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MoD on target at Abbey Wood

The Ministry of Defence is confident that its 250 million Abbey Wood project will be completed on schedule, despite delays at the shell and core stage of construction. John D Allen reports

THE Ministry of Defence Abbey Wood project to bring together (collocate in MoD-speak) its procurement executive on a site north of Bristol is the biggest it has tackled since being freed in 1990 from the requirement to procure its works services from the Property Services Agency. It is also a test of the procurement executives own ability to deliver efficiently.

When the project was conceived, the MoDs procurement arm employed 7,800 staff in nine different buildings in London, a group of wartime huts at Foxhill, Bath, and at coastal locations in Portsmouth and Portland. The whole thing was highly inefficient and expensive to run.

When the collocation programme is completed this autumn, the number of staff directly employed by the procurement executive will have fallen to 4,400.

Some 2,000 of the staff reductions are accounted for by organisational restructuring and better efficiency, saving about 60 million a year, split roughly between personnel savings and rent, rates and maintenance on existing accommodation.

The MoD has estimated that a further saving of 30 million a year in running costs could be achieved. Today the project directorate estimates the total savings to be in the order of 100 million a year once the project is completed.

Against that is the total cost, at October 1993 prices, of 330 million 250 million for works, including land purchase and infrastructure, and 80 million for relocation expenses. The project should, therefore, pay for itself within four or five years.

The collocation project has been, as might be expected, subject to much scrutiny. Last year the National Audit Office (NAO), in its report on the management of the ministrys capital works programme, published the outcome of its own examination of the Abbey Wood development.

It noted a number of risks to the project: These include the risk of a change to the building specifications, arising from the reduction in the size of the procurement executive, and ensuring that the overall quality of the final construction meets their requirements.

The NAO carried out a survey among the ministrys works contractors and found that generally it had managed to transfer risk to contractors, probably at little or no cost. But, it warned, the department would need to monitor its contract strategy carefully to ensure that the cost of transferring risk to the contractor is kept under control.

Risk management, as the NAO sees it, is assessment of the potential risks which could influence the delivery of a project to time, cost and quality specification. It involves knowing when and how such risks might occur, and what action can be taken to minimise their effect.

This aspect of project management is being fully exercised at Abbey Wood, as MPs on the Public Accounts Committee found last May when they examined the ministrys permanent under-secretary, Richard Mottram, a few days after the NAO report was published.

At the time, the committee was concerned that the project was significantly behind schedule and that as a result some of the promised savings might be lost.

The way the MPs looked at it was that, if you are planning to save 100 million a year by completing on time, then every weeks overrun must cost the Exchequer 2 million.

Mr Mottram told the committee: Since we are trying to do all of this on behalf of the taxpayer, I am not too bothered if contractors find some of our practices rather irritating where we can show that they are in the taxpayers interest.

He explained that, since the release from the obligation to procure works and supplies from the Property Services Agency, the ministry had brought the whole procurement process under its own control.

Other important changes have included employing external project managers (which has worked well), tightening up on contractual relationships and getting a better balance in the management of risk between the ministry and its contractors.

We are quite happy to pay reasonable sums, agreed in advance, to manage risk, said Mr Mottram. The MoD was also trying to get much tighter control over variations, he told the committee.

The ministry has decided that it does not want to get involved in the customary arguments about pricing variations, in which the contractor tries to win back some of the money he failed to get when tendering for the job.

At the end of the project, the question to the contractor would be: did you deliver to time, to cost and to quality as you agreed?

Nine months ago, the shell and core part of the contract was running 28 weeks late and the client made clear that this was not acceptable when the contractor had entered into the contract on the basis that it could deliver on time.

John Gulvin, the MoDs director-general of business strategy who has worked on the project from the beginning now agrees with project director John Taylor, main contractor Mowlems construction director Tony Lenehan and Symonds project manager Martin Whife, that the difficulties which beset the shell and core work last year have been largely overcome.

Indeed, in the last of the 10 office buildings to be erected, work on the structural frame is running ahead of schedule. This is a marked shift from the position in May, when Mr Mottram vented his exasperation by alleging that Mowlem had failed to perform and had under-resourced the job.

The fact of delays to the shell and core work is a matter of public record; but Mr Taylor is now satisfied that the contractor is catching up fast.

The man sent in to get a grip on the job, Tony Lenehan, is one of Mowlems top building executives. He expressed total confidence in the ability of his company to master a situation which, at the time it was reported to the House of Commons, appeared as a serious threat to Mowlems reputation as well as to the economics of the contract.

Inevitably, any government project on this scale will attract criticism, if only for the reason that huge sums of public money are being spent.

Reports in the national press have, among other things, claimed that lavish accommodation (including 230 executive washrooms) was being installed. The MoDs response was that these are simply toilet blocks and that, for 6,000 staff, 230 is not an excessive provision.

Other criticism has focused on the procurement method, with claims that the ministry had the backing of the Cabinet Office to make the contract a test of a new government policy of holding contractors to their prices.

This is not a new policy, even though it has been fairly described as tough. The 100 million shell and core contract negotiated with Mowlem is a firm price operation under established forms of contract, which the client intends shall mean exactly what it says.

By carefully rescheduling the fit-out work, the client is now confident that the project will finish on time despite the slippage at the shell and core stage.

But whether the National Audit Office and the Public Accounts Committee will applaud the project remains to be seen.

The committee has already criticised some of the ministrys investment appraisals as most unsatisfactory.

But the NAO report on Abbey Wood comments:' In all, a total of five detailed investment appraisals have been carried out at various stages of the projects development. Each has confirmed that the move to Bristol is the most cost effective solution.'