Recent Developments in Construction Procurement in the UK - Term Paper Example

Law and Administration LAW AND ADMINISTRATION Titus Rock Manickam Order No. 265705 11 January 2009 Table of Contents Introduction..3 Local Issues.4 The Philosophy behind Recent Developments..5 Partnerships.8 Early Contractor Involvement8 The Main Provisions in Standard Partnering Contracts9 The Key Principles of Risk Allocation.10 Changes Proposed to the Procedures11 Conclusion...12 Sources.13 LAW AND ADMINISTRATION Introduction The construction industry in the United Kingdom is one of the biggest in the world, with over 250,000 members. It is a large, fragmented and extremely diverse industry. It is the second largest in the European Union and employs around 2.1 million people. The United Kingdom has some of the strongest companies in construction services internationally and it is known for its capabilities in carrying out the most difficult projects. It is a leader in Europe for major international engineering consultancies, architectural and commercial practices and commands a top ten ranking in the world. Methods for procurement and cost savings have become British trade marks. The design and build solution, guaranteed maximum price method, partnerships, framework agreements, gain/pain share contracts, asset management contracts, PFI/PPP asset management enjoy world class position. British-trained commercial staff forms the core of the commercial departments of international clients, contractors and consultants. British standards, codes and products are recognized and respected internationally. An area of particular UK strength that has generated interest from both overseas clients and UK practitioners is the urban regeneration of communities and the infrastructure and economies upon which they depend. No other nation has the depth of experience or the holistic range of skills in delivering large-scale programs of integrated regeneration. Other areas of strengths include offsite manufacture, intelligent buildings and sustainable design and construction (UK - a leader in the global construction industry). Local Issues The industry, however, needs to wake up to present ground realities. There is criticism that value for money is not being secured in the procurement function due to insufficient focus on modern approaches to procurement function. There is a large workforce for routine functions such as building repairs, maintenance and facilities management. Headed by the City Engineer and Surveyor, the Technical Services Department covers a wide range of construction procurement activities. It has responsibility for the construction, maintenance, facilities management, repair and alteration of a range of buildings. The department has a large in-house workforce for routine functions such as building repairs, maintenance and facilities management. All major construction projects are designed in-house by council architects, engineers and surveyors before being put out to tender. It is council policy that all contracts must be awarded through competitive tendering using admeasurement contracts following completion of the design. The reason for this state of affairs is competition. The construction industry is price based due to which high-cost contractors have to lower prices in order to get work. If all competitors were high-priced, there will be decrease in performance. On the other hand, lowest bid competition leads to compromise in design quality, health and safety, and environment. The Philosophy behind Recent Developments in Construction Procurement in the United Kingdom Construction is a long-term project that requires planning and designing so that the end result matches the overall environmental objectives. It takes various parameters in view so that at every stage of the construction the internal and external factors continue to impact the environment positively. At the macro level there are men, material and money. There are men who do the promotion, planning, designing and execution. Then there are materials to be procured. Last, but not the least, is the money to cover the entire project. Construction procurement is a major exercise and any neglect of its proper management irretrievably increases costs. Once the construction begins there is less time for regrets for any lapse. The policies that determine the method of procurement influence the outcome of the project in a very big way. As mentioned earlier, the construction business is very big in the United Kingdom. Hence, there is bound to be stiff competition among the players and cost cutting is a major issue to attract business. Thus, within the cost constraints, it is imperative that the emphasis is on good quality work. Companies that provide good quality job at low cost and make profits highlight robust management capability. Sustainable construction procurement has a major impact on our lives. The United Kingdom government published the National Action Plan: Procuring the Future on 12 June 2006. This plan stimulates the process of procurement through modern management techniques and invigorates current construction activities. This plan identified 174 Government spend areas, and 18 of these emerged as priorities. Public sector construction was top priority on this list (Sustainability in Construction). While making the National Action Plan the government has recognized the importance of adding value to the entire process. It has kept in mind the best management techniques are those that are viable in the current times, are in tune with the current research and development, and are available at reasonably low cost. In its publication A Better Quality of Life: A Strategy of Sustainable Development for the UK of 1999, the government stated its commitment to sustainable development with the four aims of: social progress that focused on everyone's need, effective protection of the environment, prudent use of natural resources, and maintenance of high and stable levels of economic growth and employment (Achieving Excellence in Construction Procurement Guide). The recognition to better quality of life also requires the government to deliver commercially viable solutions that meet commercial and social objectives. To achieve such solutions it is necessary to frame policies that manage processes from project inception to its completion. It must also manage