Three routes to procurement nirvana

Vaughan Burnand MCIOB outlines the new approaches to be ‘encouraged’ by the Cabinet Office.

CIOB members whose experience working in the public sector stretches back over the past 30 years will have had, in the main, a “traditional” experience. My own career in contracting started in 1974 with 38 flats and maisonettes for Manchester City Council. This was the first tender I won in my career.

The scheme was designed by the city design office, taken off by the city quantity surveyors, priced by six contractors and awarded to John Laing (my employer) after the presentation of a priced Bill of Quantities and little or no qualifications to be clarified. I believe the project was completed with the contractor making most of its 7.5% margin but probably at least 20% in excess of the client’s budget. Everybody was happy (ish), somewhat surprisingly.

Over the years the public sector has matured (if that’s the right term) with less design work being paid for by the client at the outset, no bills being prepared by the client, and frameworks and collaboration being the declared way to work. Sadly, I doubt the final accounts are frequently not much different from my experiences in 1974 and overspends are still with us… even against a backdrop of government cuts.

The Cabinet Office had something of an epiphany in 2012 and has built on the report of the cross industry Procurement/Lean Client Process Task Group which contributed to the Government Construction Strategy. Simply put, this report recommended that future public sector construction projects be procured on one of three new methods of procurement, namely Cost Led Procurement, 2 Stage Open Book and Integrated Project Insurance.

Under the Cost Led Procurement process, a client can use their knowledge of costs to set a challenging cost ceiling and output specification against which the supply chain can bring experience and innovation to bear in a competitive framework environment.

Using Two Stage Open Book, a client invites prospective integrated teams to bid for a project based on their ability to deliver an outline brief and cost benchmark. Following the first stage competition, the appointed team works alongside the client to build up a proposal, the construction contract being awarded at the second stage.

The Integrated Project Insurance (IPI) model offers clients the opportunity to create a holistic and integrated project team to eliminate the “blame/claim” culture. The innovative “integrated project insurance” package limits risk, fosters joint ownership of the project, and reduces the likelihood of in terms of cost and time overruns.

The report led to the appointment of three “mentors” and they have contributed by producing guidance documents now available on the Cabinet Office website to enable hopeful clients and bidders to brush up on their required skills in order to join in.

There are a lot of words in slightly different styles, I think maybe due to the differing roots of the mentors. We have lawyer David Mosey leading on Two Stage Open Book, myself, with a main contractor background, advising on Cost Led Procurement, and Martin Davis, formerly of M&E contractor Drake & Scull, on IPI.

You may say we are all singing from wildly different hymn sheets, but the message is the same in that there are significant changes coming and there are a number of identical features in each approach.

The government is ultimately looking for the “holy grail” of a final account figure lower than the original budget rather than the plus 24% it has been subjected to over the years.

The key elements to achieving nirvana are:

• Early Contractor Involvement
• Understanding of Cost
• Working Collaboratively
• Risk, Value and Supply Chain Management
• Every part of the supply chain being heard and contributing

I can hear an outcry from many quarters saying that you are all experts on these things. In that case you may have nothing to fear. However, I spend most of my life as a poacher turned gamekeeper these days, mentoring two trial projects among other client-side positions, and I have to say the individual and corporate ability to undertake project work in the way described above is not self-evident.

But this shift in procurement practice is one of the greatest opportunities for a generation and if properly managed with skills being developed within clients, consultants, contractors and the supply side, it will bring benefits for all.

The new ways will not be mandated, but the Cabinet Office is beginning the “process of encouragement” with an event in London on 9 April for an audience of public sector clients.

I commend the proposals to the house!

Vaughan Burnand MCIOB is the mentor for Cost Led Procurement within the Trial Projects Group and the author of the CLP Guidance.