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Construction 'last piece in puzzle' of public procurement reform

Published: 01 Oct 2014 Average Rating: unrated Print
 
This article appeared in Contracting Excellence magazine on 01 Oct 2014 view edition
 

Author: Alastair Merrill, Director, Procurement & Commercial, Scottish Government

Since 2006 the Scottish government's reform programme has been forging ahead, transforming the way its $15 billion public procurement spend is used to attract investment, create jobs and support the economy as a whole. But one major area of public expenditure has been left behind - until now.

Public sector construction - previously on the periphery of reforms - is now firmly within their scope, following a major review that brings construction procurement into line with that for other goods and services. This last blank area of the “McClelland Map” will shape the Scottish procurement reform agenda for years to come.

$7bn construction spend 'outside the programme'

Some $7bn a year is spent on public sector construction and the 31,000 businesses that make up the construction industry in Scotland employ 170,000 people.  But despite some pockets of excellence and innovation, the construction sector has so far been relatively untouched by Scotland's wider procurement reforms.

Scotland's ambitious procurement reform programme was triggered after the 2006 McClelland Report1 identified a series of flaws familiar to many critics of bureaucratic procurement processes. Minimal collaboration occurred among public bodies and little concept of cost-effectiveness. This year's Procurement Reform (Scotland) Act put a statutory framework around the Scottish Model of Procurement2 – an innovative and successful approach gaining increasing international recognition.

The approach places sustainability at the heart of the procurement process, recognising procurement's significance as a strategic enabler both of policy development and service delivery.  This maximizes the economic benefit of public procurement spend.

Major review extends reforms to construction

Last autumn's review of public sector procurement in construction by senior business figures Robin Crawford and Ken Lewandowski3 followed an extensive consultation process involving hundreds of stakeholders. It envisaged applying and adapting to construction procurement the disciplines and common processes introduced for other goods and services under the Procurement Reform Programme.

Drawing on good practice in Scotland and elsewhere, including the UK government, reviewers' recommendations offer practical proposals to promote greater efficiency and collaboration including: 

  • introducing building information modelling;
  • trailing project bank accounts;
  • encouraging design-led procurement; and
  • taking steps to encourage SME involvement both directly and in the supply chain. 

The report's recommendations marshalled several broad themes for promoting the following:

Leadership

  • Appoint an independent Chief Construction Advisor as a champion of reform, and driving delivery through the Procurement Reform Board.
  • Strengthen Scottish Government expertise in construction, to set national policy and drive the adoption of best practice. 

Prioritisation and co-ordination of spending

  • Allow greater strategic prioritisation and collaboration of spend between public bodies.
  • Encourage all public bodies to publish a rolling forward pipeline of work to promote collaboration and help industry to better prepare for work coming to the market.

Approach to market

  • Allow early engagement with industry and intended end-users to develop good quality design briefs and procurement strategies, recognising the importance to construction of design quality and the whole-life cost of an asset.

Promoting the interests of small businesses

The report made several recommendations to promote the interests of smaller businesses, including  using regional lots appropriately, exploring the use of trust funds to hold cash retentions, and increasing focus on payment terms.

The Scottish government took early steps to implement - by May this year - the recommendation on trialling the use of project bank accounts to allow all members of the supply chain to be paid simultaneously from a trust account.4

Other recommendations designed to improve efficiency included a focus on…

  • reducing 'fee-on-fee' costs by limiting subcontracting in main contracts;
  • monitoring the use of UK trials of 'new models' of procurement;
  • improving contract selection and consistency of terms and conditions;
  • using painshare / gainshare clauses; and
  • enabling a consistent approach to project assurance.

All get access to skills and expertise

The report recognised two challenges:

  1. Construction procurement expertise is patchy across the public sector (with some areas being very good); and
  2. It is not appropriate for every single public body to retain a high level of in-house expertise.  The key recommendation in this area was that bodies involved in construction must either have that expertise, or be able to access it through some other means. 

The report recommended adapting the existing procurement capability assessments that all relevant public bodies undertake each year to include construction.  This will baseline and improve skills across the public sector.  The report also proposed developing guidance on the use of procurement tools.

