Improving Construction Outcomes
Through New Procurement Systems
Salford City Council/ Urban Vision
Partnership Forum
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 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
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
The Impact of Fixed Price Tendering
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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
Salford’s clients in 2003
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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 Salford’s 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
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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)
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
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
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
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
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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
Blackpool’s 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
Creating a Robust Approach
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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
Salford’s Supply Chain Model
Salford City Council
Framework of Main Constructor Partners
The Salford Construction Partnership
Membership: Salford’s economic and regeneration staff, Connexions,
Jobcentre Plus, Chamberlink, Learning and Skills Council, Action 4
Employment, Salford University, Salford College, local companies etc.
Network of local Sub-Contractors
Network of local suppliers
Urban Vision
Partnership
Salford’s Construction Framework
• Work categories ( 5+2 yrs or 4 year terms):
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Major New Build and Refurbishments:
Other New Build and Refurbishments:
Landscape Work
Highways Civil Engineering
Highway Responsive/ routine maintenance
Electrical
Responsive and Routine Building Maintenance
Minor Building Works:
Mechanical
Major new build and refurbishments
Demolition
£500k - £5m (2)
£125k - £500k (2)
All values (2)
Up to £2m (3)
All values (1 )( Urban Vision)
All values (1)
All values (2)
£20k - £125k (2)
All values (1)
£5m-£30m (3)
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%
Significant,
but not
measured
100%
defect
free
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86%
16 weeks
Planning start
on site
commeces
very early
6 weeks
4 months
or greater
0%
100%
Number of defects at handover
Percentage of projects free of reportable accidents
Period from sending out tenders to start on site. NB. This means get
projects are on site much sooner.
Constructors mobilisation period.
Percentage of projects with early constructor input
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 created
Construction Stage Savings
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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.
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 cost per property for block improvement schemes
18000
16000
14000
Value in £'s
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8000
6000
4000
2000
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Cost per M2 (excludes ext. works)
Comparison of final project costs (per m2)
New Build and Major Extension Schemes
Comparison of Partnered and Tendered Schemes - 10/07/07
2500
2000
1500
1000
500
0
Schem e
Partnered Schem e / Tendered Schem e
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 Salford’s 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 12.1%an 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 money
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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
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
Added Value
• The City Academy access road scheme in Eccles has been
recently nominated to receive an award under the Considerate
Constructor’s 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 anti–bullying 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
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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
Regenerative impact of £100m
construction investment
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£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
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
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
Social Sustainability
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583 Local unemployed residents supported into employment.
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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
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242 Local unemployed residents into Construction related apprenticeships
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93 Local unemployed residents supported into bespoke construction
training
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209
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67 Major Primary Building Contractors signed up to the SCP Employment
Protocol/Agreement
Local residents registered on SCP database/skills register
New Developments in Supply
Chain Management through SCP
Thank You
Questions and Discussion
Paul Mallinder
07970 941783
www.urbanvision.org.uk