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Improving Construction Outcomes Through New Procurement Systems


Title: LEADERSHIP ROADSHOW Author: Sue.V Last modified by: ctsdpmallinder Created Date: 9/10/2003 4:29:33 PM Document presentation format: On-screen Show – PowerPoint PPT presentation

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Title: Improving Construction Outcomes Through New Procurement Systems

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

Traditional Contracting Problems (1)
  • Tender every scheme irrespective of value, slow,
    costly and bureaucratic and wasted valuable
  • 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

Traditional Contracting Problems (2)
  • Insufficient resource planning
  • Unable to involve the constructor at the planning
    and design stage
  • Different designer/ constructor teams on each
  • 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

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

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

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

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
  • 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

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
  • 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

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
  • Advanced ordering of materials, eg. steelwork
  • Value reviews during the design and construction
    process to reduce the target cost

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

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
  • 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
  • Understanding about partnering, training and
    up-skilling are crucial

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
  • 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
  • Risk assessments
  • Design robust selection evaluation system
  • Wholesale review of roles and responsibilities of
    the team

Salfords Supply Chain Model
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)

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
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.

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

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
  • 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.

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.

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

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.

How we intend to continue to improve value for
  • Early projects have provided opportunities to
  • 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
  • Target cost for the next scheme are based on the
    actual cost of the previous scheme
  • Considering ways to tighten up arrangements
  • a mini competition at an early stage of all
  • 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

Added Value
  • Many local sub-contractors and suppliers are
    involved in the supply chain
  • Constructors have become involved with community
  • 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

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.

Recognition for the Council
  • Procurement has contributed to the Councils CPA
  • Procurement Commendation LGC National Awards
  • 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

Regenerative impact of 100m construction
  • 7m profit/ohd recovery to main contractors/
  • 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
  • 43m of materials manufactured/delivered by
  • Aim to keep as much as this as possible within
  • the local economy

The Impact of Construction
  • Creating a thriving local construction industry
    can become a vital aspect of sustainable
  • 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

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

Social Sustainability
  • 583 Local unemployed residents supported into
  • 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

New Developments in Supply Chain Management
through SCP
Thank You Questions and Discussion Paul
Mallinder 07970 941783