Tools enable small firms to access  lower value work

To increase standardisation and transparency, the report recommended the mandatory use of several tools:

  • Scotland's national contracts portal, Public Contracts Scotland (PCS)5, when advertising publicly-funded contracts;
  • the standard pre-qualification questionnaire developed by a working group of suppliers when a pre-qualification stage is used; 
  • the use of the PCS tender facility for creating invitations to tender and for submitting tender returns; and
  • an increased use of Quick Quote, the tool embedded within PCS which allows public bodies to invite a small number of firms to price lower value, lower risk work without full advertisement.6  The report proposed that Quick Quote should become the norm for works contracts worth less than $800,000.

Focus on environmental and social sustainability

The report recognised that economic, environmental and social sustainability are interlinked.  It also…

  • stressed the importance of assigning appropriate priority in construction; 
  • recommended building on existing guidance in several areas, such as the use of community benefit clauses, and building on good practice in areas such as the incentivisation of greener and modern methods of construction (as evidenced in the registered social landlord sector); and 
  • recommended a focus on the continuity and completion of apprenticeships, perhaps through the development of a shared apprenticeship model.

Performance and efficiency

The reviewers stressed strongly that appropriate use of building information modelling can reap significant savings and efficiency in the construction and ongoing maintenance of facilities.  They recommended the early introduction of BIM in central government with a view to encourage its adoption across the public sector.

Recognising better data is key to performance, the report called for installation of  robust systems to track spend, development of sectoral records of construction costs to provide meaningful benchmark data, and making better systematic use of post-project evaluation.

Some problems of industry's own making …

The report did not confine itself to the public sector perspective.  Instead it contended that some of the problems it identified were, at least in part, of the industry's own making, for example late payment of sub-contractors, retentions abuse, and suicide bidding.  The report recommended that the Construction Scotland Industry Leadership Group ensure industry itself is at the forefront of addressing these issues.

Implementation a major task

Overall, the report provided a comprehensive analysis of the challenges and opportunities of reforming construction procurement. Scotland's Deputy First Minister, Nicola Sturgeon, after reviewing the report in detail, announced that the Procurement Reform Board was being tasked to oversee  implementation of the report's recommendations.7 

Ministers indicated that they did not intend for the time being to pursue the creation of the Chief Construction Advisor post, but they accepted the other recommendations in full.  The Scottish Government's Procurement and Commercial Directorate working in partnership with the Scottish Futures Trust and other bodies such as Health Facilities Scotland, is now developing a programme for delivery. 

Construction now fits into the mainstream of procurement reform 

Many of Crawford and Lewandowski's recommendations either reinforce existing procurement policy, or are reflected in the Procurement Reform (Scotland) Act – such as the publication of procurement strategies, and the requirements to advertise contracts and use the proportionate standardised PQQ.

Many stakeholders will move the work forward

Public bodies such as Scottish Water, the Scottish Futures Trust, Health Facilities Scotland and Transport Scotland all have considerable experience and expertise in developing and delivering construction projects.  Their active involvement will be essential as will be the involvement of local government, which collectively accounts for over 40% of construction spend and contains its own pockets of excellence.  It will be critical to combine the diverse aspects of the construction industry to provide the supply-side perspectives. 

The views expressed in this article are Alastair's personal views and do not necessarily reflect those of the Scottish Government.

End notes

  1. http://www.scotland.gov.uk/Publications/2006/03/14105448/0
  2. http://www.scotland.gov.uk/Topics/Government/Procurement/about/spd-aims
  3. http://news.scotland.gov.uk/News/Public-sector-construction-contracts-557.aspx
  4. http://news.scotland.gov.uk/News/Construction-firms-paid-more-quickly-c56.aspx
  5. http://www.publiccontractsscotland.gov.uk
  6. http://www.scotland.gov.uk/Topics/Government/Procurement/Selling/SupplierJourney/identify-business-opps/pcs
  7. http://www.scotland.gov.uk/Topics/Government/Procurement/Procurement-News/NewsVault2014/constructionReview?refresh=0.4996023596468151

About the author

Alastair Merrill, Fellow of the Chartered Institute of Purchasing and Supply (FCIPS), is Chief Procurement Officer and Commercial Director for the Scottish Government, leading public sector procurement reform in Scotland to deliver greater value for money through increased savings, improved quality of services and promoting sustainability in procurement.

 
 
 

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