The value of frameworks

Transcription

1 The value of frameworks A Mace white paper, March 2012 In the race to get more for less, can we afford to mistake the lowest tender price for the best out-turn cost and solution? Mace director David Bill, discusses how abandoning frameworks in search of cheaper procurement is leading to not only a reduction in quality, but to also an increase in overall costs. Cause and effect In times of recession it is perhaps understandable that clients are opting for the cheapest tender at the point of procurement. It may seem like the right thing to do buy cheapest and save money. Unfortunately, the reality is that even low-value capital delivery is too complex to be entirely commoditised, the scope is never 100% defined and all risks cannot be buttoned down up front. Regrettably, given those factors lowest price tendering is a sub-optimal way to procure. In the public sector this search for cheaper suppliers, contractors and consultants is causing a move away from the frameworks that were set up to manage risk and value, to aid high quality procurement. The focus is now almost solely on the input tender price rather than on the delivery process, out-turn cost and quality of the final product. Going for the cheapest price up front will not consistently reduce costs, in fact, it has the opposite effect. Mace has seen first hand that choosing lowest price tenders leads to adversarial contracting, increases the risk of delay and price increase through bankruptcy, increases client management input and lowers the quality of the final product. This trend, under huge budget pressure for public sector organisations to squeeze is compounding the construction industry problem of firms buying work by slashing their prices. There is often no direct link between the original procurement decision and the end result with accountability split between commissioner, end-user and the procurement function. Lessons are not learnt and it becomes accepted that capital projects are always over budget, slightly disappointing in quality and delivered late. Joining the debate is Chief Executive of Constructing Excellence, Don Ward, who states: Our evidence is that lowest tender price doesn t even deliver lowest outturn price, let alone best value, leading more often than not to claims and an outturn cost greater than the tender price data shows anything between 20% and 25% on average. Where s the good competition in that? 1 of 6

2 Front page Elizabeth II Court - Hampshire County Council, Winchester Far left Veolia Water, Hertfordshire Left Hampshire Constabulary Operations Centre, Southampton A better way to procure The benefits of framework agreements is well-understood, with Mace itself involved in more than150 framework agreements throughout the UK, in the public and private sector, as a participant, consultant, contractor and framework manager. Our experience enables public bodies to deliver capital projects that are not only fit for purpose, but also provide real savings and ongoing efficiencies. For frameworks to deliver results, they require leadership, planning, management, development and revitalisation in order to deliver real value. Frameworks require effort on the part of users, owners, managers and supply chain. The flip-side of this investment is in consistency, improvement over time, risk-reduction and value. And yes, value does mean lower cost, but not at the expense of functionality or sustainability. There is more to procurement than cost. While individual one-off procurements may deliver to time, cost and quality on individual projects, it is an engaged and empowered supply chain that will cooperate to deliver standardised specifications, lean processes, better client commissioning, volume purchasing of standard components and continuous improvement over a period. They will do this over and over again, when good KPI measurement of contractor performance offers transparent inducement to deliver against the promise of the allocation of future work. KPIs should incentivise the right behaviours. As well as delivering to time, cost and quality, Mace as programme manager use KPIs to direct contractor behaviour in support of local policy areas as agreed with participating bodies. For iese (improvement and Efficiency South East) contractor framework and Smarte East framework these include measuring Ratchet KPIs, sustainability, local economic benefit scoring and peer/national benchmarking. Our evidence is that lowest tender price doesn t even deliver lowest outturn price, let alone best value, leading more often than not to claims and an outturn cost greater than the tender price data shows anything between 20% and 25% on average. Where s the good competition in that? Don Ward CEO Constructing Excellence The key here is that these measures all look at the actual end result not the input components at tender. These are statistically significant, consistently collated and transparent results, not a couple of one off input tender prices. With consistent process, transparent data and meaningful results, cost can be driven out by setting an appropriate scope, leaning design and selection processes and improving individual contractor performance. 1. Ratchet KPIs: measuring and raising standards year-by-year over the life of the framework; KPI Measure Yr 0 Yr 1 Yr 1 Yr 2 Yr 2 Yr 3 Yr 3 Yr 4 Yr 4 Yr 5 Yr 5 Target Target Actual Target Actual Target Actual Target Predicted Target Predicted Client Satisfaction % Scoring 8/10 or better 50% 65% 80% 73% 100% 79% 100% 85% 93% 90% 93% Product Client Satisfaction % Scoring 8/10 or better 57% 62% 80% 65% 86% 76% 89% 80% 89% 85% 90% Service Defects on Handover % Scoring 8/10 or better 36% 50% 80% 58% 95% 74% 83% 86% 89% 100% 90% Safety Accidents Predictability Construction Cost Predictability Construction Time Predictability Design Cost Predictability Design Time Mean Accident Incidence rate per 100k employed No data tbc % On target or better 39% 46% 86% 50% 81% 67% 84% 75% 78% 80% 82% % On target or better 36% 52% 71% 61% 86% 76% 97% 80% 89% 85% 92% % On target or better 17% 47% 86% 63% 100% 73% 97% 81% 89% 85% 91% % On target or better 41% 44% 100% 46% 76% 60% 89% 81% 93% 85% 90% 2 of 6

