit/ohd recovery to sub contractors
• 3m profit/ohd recovery to suppliers
• 15m of labour employed by main contractors (c
  600 people)
• 28m labour employed by sub contractors (c 1100
  people)
• 43m of materials manufactured/delivered by
  suppliers
• Aim to keep as much as this as possible within
• the local economy

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The Impact of Construction

• Creating a thriving local construction industry
  can become a vital aspect of sustainable
  regeneration
• The construction industry employs c2.5m people in
  various roles
• Many people who start off in the trades progress
  into managerial and professional roles and some
  also establish their own small businesses.
• 245,000 workers required over the next 4 years
• Construction work is forecast to expand by 3 a
  year

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Social Sustainability

• Salford Sports Village
• 22 main contractor workforce of which 12 (54)
  were Salford residents
• 11 local sub contractors were used ( 100) saving
  saving transportation costs/fuel.
• 87 of the materials supplied came from local
  suppliers ( 47 out of 54 suppliers), saving
  transportation costs/fuel.
• 3 new employment opportunities were created for
  Salford residents.
• 3 Salford local school children benefited from
  work experience on the project.
• Local people involved in the management of the
  facility

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Social Sustainability

• 583 Local unemployed residents supported into
  employment.
• This saves approx 7m per annum in benefits. For
  every unemployed person placed into a job this
  saves 12,000 in benefits and improves they and
  their families social and economic circumstances
• 242 Local unemployed residents into Construction
  related apprenticeships
• 93 Local unemployed residents supported into
  bespoke construction training
• 209 Local residents registered on SCP
  database/skills register
• 67 Major Primary Building Contractors signed
  up to the SCP Employment Protocol/Agreement

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New Developments in Supply Chain Management
through SCP
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Thank You Questions and Discussion Paul
Mallinder 07970 941783 www.urbanvision.org.uk