construction strategy and risk, procurement, tendering, contract, partnering, early contractor involvement, dispute avoidance and dispute resolutions. There must be solutions that meet the challenges of the construction and engineering sectors (Construction). The whole philosophy is to so structure the concept that while the needs of the present is met with modern management techniques the needs of the future is also addressed with forceful commitment to the best available techniques that are comprehensive and cost-effective. It becomes obligatory for those tendering to adhere to the terms and conditions of the tender so that the principle of equal treatment can be applied and they stand better chance of obtaining the contract. It cannot be a business of making money in the quickest possible time, with least amount of risk to one's own capital and with as little effort as possible. There are business houses who have not been able to make the mark for some reason and blew their chances of sustaining procurement due to lack of preparedness to do business on the lines envisaged by modern management methods. Every business is cyclical in nature with its ups and downs. Those who do not survive competitions are rendered obsolete due to innovations in technologies overtaking them. However, an entrepreneur is expected to be different from the businessmen who restrict themselves to the same well-trodden path. He is bolder and takes calculated risk with his own capital or borrowed funds and ventures headlong into an exciting idea in its embryonic stage with no more than his own hunch about its future growth potential to guide him by. He toils hard expending his blood, sweat and tears to materialize his dream. Normally, this approach works and gives him wealth and fame. Times have also changed. Lack of money no longer comes in the way of an entrepreneur's burning ambitions. If one has a proven track record, there are venture capitalists with money to come to his aid (Jeremy Glover). Partnerships Joint ventures and partnerships have become common after globalization due to less restrictions and greater benefits in major parts of the world today. It is a strategy to cut costs and provide better services to the customer through a single window. Partnership makes stronger a strong company. The company adds to its core values a range of services or products to provide greater satisfaction to the customer and widens its capital base. By mutually facilitating access to each other's resources, the partners recognize that they are positioning themselves to process efficiency. For partnerships to be successful it is necessary to chose partners whose products or services are of value to each other's customers. (Construction Plus). Early Contractor Involvement The concept of Early Contractor Involvement (ECI) is relatively new in the contract scenario. In this process, the inputs of the client are quite great when compared to the traditional tendering process. The cost is almost nil in the beginning with the contractor and the designer get together to make the design of the project. ECI is a relationship based module to ensure efficiency and value for money. The cost of infrastructure is high and ECI assists in providing the best design for the infrastructure in the initial stage. There is transparency and the costs and risks are assessed. The cost is then provided with risks. There is greater flexibility in timing and planning, earlier procurement of materials, good understanding and apportionment of risks in ECI. The costs may be low in the initial stages but it becomes high according to the progress of the project. Nonetheless, the end result is there is good quality and saving in terms of time and money (Michael Swainston). The Main Provisions in Standard Partnering Contracts available in the Construction Industry The main provisions in standard Partnering Contracts available in the construction industry are: A specific duty for all parties to deal fairly with each other, and with their sub-contractors and suppliers in an atmosphere of mutual cooperation. Firm duties of teamwork, with shared financial motivation to pursue those objectives. Easily comprehensible language. Separation of the key project roles, with the clear identification of a client representative. A choice of allocation of risks appropriate to each project according to the party best able to manage each risk. Provision for changes to be prices in advance with reference to independent adjudications.(The ACA Standard Form of Contract for Project Partnering) The key principles of risk allocation in standard forms of contract Risk allocation in the standard forms of contract affects cost, time, quality and the potential for disputes, delays and claims. The objective of risk allocation is to minimize the cost of risk. When risks are understood and their consequences are measured, it becomes easier to allocate risks in a way that minimizes costs and promote project goals. Risks must be allocated on the basis of the party who can best manage them. The party must be able to manage, bear the costs, and control the risks be in line with project goals. The risks must be clearly understood and allocated. Otherwise it will lead to misalignment and the wrong party being allotted the risks. This will aggravate the situation and lead to chaos. Risk allocations must be done with the success of the project in mind. In an environment where everything is done for fast and successful results, risks must go to people who can best handle them. Allocation of risks does not mean that the person or persons given the risks are responsible for these risks and the others are in the clear. As a team, the responsibility for the risks continues to remain with the whole team. However, the person or persons assigned the risks bear first line responsibility and are answerable for any lapse. The handling of risks must be such that the customer is appreciative and satisfied enough to concede that the contractor's workforce cannot be blamed for the lapse and every effort was made to prevent or neutralize the risk. The terms and conditions in the tendering document will highlight the prospects of risks and their remedy (Risk Assessment and Allocation for Highway Construction Management). Changes proposed to the procedures for project procurement to ensure that the Council complies with