Outsourcing software and computer services is increasingly being seen as a cost-effective and sustainable IT option. Graham McLean advises
Cloud computing is causing major shifts in the IT industry, and a recent report – Building on IT 2010 (CM, May) – suggests many in the sector are now considering this type of IT outsourcing in a bid to cut costs. It’s hardly a surprise: the “cloud” can now be used to deliver everything from specialist project planning, CAD and construction collaboration software, to widely used word processing, spreadsheet and email products.
The term cloud computing was coined from the symbol used to depict the internet in technical diagrams. At its heart is the idea that companies should move their software, data and other IT resources off in-house server rooms run by their own staff into specialist data centres where they can be accessed via the internet as “virtual” services. Users can log in using their PCs and, increasingly, mobile devices, and access the cloud software and services remotely, from their offices, on site or on the move.
A big advantage is that customers are charged only for what they use which, for software, often means a fee “per user, per month”. So there are no big upfront annual software license payments or installation fees and the added flexibility that services can be quickly scaled up, or wound down, in line with business needs.
Doing away with in-house computer servers – an expensive hardware item – brings significant capital savings, as well as reducing the need for the specialist IT expertise needed to manage and support them. Further savings can be made by cutting out high-spec desktop and laptop computers: with PCs no longer running memory hungry applications or storing data, cheaper, basic models are all that will be required.
Apart from the financial considerations, there is a growing view that fewer centralised computer servers remotely supporting high numbers of users is more energy efficient. In view of all the arguments, IT industry analyst Gartner predicts that the adoption of cloud and related technologies means a fifth of enterprises will hold no IT assets by 2012.
Cloud offerings can either be bought direct from software vendors or through third party providers that manage dedicated data centres and host specific combinations of software and services for customers. These cloud service providers take on most of the tasks related to keeping applications running, relieving customers of the hassle of dealing with software upgrades and managing backup and replication for business continuity.
The lower capital costs and reduced need for in-house technical skills means many smaller construction industry firms might find the cloud a more manageable, less risky way of adopting new technology. Similarly, construction companies that rely on IT and software in the field can find value from using remote cloud solutions, which help avoid the extra challenges related to creating and maintaining expensive IT infrastructures on construction sites.
Speed of implementation on site is another advantage. Cloud software can be configured and available to workers in the field within days – rather than the weeks or months it can take to set up an onsite IT environment.
At CI-Net we are increasingly using the cloud to support construction firms on large, long-term contracts where they are required to collaborate and share project data with other contractors. In these scenarios it is possible to set up a separate cloud environment to host all the applications and data to cover the lifetime of a project. This allows large, often competing, firms to collaborate on key contracts while maintaining the security of their own systems and leaving a fully auditable trail.
It is worth noting that there has been some initial hesitancy surrounding cloud adoption, mostly related to concerns over letting third parties handle business data and over security and the resilience of the cloud supplier’s systems.
Much of the concern is actually a question of perception. It is natural to believe that if your data is hosted on your own hardware and managed by your own staff, it is likely to be more secure than if it is in the hands of a third party.
But the systems and processes that a specialist cloud provider can employ are likely to be at least as secure, if not more so, than most construction businesses can support in-house. Data will be housed on servers within sophisticated data centres, manned 24/7 by security personnel and protected using encryption and industry standard firewalls.
A reputable cloud provider will install security updates and run frequent backups, as well as maintaining a comprehensive business continuity plan for recovering customers’ data in the event of flood, fire or other disaster.
Compared with having data residing in the field on on-site servers and carried around on individual laptops, possibly being exchanged on USB sticks and by email, it could be argued that the cloud model actually enhances data security and protection. And the potential cost and flexibility benefits the cloud can deliver mean it is something that construction firms looking for ways to run their business at maximum efficiency cannot ignore.
Graham McLean is managing director of CI-Net, which advises on connectivity and IT managed services
Does your company have its head in the clouds? Tell us your experiences here.
Back to basics: Novation
Novation, commonly used in design and build contracts, is the creation of a new contractual relationship that substitutes a new party to an original contract.
Novation is often confused with assignment, but the two concepts are different. Novation is the transfer of the benefit and burden of a contract. This means transferring the rights of a party under a contract as well as the obligations, such as the duty to pay for work or services. An assignment only transfers the benefit of the contract.
In a typical novation, the employer originally enters into contract with the design consultant, but then novates that appointment to the contractor. A new contractual relationship is created between the contractor and the design consultant, adopting the terms of the original appointment.
Novation allows the contractor to take responsibility for earlier work by design consultants. But the contractor should have contractual rights against any novated design consultant if they are in breach of their obligations.
There are generally two types of novation agreement. The first assumes that the contractor takes the place of the employer, as if the contractor had appointed the design consultant from the outset, known as “ab initio” novation (Latin for “from the beginning”). The second assumes the contractor takes the place of the employer from the date of the novation.
Contractors need to ensure that they are protected against any breach of services and obligations by novated design consultants. They should also ensure that the services in any novated appointment are appropriate and that it is clear what fees will need to be paid to design consultants following novation. Dealing with such issues at tender stage will minimise the risk for contractors.
James Morris is an associate at solicitor Nabarro
Power to the people
Local authorities and other public sector procurers are increasingly using supply chain readiness networks to engage local construction firms, says Mark Baxter
Public sector procurers have a vested interest in encouraging contractors to use as many local firms in their supply chain as possible, and local authorities in particular carry a responsibility to support local businesses, the local economy and local employment. Under the new government’s localism agenda, we can expect more stress on strengthening local networks and less on centralised procurement – the coalition’s Programme for Government talked of a target of 25% of government contracts being awarded to small-and-medium-sized businesses.
