Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Dominance of lowest price bid is proving hard to shift

Paul Morrell speaks to CN about supply chain integration

Do you believe industry’s tier ones are looking after their supply chains, providing them with education and tools to be greener and thus to offer a more attractive proposition to clients in terms of sustainability?

To change the conduct of businesses you have to change the business drivers, and I would not expect Tier 1s to do anything that they do not believe to be in the long term interests of their business.

The key here, though is “long term”.

I think there are coinciding trends that forward -looking businesses will want to tap into: a growing awareness that the economic case for energy efficiency and broader measures of sustainability is strengthening, and that it will therefore be worth both paying attention to that within the business and having a market proposition ready for potential customers; and a parallel awareness that if the route to cost efficiency, innovation and growth runs through those who actually make the products and do the work, then competitiveness at Tier 1 will depend upon the quality of their supply chains.

So although we may not be hearing much about it yet (and of course Tier 1s will not be too vocal about their plans for securing competitive advantage), I think our best main contractors are looking at how a more constructive relationship with a more settled supply chain might put them in a stronger market position than opportunistic tendering (of the kind, by the way, that they have long argued is not the way to get the best from their own businesses).

This will include shared research and training programmes, both on generic topics such as health and safety and sustainability and on issues focussed on innovation in the offer to clients.

How Tier 1s can be encouraged/expected to support their supply chains, particularly SMEs, is therefore a major current topic in the dialogue between government and its top construction suppliers. 

On trial projects, there has been a bit of a mixed (sometimes cynical) reaction from industry (see here). Any advice for contractors in terms of what they should be doing to ensure they understand new procurement models and can use them if they’re successfully implemented and become a standard?

I’m guessing that the news that there are some cynical contractors out there will not hit your front page. Actually though, I agree: Project Bank Accounts and Project Insurance alone will not change the world - but nor are they expected to.

I also agree that reducing burden, applying fair contract terms and embedding trust are all part of the kit. Again, though, we are back to the theme of integration and relationships within supply chains.

Project Bank Accounts

Ironically, the move to Project Bank Accounts was principally motivated by the observation that lower levels of the supply chain were not getting the benefit of the improved trust and fair contract terms that the government is seeking to foster in its own procurement practice.

Obviously this is particularly critical at a time when access to credit is so tight, but it also sends a message: that contractors should make their margin by building, not banking - which once again should send them back into their supply chains for ideas, and not for subsidy.

In short, the dominance of lowest price is proving every bit as hard to displace within the supply side as it has been amongst clients.

Finally, all of our plans are being worked up through government /industry groups that are generally under the leadership of key figures from the industry.

There is no monopoly in the advancement of good ideas, and if they come forward, and they are indeed good, then we will act on them. It is, however, a bit rich both to demand change and to criticise “changes to embedded practice” as a bureaucratic burden.

Advice for contractors

So the advice to contractors is that all of the above are linked: that alternative procurement models (and they are only three ways of striving towards the same objective) are designed to foster collaboration both between government clients and those they contract with and (critically) within supply chains; to incentivise innovation in the offer to customers (and therefore value to the taxpayer) rather than in winning the bid; and nonetheless to maintain a degree of price competiveness and security (for example through benchmarking).

Those who prefer the status quo ante will not need permission to stick with it and place a bet on the key to the future being found in the past. I would say, however, that that would represent a considerable business risk.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.