3 2. Sustainability: BREEAM performance, waste diverted from landfill; Academy Environmental Improvement Works Academy Environmental Improvement Works Children s Centre School Staff and Admin Improvements Amenity Block Refurbishment School Staff and Admin Club Amenity Site Primary School Replacement of Mobile Refurbishment Internal remodelling Primary School Extension Project 1 Project 2 Project 3 Project 4 Project 5 Primary School 2 classbase ext Primary School New Hall Primary School 2 classbase ext Special School New Hall and Alts New 210 Place Primary School Waste diverted from landfill (%) County 1 County 2 Region average 83% 3. Local economic benefit: Considerate contractor scores; Score National average Basic complaince Contractor 1 Contractor 2 Contractor 3 Contractor 3 Contractor 4 Contractor 5 Contractor 6 Contractors % of local subcontractors 4. Peer/ national benchmarking % local labour employed, % local sub-contracts awarded; Contractor 4 Contractor 1 Contractor 2 Contractor 3 Contractor 6 Contractor 5 Contractor County South East Rest of Country 3 of 6

4 Case study: Hackney Homes Decent Homes programme Mace and Hackney set up an integrated team for the delivery of the decent homes refurbishment programme when Hackney Homes was established in There are 32,000 social housing units in the borough. A framework of contractors was established and a new process of training and engagement was introduced. Better collective buying and engagement with the contractors at the coalface enabled significant savings of 7m from a budget of 78m in the first year. That has been followed by further 5% savings in years two and three, but combined with higher leaseholder satisfaction and larger numbers of individual homes completed within budget periods. This has not been done by lowest price tendering, but though effective programme and framework management engaging and rewarding contractors. Contractor engagement, not aggravation Early contractor engagement is one of the essential characteristics of a successful, predictable framework. Early engagement bridges the communication gap that often develops in the more traditional frameworks where contractors are introduced after procurement, design and engineering activities have already been completed and after the contractor may have been to able to anticipate problems before expensive works had commenced. Working with Improvement and Efficiency South East (iese) framework, Mace has seen impressive predictability. The 160 projects using the integrated framework have been completed within 2.1% of the expected budget and 1.7% of the expected time, outstripping performance levels of projects using a traditional tender process. Once such disciplines are in place it is far easier to focus on de-scoping in a measured way to reduce the cost of public buildings. Elemental cost breakdown and understanding the variation in costs is also only possible through consistently measured projects exactly what is being done on Smarte East to identify and improve areas of inconsistency. Standardisation of common components, much discussed but difficult to deliver, requires standard elements of design. That in turn means early agreement by supply chain to adopt standards and prescriptive elements of supply chain equipment in early design stages. This has to be driven at a framework level. Although not an original feature of the framework, iese contractors have funded supply chain expertise to produce almost 2% savings on school projects in a little over two years. This pilot is considered very successful and is to be extended and become a larger feature of the iese approach. Top Residents and staff from the Hackney Homes Framework (Image credit Hackney Homes) Above iese has been established to provide a centre of expertise to assist local authorities in the south east of England to deliver capital projects collaboratively and with improved efficiencies, such as the Southampton Operational Command Unit. 4 of 6

