The refurbishment of Grenfell Tower and how it came to pass has put procurement under the microscope. One year on from the tragedy, have council attitudes shifted and what comes next as the inquiry unfolds?
In the aftermath of the Grenfell tragedy last June, details began to emerge about the procurement process Kensington and Chelsea Tenant Management Organisation used to refurbish the 24-storey tower block.
A 2012 press release from Kensington and Chelsea Borough Council listed Leadbitter as the main contractor on the works, for which it quoted £11.3m. At £1.6m over the council’s budget, Leadbitter’s offer was rejected and the project was put out to tender again.
Rydon finally took the contract at £8.7m.
Following completion of the tender process, the original zinc cladding specified for the project was replaced with an aluminium alternative, which saved the council £293,368.
Both the zinc and aluminium cladding have the same fire rating, but what is notable is just how much costs were interrogated and driven down. The Grenfell Tower Inquiry could well reveal further cost-cutting measures that are yet to come to light.
The revelations point to a procurement process that prioritised – above everything else – the lowest price for the job.
Unfortunately, this sort of approach is not limited to Kensington and Chelsea Borough Council, with local authorities across the country perceived as having a lack of in-house procurement expertise.
This has been exacerbated by sharp austerity cuts to council budgets and often leads to procurement officers reverting to a lowest-cost approach.
On the flip side, it may explain why Carillion was able to negotiate facilities management contracts with local authorities that produced margins of 13-15 per cent, whereas its central government FM deals were averaging just 1 per cent, according to a National Audit Office report published last week.
Does a lack of experience or confidence play a part in local authorities failing to get the right type of deals?
Mark Robinson CEO Scape Group
Scape group chief executive Mark Robinson says taking a lowest-cost approach can in fact end up costing more overall, with additional costs hidden by contractors in order to secure the contract.
“Lowest-price tendering doesn’t save you any money, believe it or not,” Mr Robinson says. “Whatever the tender price is, it’s never ever the finished out-turn price and the difference can vary by millions of pounds.
“You’ve got to remember: that’s what the [construction] industry set themselves up to do. They will see that as an opportunity in tender slips, to not price something and to bring it in later on as a claim to raise that price.”
As a result, lowest-price tendering has created a “race to the bottom”, Mr Robinson argues, where contractors can end up using inferior products or making claims on a job in order to bolster profits.
This procurement environment is one of the reasons why Scape was established by six local authorities in 2006. The public sector partnership procures work on behalf of local authorities, with part of its funding coming from a levy attached to the contracts it tenders.
“If local authorities were really good at procurement, there wouldn’t be a need for a company like Scape”
Mark Robinson, Scape
To procure more efficiently, Mr Robinson believes all local authorities should at least consider using a framework. “I have this thing about public sector procurement – I don’t think it’s that good. I think a lot of it is very traditional, is done unintelligently and it can definitely be improved,” Mr Robinson says.
He adds: “If the public sector, local authorities and housing associations were really good at procurement, there wouldn’t be a need for a company like Scape to help them procure more effectively.”
Quality, not cost
As well as forcing the construction industry to take a hard look at its approach to winning and completing work, the Grenfell tragedy has also thrown local authorities into a period of self-examination.
One of the outcomes has been a shift in mindset over what needs to be prioritised when procuring construction works. “When the new tenders come out, there is this quality-price split as a ratio,” explains Fortem national strategic business manager Paul Rocks.
“We used to see in projects that price would be the dominating factor. So about 70 per cent of the rating would be pricing and maybe 30 or 40 per cent would be quality. We’re now seeing that go the other way around where quality is now the dominant factor.”
Fortem is part of the Willmott Dixon group of companies and undertakes repair, planned maintenance and large refurbishment works to social housing for local authorities.
Paul Rocks Fortem
As well as a prioritisation of quality over cost, the company has seen a number of projects in the pipeline being frozen by local authorities post-Grenfell. “I know of at least four live tenders that were postponed and at least a dozen planned tenders were put on hold,” Mr Rocks says. Some of these were in the North while others were in London, he adds.