Unfortunately, not all local construction businesses are up to the task of working in the public sector supply chain: some haven’t got the necessary skills or accreditations, some are simply not competitive enough and others, although competent and qualified, don’t consider public sector work to be an option, perhaps because of the paperwork, or the feeling – as some have reported – that it’s a “closed shop”.
As a result, the construction industry’s pool of potential subcontractors is limited to those firms who already understand
the requirements and have the relevant resources and accreditations in place. This doesn’t help local authorities support all the construction businesses in their area, and nor does it increase competitiveness in contractors’ supply chains.
That’s why Supply Chain Readiness Networks (SCRNs) are proving an attractive and cost-effective option, bringing benefits for local authorities, other public sector buyers, main contractors and their potential suppliers. SCRNs are led by local authorities, and often build on their existing supplier engagement policies. But by casting the procurement net wider to include other public sector buyers and main contractors working on public and privately-funded work, all parties can reap benefits of scale.
When procurers join together, their collective expenditure maintains the critical mass of work opportunities and thereby maintains the incentive for local businesses to engage and develop. Procurers realise the benefits of collaboration and the opportunity to minimise costs.
“The ability to use more local businesses enhances the local multiplier, returns more of the planned construction and maintenance spend to the local economy and can help reduce the carbon footprint from construction,” says Peter Weavers, chair of Build the East, a collaboration between the Build Norfolk, Build Essex and Build Hertfordshire networks. “As a result, construction procurers, contractors and local firms all benefit from a healthy local supply chain.”
There are currently SCRNs in Essex, Norfolk, Hertfordshire, North Yorkshire and East Sussex, each facilitated by Norfolk-based consultancy Moore Networking and involving around 4,000 firms. They are free to join and you can register on the websites – for example by visiting www.buildessex.co.uk. The cornerstone of each SCRN is the free quarterly networking events, where buyers’ representatives make themselves available to anyone who wants to ask the question: “How do I win work with you?”
At the recent launch of the North Yorkshire SCRN, 300 registered firms generated an estimated 1,000 follow up appointments in only four hours. More networks are in the pipeline.
Contractors are often surprised at the levels of engagement and the new local talent SCRNs “discover”. Julien Jones, area director of Morgan Sindall, who attended Build East Sussex events, comments: “I was amazed at the turn out, from three to seven it was relentless, wave after wave. While we do have an extensive supply chain database, I can see us extending it and filling gaps.”
Sunninghill Construction is a framework contractor for Improvement and Efficiency South East, one of nine Regional Improvement and Efficiency Partnerships, and a member of the Build East Sussex SCRN. Director Paul Michaels says: “Having worked in East Sussex for 30 years we thought we knew everyone. We were surprised therefore that the majority of companies we met were new to us.”
The SRCN is usually accompanied by a web application that provides a unique service to buyers. If a contractor wants indicative pricing or expressions of interest, their requests are only sent to member firms that meet that contractors’ criteria and have the skillset for the particular job.
All buyers can search for firms at any time and their qualifications and project histories appear in a “virtual shop window”. Buyers are automatically notified when expressions of interest or pricing is given and when a new firm achieves the appropriate accreditations they seek.
The web application also provides access to additional services such as support on apprenticeships from ConstructionSkills and the Future Jobs Fund, or advice on business issues from Business Link. Some local authorities also give the public access to the website, to help them view and assess the local contractors that could build their loft extension or conservatory.
SCRNs are usually funded by councils and run as a free service for main contractors and suppliers. For contractors and clients facing the choppy waters of public sector spending cuts and reduced workload, SCRNs can help all involved stay afloat.
Mark Baxter is Moore Networking’s director of network development
Has a similar initiative worked for your firm? Email [email protected]
Five ways to… strengthen the supply chain
| 01 |
Prioritise communication
It’s vital to keep the supply chain updated by sitting down monthly or quarterly to review past work and projects, and discuss future opportunities. Subjects covered should include turnover, resolution of any invoice queries and a review of current market trends and possible future jobs. Many companies are now using social networking – Facebook and Twitter – to make themselves accessible to suppliers. These have their place, but so do phone calls and face-to-face meetings.
| 02 |
Aim for early project integration Involving members of the supply chain as early as possible guarantees the best results. Ideally this should take place during the design stage, when all parties can work together to develop the most cost-effective and innovative solutions to meet client objectives. In the current competitive climate, some companies
worry about disclosing too much information to sub-contractors. Here, good relationships are better security than confidentiality agreements.
| 03 |
Ensure continuous improvement
Setting key performance indicators (KPIs) helps contractors or managers to continually monitor the commercial viability of suppliers and provide an objective benchmark on which to gauge performance. The most important KPIs are quality of work, ability to work with the main contractor on design elements, and the ability to identify alternative solutions. But the real benefit of KPIs comes when you share the results with suppliers. The criteria should also be revisited from time to time.
| 04 |
Improve collaboration
Genuine, open and honest two-way collaboration will result in cost-effective solutions. Regular discussions are crucial to developing a strong relationship that will bring commercial and process savings for all parties.
| 05 |
Know who’s accountable
Main contractors will deal with suppliers at site, regional office and head office level. It’s important to understand everyone’s level of accountability and responsibility, so you know who to pull in to resolve a situation. The contractor’s supply chain head should forward that information to the operational side of the business.
Steve Poole, supply chain manager at specialist building contractor Prater
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