5 Below: 2010/11 cost breakdown for new build primary schools 2, ,500 1,000 Key New build prelims + fee rate Secondary school 1 Risk m 2 Services m 2 Fittings/furniture m 2 Internal finishes m 2 Superstructure m 2 Sub structure m 2 Collaboration In a downturn the market reacts by being cost driven which almost inevitably leads to an adversarial environment of claims and disputes. Frameworks operate a culture of collaboration and knowledge share, which engenders continuous improvement. For example, in the six years of working through framework partnerships Manchester City Council has not had to deal with a single claim. In this way frameworks become more than a simple tender process building experiences, skills, and improving productivity. In the east of England, the Smarte East framework has seen shared learning produce impressive programme predictability indicators and quality workmanship. At the procurement stage, frameworks and partnerships direct the collaboration between councils to work together and jointly purchase goods and services, saving money by streamlining planning and procurement work, bundling work into larger programmes, and reducing supplier numbers. This collaborative environment also ensures that issues are identified and managed at an early stage, something Mace has seen work even more effectively when collaboration is guided by the project manager taking a handson approach. Management While a good framework monitors all aspects of a project through to its successful, predicted completion, it should not be considered an autopilot option. Like all projects, management is also needed. Working with the iese framework, Mace has seen the benefits of a hands-on approach first-hand. By managing frameworks risks can be identified early and problems resolved before they develop. A framework must be managed otherwise it s just a list a portal to avoid OJEU. Local engagement Smart public frameworks are also building-in local engagement at all stages, something that is mutually beneficial for both local government and construction delivery. Using local suppliers in public projects allows councils to address local needs by stimulating their economies, implementing training and employment schemes, driving community regeneration, and reducing environmental waste. For the project delivery partner, local procurement makes good business sense. Local businesses can deliver innovation, responsiveness, flexibility, customer service, specialist skills and services, and ultimately lower costs. Conclusion Whether the benefits are those of cost, predictability, collaboration, expert management, standardisation or sustainability, the value of frameworks are obvious. But don t just take our word for it; the evidence of framework value is all around us in the public sector. Lower tender costs do not mean it will be cheaper in the long term. If nothing else appointing a company directly from outside a framework that has slashed its prices means you will be getting a company who does not understand your business, or the money it will take to delivery your project or programme. It is worth asking, are these companies cheaper simply because they don t know your business? We understand your needs and concerns in the present economic climate. In the downturn, it is important that frameworks focus on the overall outturn costs. This gives much needed predictability, operating with a true spirit of collaboration which avoids the adversarial nature of other contracts, meaning a greater quality product and more money in your pocket at the end of the day. 5 of 6

6 Talking Points In the race to get more for less, lowest tender price is being mistaken for the best out-turn cost and solution Abandoning frameworks in search of cheaper procurement is leading to a reduction in quality, and to an increase in overall cost Contractors buying work are making up the shortfall through claims and variations with increasing cost and management pain for the client. There is a large and growing evidential base proving the worth of frameworks as vehicles of intelligent procurement. Frameworks require leadership, planning, management, development and refresh but also provide consistency, improvement over time, risk-reduction and value. To discuss any of the issues raised in this white paper please contact David Bill: t: +44 (0) e: david.bill@macegroup.com About Mace Mace is an international consultancy and construction company, offering highly integrated services across the full property and infrastructure lifecycle. Our experts in programme and project management, construction delivery, cost consultancy, and facilities management thrive within our collaborative and entrepreneurial culture, constantly striving to find better solutions to complex infrastructure and property challenges. Our customers are at the core of what we do, and we continue to grow and expand to better serve their property needs across sectors and geographies. Our talented and professional people work from within our customers organisations, constantly asking challenging questions and driving value at every turn. We believe it is our relentless passion for finding a better way that helps us to deliver the best projects safely and efficiently, while defining industry best practice. For further information please visit macegroup.com 6 of 6