Mr Rocks believes this happened because local authorities “had to take stock”, with some concerned about whether the works they had tendered were fit for purpose, while others were worried about the impact of new regulations.
Another trend Fortem has noticed is an increase in the level of scrutiny local authorities are placing on contractors.
“What we’re finding now is the level of technical information that’s being asked for, it hasn’t increased because that was always there, but building control are now coming back and being much more challenging about the proposed solutions,” Mr Rocks says. “They want to see more evidence about how it’s going to work and they want to see evidence of where it’s been installed previously.”
Is technical knowledge missing?
Increased scrutiny of contractors is a positive development, but technical knowledge is required if such closer examination is to be carried out rigorously.
The question therefore has to be asked: do local authorities have the required technical expertise to properly scrutinise contractors?
According to Mr Rocks, local authorities are not completely lacking in technical knowledge, as many are happy to use external consultants if they do not have the expertise in-house.
“I find that many local authorities and housing associations are very well equipped to deal with procurement,” he says. “Many of them will employ procurement consultants to help them through that process. I would honestly say nine out of 10 procurement processes with local authorities that we have come through, have specialist advisers.”
If this were true of the wider local authority client base, it would suggest there is no lack of technical ability to scrutinise contractors during the procurement process. However, it could raise questions over the quality of advice they are being given.
“Quality is already integral to the work we do. I can’t say what that quality-price split is here, but quality is always a consideration for us – it’s not purely about cost”
Southwark Council spokeswoman
Consultants can scrutinise a contractor to the nth degree, but they can only influence a project as far as the client will allow them to. If cost is being prioritised over quality, the consultant’s advice will reflect that.
Construction News contacted a dozen local authorities and housing associations across the country for this article; only Southwark Council agreed to speak to us, while Nottingham City Homes submitted written responses.
Southwark Council is the biggest local authority landlord by housing stock, and says Grenfell has had a limited impact on its procurement process and approach to delivering housing services and building works.
“We’ve learned the lessons that a lot of councils are grappling with now, so we’re ahead of the game with our processes because we’ve already changed our practices,” a Southwark Council spokeswoman said. “That quality is already integral to the work we do. I can’t say what that [quality-price] split is here, but quality is always a consideration for us – it’s not purely about cost.”
Southwark has “spent millions on fire safety over the years”, she says, adding that it is continuing that process of improvement. “I think other authorities are potentially going to be playing catch-up,” she adds.
Where to next?
Dame Hackitt’s final report on Building Regulations makes five recommendations on procurement, three of which are directly applicable to local authorities and two of which are aimed at government.
The first targeting local authorities states: “For higher-risk residential buildings, principal contractors and clients should devise contracts that specifically state that safety requirements must not be compromised for cost reduction.”
With local authorities already showing signs of reconsidering lowest-cost tendering strategies, prioritising quality over cost and looking to properly scrutinise contractors, there are signs this has been taken on board.
Dame Hackitt also recommends that tenders should set out how works will produce safe building outcomes, and that safety-related information in the contracting documentation be included in a new digital record for buildings, which will create a “golden thread of building information”.
Another potential solution is to create a central public procurement body, similar to Singapore’s housing development board, which is responsible for the construction and maintenance of the country’s public housing stock.
Scape’s Mr Robinson is behind the idea, albeit a tempered version of the Singapore model. “I tried to tell the Local Government Association in terms of their procurement strategy: why not have a centralised organisation that helps and supports local authorities?” he says. “It wouldn’t necessarily have to control procurement, but would help with procurement.”
Given that so many local authorities pay for external consultants to advise them on procurement, it might be worth investigating whether resources would be better used creating such a body.
The Grenfell tragedy is likely to lead to a shake-up of procurement practices, and greater trust between local authorities and contractors can help ensure the tragedy is not repeated.