relevant applicable procurement regulations and achieves best value The main issue cited by the National Audit Office in their Comprehensive Performance Assessment report was that there was insufficient focus on modern approaches and we have not embraced modern methods of construction procurement such as partnering and Early Contractor Involvement. We will have to work on these two issues. The problem here is both for partnering as well as Early Contract Involvement our staff will have to spend more time with the contractors and designers in the initial stages of the projects. This is easier said than done because we will have no idea how much time that would take. Nonetheless, these methods are being pursued in modern times and are relevant in our case too. We will have to train our staff for the purpose of upgrading their skills and ensure that they are updated to begin operating on the partnership and ECI lines within a couple of months from now. The methods of tendering will have to change too and the process will begin in a couple of weeks. The changes in the methods of tendering will be incorporated in the training period and I see no reason why the new methods cannot be applied when the training is going on. We have a large workforce and we will have to act with urgency in order to have the training make its impact felt by everyone. We will do everything possible from our side to ensure that best services are available on demand by the clients. However, when dealing with clients, we have to bear in mind that these work mostly on small scale. That is, they are occasional and the frequency of their visits to the Council lasts only till their projects are done. It generally takes some time before they revisit and by that time there are changes in the staff of the Council. Even large companies have their own departments and sections and the personnel within these companies change. In the light of these situations, the change to partnering and ECI will have its own challenges (Professor Roy Morledge and Dr Asif Sharif). Conclusion I look forward to my interactions with the Finance Director. I will present him with my proposals as soon as I meet him. We will have to make moves that will usher in the best techniques so that we are capable of proving that we are providing value for money. Very soon we will be having the partnering and ECI concepts incorporated into our system. With these efforts, I think we should be able to be as good as anyone else in our services to the people in this good city. Sources: A SWOT Analysis of the UK Civil Engineering Industry, http://www.bath.ac.uk/management/larg_agile/publications/pdf/public/96.014.300.pdf Achieving Excellence in Construction Procurement Guide, http://www.ogc.gov.uk/documents/CP0065AEGuide5.pdf Best Practice Procurement in Construction and Infrastructure in New Zealand, http://www.nzcic.co.nz/CIC_Procument_document_internet.pdf Construction, http://uk.ihs.com/products/construction/ Construction, Trowers and Hamlins, http://www.trowers.com/services/construction/ Construction Commitments, http://www.cic.org.uk/strategicforum/pdf/commitments.pdf Construction Contract Law, http://www.rdg.ac.uk:8081/nmsruntime/saveasdialog.asplID=22929&sID=31465 Construction Industry, http://www.ebusiness-watch.org/studies/sectors/construction/documents/Construction_2005_I.pdf Construction Plus, http://www.constructionplus.co.uk/bidcom_press_release.htm Construction Procurement Manual, The Scottish Government Publications, http://www.scotland.gov.uk/Publications/2005/11/28100404/04045 Construction Procurement Research, http://www.berr.gov.uk/whatwedo/sectors/construction/ConstructionStatistics/ConstructionProcurement/page26061.html Construction Projects, Construction and Engineering, http://www.whitecase.com/constructionandengineering/ Construction Update, February 2005, Speechly Bircham, http://www.speechlys.com/public/documents/using%20experts.pdf Desktop Guide to E-Procurement in Local Authority Construction, May 2007, http://www.imaginist.co.uk/documents/LAConstructionGuide_001.pdf Jeremy Glover, United Kingdom: European Community Public Procurement Rules, 13 February 2008, Fenwick Elliott, http://www.mondaq.com/article.asparticleid=57264 Marketing - A Solution to Construction Marketing Failure http://www.brookes.ac.uk/other/conmark/IJCM/issue_01/mor.html Michael Swainston, Early Contractor Involvement, mainroads.qld.gov.au/web/.../$file/QR_Sep06_ContractorInvolvement.pdf New Construction Strategies, http://www.newconstructionstrategies.com/Articles/article23.html OGC, Construction, http://www.ogc.gov.uk/estates_construction.asp Procurement, Carson McDowell, http://www.carson-mcdowell.com/whatwedo-detail.phpid=40 Procurement, Travel, Land & Buildings, http://www.sustainabilityatwork.org.uk/ptlb Procurement and Contracting in State Government, 2000, http://whitepapers.zdnet.co.uk/0,1000000651,260121734p,00.htm Procurement and Risk Management, http://www.2006conference.crcci.info/docs/CDProceedings/Proceedings/P32_Murphy_R.pdf Procurement at Lancaster City Council, http://www.lancaster.gov.uk/Category.aspcat=788 Professor Morledge and Dr Asif Sharif, The Insensitivity of the Procurement Processes in the UK construction industry, http://www.rics.org/Practiceareas/Builtenvironment/Constructionmanagement/Procurementandtendering/insensitivity_of_procurement_processes_in_UK_19970101.htm Risk Assessment and Allocation for Highway Construction Management, http://international.fhwa.dot.gov/riskassess/risk_hcm06_06.cfm Source of Construction Industry Instability and Performance Problems, pbsrg.com/overview/downloads/7688 - Source of Construction Industry In... Sustainability, Achieving Excellence in Construction Procurement Guide, http://www.ogc.gov.uk/documents/CP0016AEGuide11.pdf Sustainability in Construction, http://www.aggregain.org.uk/sustainability/sustainability_in_construction/index.html#anchorlink_6 Sustainable Procurement Case Study, http://www.eproc.org/site/guides/EPROC_csp_Read_Construction.pdf The ACA Standard Form of Contract for Project Partnering, www.acarchitects.co.uk/pdfs/PPC2000 - Introduction & Taster Jun03.PDF UK - a leader in the global construction industry, http://ukinindia.fco.gov.uk/content/en/article/UKALeaderConstruction101208 Watch Your Step in the construction industry, February 2006, http://www.hse.gov.uk/construction/slips/index.htm Read More