Partner pressure
It will come as no surprise to anyone that the current economic climate, lack of construction projects and job losses are increasing competition in the construction industry and bringing tender prices down for the first time since 1992.
Ken Morgan, partner and member of construction consultants John Rowan & Partners explains why this is putting pressure on public sector partnering and its procurement model…
It is now ten years since the publication of the Egan report; Rethinking Construction, which aimed to change the way the industry interacted and approached contracting procurement.
While it has been freely admitted by the author himself that progress since its publication has been slow and the approach in the private sector has more likely been due to compliance rather than commitment, there has also been a realisation across the industry that partnering and collaborative working can add real value to a project if managed properly.
In particular partnering has been playing a major role on construction projects in the public sector for some time.
With many Housing Associations already in substantially long term partnering arrangements, for instance almost all of the UK Government’s Decent Homes programme are based on strategic frameworks, these agreements embrace partnering, collaborative working, pain–gain processes and open book accounting in order to seek out the greatest efficiencies.
Certainly the long-term relationships have helped to increase delivery, cost certainty and best value for many clients.
Principles of partnering
The key question now is ‘will partnering still work in a recession’? When partnering was introduced it was originally argued that it would have a negative effect during a recession. And with the current economy at its lowest for decades, the debate is now focusing on the ability to justify and determine the correct competitive price to be paid by the client.
The principles of partnering are sound, but if the industry does not look into how it can continue to achieve value for money and maintain relationships, then there is a very real danger that partnering may also become a victim of the recession.
One of the main problems for the industry is while there are currently many definitions for value for money, there are no set models for determining value for money in the public sector.
But with an increase in public sector spending the recession is putting even more pressure on organisations to drive greater cost efficiencies through their construction programmes, (organisations are already expected to find a minimum of 3% efficiency savings each year over the current Comprehensive Spending Review 2007 and from 2010/11 onwards they will be expected to find further savings, as outlined in the Operational Efficiency Programme in the 2008 Pre budget Report).
This in turn means that cost and competitive pricing will come under further scrutiny and public sector organisations such as Housing Associations will be required to become much more innovative in establishing market prices, competitiveness of the market and demonstrating true value for money.
Cost plays a key role
But what does this mean for all those organisations that utilise framework and partnering agreements? Many clients have transferred their entire programme to partnering for simplicity through the understanding that this would give them the greatest economies of scales.
However, in times of recession this may now prevent them directly comparing their costs with traditional tendered prices for similar projects. The problem however, is that as everybody knows, it is not as easy as simply picking the cheapest option available.
The question of value for money needs to take into account many variables including project delivery, quality, time and cost predictability to name but a few. While many organisations may save money today by choosing the lowest cost tender, the real question is will it become a cost plus contract and will the project run into trouble years down the line, costing the taxpayer more in the long run?
This situation could be further complicated by the tendering regulations and we may see some organisations begin to allocate some works under the traditional method to seek a genuinely competitive price, which can be controlled and monitored by them and their consultants.
In addition to this the Audit Commission’s expectation on cost efficiency for affordable housing delivery is also likely to be greater than ever before and as such organisations and consultants should look to establish the current status of procurement and adapt necessary changes sooner rather than later.
It is clearly evident that cost plays a key role in determining value for money. But with no set models, the time for change is now – value models for partnering frameworks must move towards taking on market consideration, competitive pricing and the establishing the correct price to determine best value in the current economic climate.
This will help to ensure that the principles and progress behind partnering are not lost and the construction industry slips back into the dark ages.
Further information
www.jrp.co.uk
In next month’s Best Practice advice: how to increase the speed and likelihood of business development success during the downturn
