Last reviewed 5 April 2018
Replacing a traditional “lowest cost” approach to tendering with a collaborative working culture that really does deliver better solutions for everyone involved could help to redefine and improve construction’s fundamental client–supplier relationship.
Construction industry supply chains are under growing pressure to improve performance at a time when many different eyes are studying how well infrastructure projects are actually delivered.
One option fast gaining ground is to wind up traditional “transactional” supply chains that respond passively to tender invitations and pass on risk, and replace them with collaborative “enterprise” models that actively encourage greater efficiency, innovation and productivity.
Collaborative working is not a new concept. Well established in the automobile and manufacturing sectors, its aim is to reward carefully selected delivery partners — often including the primary client — for any improvements above a basic delivery line, but also penalise them for failure.
Alternative for a broken system
Recent news headlines aside, there is a growing consensus that construction’s existing procurement/delivery model is broken systemically, frequently over budget and often incapable of meeting key deadlines. Everyone loses.
With tight margins and an increasing need to show better value for money at a time when finance is still cheap, many projects are showing unsustainable amounts of red ink. The challenge and opportunity for construction is to reform how contracts not only within the private sector but also in the public-private sector can deliver long-term value rather than short-term savings.
There is also concern that the construction industry’s traditional model is no longer fit for purpose in an increasingly digitally enabled world.
Many clients, supplies and other partners are known to be dissatisfied with both the process and end product but are not sure how to respond. Some well-intended collaborative projects are said to fail because they focus on being friendly when a more deep-seated cultural change is needed.
One industry view is that contractors must work out how to deliver projects more efficiently if they want to make more money. The alternative is that the initiative lies with clients to change their approach to effective procurement. Successful collaborative working combines both.
The industry is taking action.
From March 2018, the ICE (Institute of Civil Engineers) will make more detailed information available about its Project 13 initiative. Using advisory support, tools, guidance and peer review, the Project 13 objective is to create a community of infrastructure owners and suppliers that can tackle the UK’s productivity “knot” through a new project delivery model.
It says the UK’s productivity is poor compared to other G7 countries: 35% behind Germany and 18% behind the G7 average.
The ICE’s aim is to provide a blueprint for moving from traditional “transactional relationships”, which it says essentially pass down risk, to “enterprise relationships” focused on outcomes and maximising performance. Improving productivity will make more money available for other projects. The model it is developing has been used successfully over a number of years in the water industry and moves away from key decisions simply being based on lowest cost.
ICE director general Nick Baveystock explained recently that, “Our industry is often criticised for low productivity and concentrating too much on margins. Project 13 is the industry’s attempt to address these issues.”
Richard Threlfall from KPMG, which is also involved, was quoted as adding, "Project 13 is a concerted effort to transform the UK construction industry. It requires us to change how we think and act, and crucially how we work together. It won't be easy but the prize is a world-class industry and better outcomes for our society."
Tall order: attractive menu
Lowest cost has crucial limitations.
The standard cost-based procurement model was perhaps well described by former US astronaut and Senator, John Glenn. When asked how he felt sitting in a space capsule waiting to launch, he replied, “Well, the answer to that one is easy. I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts — all built by the lowest bidder on a government contract.”
In contrast, the new model designed to introduce entrepreneurial opportunity and positive competitive forces is an alternative to merely trying to meet the client’s best guess of what they think they want in a tender invitation that often disappoints when delivered several years down the line.
Under the new approach, in the time taken between contracts being awarded and a real project being delivered, collaborating partners are incentivised and free to continuously fine-tune and improve delivery against an agreed baseline.
Delivering above the base is a gain to be shared by everyone from a joint pool. Delivery below the base introduces shared losses that can ultimately see individual suppliers removed and replaced by other selected sources. The secret lies in clear arrangements in which everyone knows where they stand.
All for one and one for all
Why this approach is more effective is quite easy to see. In the traditional model, a scope is created. Even at that stage assumptions are already being made that can become baked-in. A tender document is produced that goes out to the marketplace. The responding proposals often reflect what suppliers would like to deliver. The final determination often meets the John Glenn cost principle. The common thread is compromise.
Constructive collaborative working takes a different approach. There is a built-in incentive to be efficient, innovative and more productive. Drift is a common enemy. Measuring and monitoring against a baseline is an opportunity, not a chore. Suddenly, factors that may have been vague previously can be addressed more positively.
Carbon reduction can be tackled head on. A sustainable approach to whole life costs becomes more meaningful. The cost of capital is better controlled. Time is given a value.
A practical base line becomes pivotal and often draws on previous project experience and industry knowledge. Hammering out details at the outset establishes a framework for calculating both value and losses. All members can trust this, although on evolving projects it can be modified continuously to enhance performance. Crucially, it is impossible for any individual supplier to exploit the system for its own ends, or expect to be able to charge for overruns as a matter of course.
The careful and methodical selection of supply partners is also critical. The aim is to create a chain that can act as an integrated business entity able to tackle its own weak links. Because it is of mutual interest, supply partners are often interviewed carefully on their attitude, history and ability. It is understood that performance will be rewarded. However, persistent losses will lead to deselection.
The Anglian Water @one Alliance has been instrumental in Project 13. It forms a collaborative organisation of consultants and contractors working together to deliver more than half of Anglian Water’s capital investment programme. Between April 2015 and March 2020, in closely cooperation with Anglian Water operations teams and other key stakeholders, the Alliance will have designed and built some 800 schemes valued at approximately £1.2 billion under the current AMP6 (Asset Management Plan) five-year investment period.
The initial driver for its successful collaborative model was a realisation that simply doing the same as before was only delivering the same results as before. It was time for a different approach and way of working if performance was to improve.
The Alliance has pioneered the base line model against which outputs can be measured accurately and delivery targets set, adopting best practice from other sectors. It is also able to create many of the behaviours it is looking for. The result is a system of common goals but mutual dependency operating in a tough commercial model that in the last 12 years it has achieved a 40% improvement in time efficiencies and a 50% carbon emission cut.
As proof of the pudding, all supply partners recently signed up to another 15 years. A long period of certainty gives them the time and incentives they need to develop new innovations jointly and commit themselves wholeheartedly to continuous improvement.