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A procurement revolution for public construction

The Government Construction Strategy set out plans to introduce two new procurement models that would revolutionise the way public buildings are bought.

One provides “challenging cost benchmarks” which framework contractors must meet or risk seeing work tendered outside the agreement.The other offers a guaranteed maximum price underwritten by insurance, which also extends to protection against defects.

The industry has been waiting to find out where these new models would be trialled. Most expect the latter to be tested on small-scale one-off demonstration projects, which could come from almost any part of Whitehall’s £40 billion annual spend on construction.

But for the “challenging cost benchmarks” there are fewer options - because it must be trialled on a public sector framework.

The cabinet office has confirmed the government’s framework investigation is now drawing to a close and that its findings are due to be discussed at the September meeting of the Government Construction Board. What are the likely options?

EC Harris partner and group head of public Graham Kean believes the decision will be led by the quality of the benchmarking data available.

He points to Education as an area which already has much of the data that this kind of model would require.

“If you set it £30-£40 per square metre below where we were with Partnerships for Schools that would force the industry to think about off-site construction and come up with something a little bit innovative,” he says.

But he points to primary schools as a more likely starting point than academies. “You could apply the same principles to the academies frameworks, but they will probably be tested through regional frameworks first.”

Davis Langdon head of public sector for Europe Laurence Brett (pictured right) points to the tendering process for consultants on the academies project management services framework - currently under way - which is already couched in the type of language that suggests such a trial could be imminent.

“One suspects they put that in there as the stick for consultants,” he says.

But Cyril Sweett’s head of education Cliff Barnes sees a different problem if the type of clauses that would be needed for a trial were to be inserted into a framework agreement that has already been let. “The original framework was procured through an OJEU notice so that could potentially cause a problem because the selection process would have changed.

“You can’t just introduce new criteria or mechanisms for selection. I can’t see how this would be appropriate to introduce on an existing framework.”

But Charles McSweeney, Cyril Sweett’s head of specialist consulting services, says OJEU rules are a manageable hurdle.

“There is not much in the public procurement legal documents that governs how projects can be called off. So if you are introducing something after a framework has been set up there is the risk someone who didn’t get on to the framework could make a challenge - but I think that risk is minimal because the biggest barrier is your reputation in the market.”

On this point Mr Brett agrees, arguing contractors will do “whatever needs to be done to keep their relationships alive”.

A source in Whitehall said that while this may be the case, “it would probably be too much of a risk”.

She says nothing “substantive” has been decided yet but says it is “reasonable speculation” that fears of potential legal challenges mean the tests are more likely to be applied to upcoming frameworks rather than existing ones.

That doesn’t necessarily rule out education, she says, pointing to the £80 million academies maintenance framework which has yet to be let.

But Mr Brett thinks there may be too much political pressure on school building altogether for that to be likely.

“They are coming under such scrutiny about all the things that they started and stopped so when they go forward they will want something proven. So while it could be a good testing ground they are a bit too wary about testing something new.”

Instead he points to the Ministry of Justice as “a better landing point” because they are sufficiently out of the public eye.

Mr Kean agrees. “The prisons framework has been discussed quite extensively and that would be a brilliant one to say this is the cost per square metre so it would probably be a prime target,” he says.

This chimes with the views of some of the industry’s biggest trade bodies, which are looking at the prison building programme as the most likely contender for a significant-sized trial.

One source said: “If you look at all the departments’ spending plans there really aren’t that many contenders.

“I would be amazed if it’s the Highways or Environment Agencies. ProCure 21+ is an outside possibility as they have already used it for some procurement trials. And the MoD has a lot of frameworks which will be let next year. But really prisons looks like the one where most boxes are ticked.”

Fudging the figures

In the run-up to a decision, Whitehall departments have been told by the Cabinet Office to identify how they will make the required 20 per cent efficiency savings.

Two workshops have already been held to help help this process, with another scheduled to be held next month. The workshops are being led by the Cabinet Office’s Efficiency and Reform Group and their findings will feed into next month’s GCB meeting.

However, approaches have varied widely between departments, and industry bodies are becoming concerned. According to a source, the Ministry of Justice is working to a model where they attempt to identify exactly what proportion of their spending “actually goes on the product”.

“That means they strip out all the money spent on overhead and profit and on wasteful client behaviour. “Everything else they count as spending on the product,” he says.

The concern with this approach is that it focuses on stripping away contractor margin rather than on creating efficiency. As the source explains: “One of the things that’s coming out of all this is the need for closer collaborative working. But what this approach is doing is giving government clients the opportunity to fudge it and not work collaboratively.

“So if you can define your 20 per cent saving - and one way of doing that is honing down contractor profit - then how does that encourage collaborative working?”

He is also concerned about the approach in education where he accuses government of asking contractors who have yet to reach financial close of “simply lopping money off the budget”.

“It’s not an efficiency saving, it’s just de-spec-ing,” he says.

But he says some departments have come up with more sensible solutions. He points to the Environment Agency where the task of measuring a 20 per cent saving looks set to be achieved “by calculating the number of homes saved from flood risk”.

By autumn it should be clearer where the trials will be, giving contractors more certainty and the government a starting point for their procurement revolution.

 

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