APPENDIX 1
Memorandum submitted by the Office of
Government Commerce (PAC 00-01/122)
Q 72 MODERNISING
CONSTRUCTION
At the PAC's hearing on 14 February you expressed
concern that partnering arrangements between Government clients
and private sector contractors could lead to too comfortable relationships
which are not conducive to securing value for money for the taxpayer.
Sir Richard Mottram and I agreed that it would be appropriate
for me to respond to your request as I am the Accounting Officer
responsible for overall Government procurement policy in this
area.
The NAO and Egan Reports have set out very clearly
the significant value for money improvements which can only be
gained from the use of partnering. Partnering between the client
and the main contractor working together on the execution of a
single project has the potential to generate savings between 2
to 10 per cent compared to conventional techniques; partnering
between these parties across a series of construction projects
promotes longer-term continuous improvement which can yield savings
of up to 30 per cent in the cost of construction.
As the NAO Report sets out on pages 29-32 partnering,
if established reliably, should provide public sector clients
with greater assurance that value for money is being achieved
if the following principles are adopted:
1. The basis of appointment of partners is
based on competition using any of the three routes recommended
by the Office of Government Commerce ie Public-Private Partnerships,
Design and Build, or Prime Contracting.
2. Clear targets for continuous measurable
improvements in quality, delivery times and cost reductions have
to be agreed and committed to by the parties.
3. Gain/pain share arrangements are established
so that efficiency gains can be shared and contractors are incentivised
to be innovative and cost effective.
4. Open book accounting so that departments
have reasonable access to contractors' financial records and cost
information to have confidence in reported improvements in efficiency
and performance.
This reinforces some of the advice and guidance
set out in the HM Treasury Procurement Guidance Note No 4 (Teamworking,
Partnering and Incentives) which was published in June 1999; a
copy is attached to this letter.
This Guidance Note also highlights a number
of other important aspects to help ensure that such arrangements
deliver enhanced value for money:
1. The need for full, visible and continuous
support from very senior management of each partner organisation.
2. Benchmarking to test that the partnership
relationship is delivering value for money eg by comparing performance
against other contracts or seeking clear demonstration that value
for money has increased since the start of the contract.
3. Recompeting the contract after a given
interval.
It is my intention to produce updated advice
and guidance later this year aimed at Permanent Secretaries and
other very senior management on partnership relationships. My
objectives are to encourage more widespread use of partnering
as a management technique in view of the substantial value for
money benefits that it can offer, while ensuring that such arrangements
are established and operated within a taut framework with safeguards
to propriety and the interests of the taxpayer. I will give proper
consideration to NAO and PAC recommendations arising not only
from this report, but also from other reports on projects, particularly
in the Construction, Property Management and IT domains, where
partnering techniques have been used by Government clients.
Please don't hesitate to contact me if I can
be of any further assistance on this matter.
Peter Gershon CBE
Chief Executive
16 March 2001
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