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Best foot forward

AGENDA

The National Audit Office is calling on the Government to overhaul construction procurement in a ground-breaking report published last week. Russ Lynch asks whether the industry's largest client can deliver

THE CONSTRUCTION industry got a glimpse of the promised land last week when the Government's spending watchdog, the National Audit Office, published its latest report on the construction industry.

The study, Improving Public Services Through Better Construction, has put forward a raft of recommendations (see opposite) to turn the industry's largest buyer - responsible for 40 per cent of all construction spend - into a slicker client and save money to boot.

Some of the NAO's suggestions - greater use of integrated teams and project bank accounts to increase trust and end rows over retentions - were music to some in the industry, who have been shouting themselves hoarse for such things for years.

The NAO is unambiguous over the economic benefits of more efficient construction. It sets out the good work already achieved and highlights a potential £2.6 billion in further savings that could be made if Government departments and local authorities embrace its recommendations.

Although the Office of Government Commerce is unlikely to achieve its ambitious target of 70 per cent defect-free, on-time and on-budget construction work, the report points out that the savings made through 55 per cent of Government schemes being delivered on time were worth £77 million on the 142 schemes it studied while compiling the report.

Translated across the whole public sector construction spend - £33.5 billion in 2003 - that amounts to a whopping £800 million that could be spent elsewhere.

Construction Products Association chief executive Michael Ankers, who welcomed the report, said: 'I'm very pleased with what I've read about integrating the supply team across Government departments and building in a sustainable way.

'The way the report really makes the business case for best practice is the sort of thing that makes the Treasury sit up and take notice because it means more schools and hospitals for the Government.'

Industry lobbyists like the Specialist Engineering Contractors Group were overjoyed at the report's call for increased use of project bank accounts.

It has hailed the use of the initiative - such as on the Ministry of Defence's Andover barracks scheme in Hampshire - as the way to infuse a notoriously confrontational industry with trust.The whole supply chain gets its cash at key stages in the project - so no more contractors hanging onto the cash, and no more retentions.

Main contractors and specialists seldom agree on too much but even the Construction Confederation has given a guarded welcome to project accounts as 'one of a number of fair and effective payment mechanisms' although it said it was up to the client to use the method most suited to its needs.

For all the NAO's emphasis on ways to integrate the supply chain, the only problem Mr Ankers has is that there is no mention of manufacturing in the report's definition of specialist contractors and suppliers.

This is despite its importance being highlighted in a foreword by Sir Michael Latham.Mr Ankers has written to the NAO's comptroller-general, Sir John Bourn, pointing out the omission.

He ruefully added: 'It demonstrates how often we are forgotten as part of the supply chain.'

But above all, the construction industry needs certainty.The NAO points out that political pressures and budget constraints have affected long-term schemes. It cites political pressure to cut back the Environment Agency's civils framework to accelerate flood protection and Bovis Lend Lease's £1 billion Project Slam deal to revamp army accommodation over 10 years, where spending has been cut back for 2005-06.

A Construction Confederation spokesman said: 'Certainty of workload is something we have always been banging on about. If we have this then the industry can get on with recruiting and training the workforce.'

The report's call for a single cross-departmental forum of senior civil servants is also welcome - giving construction priorities and strategy much greater weight in Whitehall. But the Confederation says it wants to see the OGC given more teeth to drive through procurement changes.

The spokesman added: 'The OGC has had telling and positive benefits.But we think if it made taking things like health and safety management into account mandatory when awarding contracts things would move a lot quicker.'

This is borne out by the NAO, which found that OGC's construction guidance is not always followed by various departments. It states: 'The guidance issued by the OGC is generally regarded as valuable and clear.

'It is, however, not always followed, in part because many public organisations do not have the appropriate skills and experience to implement it effectively, and many remain unaware of, or choose not to use, the support and advice that the Office can provide.'

Here is the nub of the issue.While the NAO can point to the likes of Stanhope and BAA at Terminal 5 as examples of client best practice, it takes far longer to drive through a cultural revolution in the public sector.

The report warns: 'Organisations have underestimated the time needed for reorganisation of both project delivery teams and 'internal clients', and the time needed to train both in-house and suppliers' staff in the new ways of working and to introduce a culture of openness and integrated team working.

This is an ongoing process.

'All the case study organisations recognise that there are weaknesses in project management experience and skills in the new ways of working, inhouse, among wider stakeholders and throughout the supply chain.'

So, while the wheels have begun to turn, they are moving slowly.And, considering the revolutionary changes called for, perhaps we should expect a generational shift rather than overnight improvement.

But the prize is clear from the savings and advances already made. Now it remains with the Treasury to seize on the NAO's findings and make sure that this radical blueprint for construction procurement is not left gathering dust on the shelf.

Total potential savings

THE NATIONAL Audit Office thinks the Government could save a massive £2.6 million a year from the wider application of best practice and early development of integrated project teams.

It claims that local and central Government could save a total of £720 million through streamlining planning and procurement work, using off-site fabrication to reduce defects and reduce snagging time, reducing supplier numbers and bundling work into larger programmes.

And it calculates that collaborative working practices could garner nearly £1.2 billion in efficiency savings.

These would be made through measures such as using non-adversarial contract forms, bringing contractors into the mix earlier on, using project insurance and accounts to gain buying power, avoid in-fighting over claims and ensure smoother cashflow for suppliers.

Savings in whole-life costs of buildings could also reap £770 million.

The NAO emphasises reduced outlay on energy, security, repair, maintenance and replacement costs as well as more environmentally sustainable buildings.

The report says: 'We estimate that just under 10 per cent of annual public sector construction capital costs and 5 per cent of building operating costs could be saved if these benefits were realised. Even the more conservative assumption that just 20 per cent of these improvements are practicable would still release some £500 million to be reinvested in frontline public services.'