Memorandum submitted by Constructing Excellence
INTRODUCTION AND
BACKGROUND
1. Constructing Excellence is the leading
organisation dedicated to improving industry performance for a
demonstrably better built environment. It was grant-funded by
the DTI until March 2007 and is now a thriving membership-governed
organisation with government and consultancy commissions. Our
257 national members are customers, contractors, consultants and
suppliers in the housing, buildings and estates, and infrastructure
markets, and our core activities are action research and innovation,
benchmarking, demonstrations, best practice guidance, training
packages, and learning networks.
2. Recent change in the UK construction
industry dates back to the 1994 Latham Report, Constructing
the Team, and the 1998 report of Sir John Egan's Construction
Task Force, Rethinking Construction. The most direct consequence
of the former was the Housing Grants, Construction and Regeneration
Act 1998 which dealt with the endemic problems of poor payment
practices and disputes in the sector. The result of both was a
widespread recognition of the need for the industry to improve
the service to its clients, and a number of initiatives were set
up with substantial government funding to implement these reports,
most of which have now united with a number of industry-funded
bodies to form Constructing Excellence.
3. We welcome the opportunity to submit
evidence to the Select Committee's inquiry. We are a unique bridge
between industry, clients, government and the research community
at national, regional and local levels across the UK, as well
as having an international perspective (paragraph 49). Our evidence,
and that of the National Audit Office (paragraph 19), is that
the industry has improved its performance significantly as a result
of Latham and Egan, especially through the adoption of collaborative
working (or "partnering"). This has widely replaced
the adversarial approaches of the 1990s and is making a big difference.
4. This submission is based on our evidence
of industry performance which has three main sources in addition
to our members' reports based on experience:
— Our Construction Industry KPIs, based
on data from thousands of projects collated from DTI and industry
surveys. These enable individual firms to benchmark their performance
with other firms but also enable us to track improvement in the
industry's performance through an annual Industry Performance
Report. This submission contains extracts from this report in
the form of annual trend data for economic performance (overleaf),
people performance (paragraph 12) and environmental performance
(paragraph 41), which show that most indicators are climbing steadily
upwards, indicating an improving industry.
— Our Demonstration programme, which
since 1998 has recruited 468 projects worth £12 billion and
involving over 1,100 lead organisations to implement elements
of best practice, report performance against the KPIs, and share
the learning. These demonstration projects consistently out-perform
the rest of the industry against all the KPIs, and outputs have
included over 130 case studies and 63 associated reports and publications.
— Our action research, where we work
successfully with universities who access Research Council funding.
These projects are usually scoped by our members and then the
right research partner is identified. This is a highly successful
model of research as it already has a pool of users waiting for
the results, in contrast to the historic "push" approach
to research which struggles to find an "audience" or
"market" when it is finished. Other features of our
research commissions are that they focus on management and process
improvement rather than technical innovation, and often involve
learning from other industry sectors where specific techniques
have made a difference (eg supply chain integration, lean).
CONTENTS OF
THIS SUBMISSION
5. After an initial section on Value, our
submission follows the headings set out in the terms of reference
for the inquiry. Within this framework we comment on the current
"state of play" and highlight where and how further
improvements can be made.
UNDERSTANDING VALUE
6. The sector covers the whole lifecycle
from planning, design, manufacture, assembly/construction and
commissioning of built facilities to their operation, maintenance,
refurbishment, deconstruction and re-use. A more accurate term
than "construction" is the "built environment"
sector, of which sub-sectors include housing, property, buildings
and estates, and infrastructure, and a case can be made that the
built environment sector accounts for almost 20% of Gross Domestic
Product rather than the 6-7% usually quoted for "construction"
output.
7. However, a major problem in the sector
is the widespread failure of the industry and its stakeholders
(eg investors, clients, suppliers) to take account of this whole
lifecycle of built facilities and hence understand and respond
to how the industry adds value for its customers—which by
definition is predominantly in the use of built facilities, not
their construction. They find value in the availability of serviced
space, developed and run to support their business or social service.
Construction is usually only an occasional input to meet that
need (except in the housing and development sectors).
8. The quality of buildings substantially
determines the operating performance of the economy and the quality
of life for people. Examples of such performance linked to built
environment investment are not easy to come by, but there are
enough examples from overseas (eg USA) to support this vision.
We are working with others, including the Commission for Architecture
in the Built Environment (CABE), to understand cases such as:
— Productivity in workplaces related
to the ability of the occupants to use the latest equipment and
layout ideas and to enjoy a healthy indoor climate.
— Competitiveness of retail and leisure
investments based on their attractiveness to tenants and customers,
accessibility and operating economy.
— Speed and effectiveness of hospital
treatment, given a clean and attractive environment under patient
control.
— High achieving educational establishments
in buildings which support effective regimes and build morale.
Case Study: Value in UK hospitals
Professor Bryan Lawson and Dr Michael Phiri
of the University of Sheffield carried out evaluations of two
hospitals, both involving new and improved accommodation. The
findings showed positive outcomes, for example in Brighton the
patient treatment time savings exceeded annual capital charges
by 46%. In Poole the revenue savings exceeded the capital costs
in the second year of operation, and at Brighton this happened
in the first year of operation.
9. Making a difference in this area is not
easy. Most of those involved in the design and construction of
buildings are too remote from their customers' experience—they
have left long before the occupiers start to experience the building.
Apart from some regular customers of construction, there is scant
client understanding of how the quality of real estate and facilities
brings value to their business, and requirements statements are
therefore typically too general. However, if customers and suppliers
for the built environment sought long-term value in this way,
the prizes would be huge for all: customers could expect their
performance to rise in value-based facilities; the industry could
expect value-linked reward to exceed that based on current margins;
the public could benefit from a rise in the quality of life and
the sustainability of their lifestyle.
10. The housing sector is making big strides
in this regard. Constructing Excellence's Housing Forum has uniquely
brought together all parts of that sector since 1998 to drive
improvement in line with the Egan vision. Through its Customer
Driven Strategy, partly funded by the DTI, Department for Communities
and Local Government (DCLG) and the Housing Corporation, it directly
laid the foundations for the current Callcutt Review of house
building supply and delivery for the DCLG. Its members' insight,
grounded in practice, has enabled the Forum to express concern
at the industry's current fragmentation and to call for new forms
of regulation and new housing industry models. These are essential
if we are to move from the current production of circa 160,000
homes per year to the 200,000 plus envisaged in Government targets.
11. There are two streams of work required
to make further progress:
— Understand the relative ratios of
construction cost and business value, from initial design and
construction capital costs, maintenance and facility operating
costs, the operating costs (salaries, IT etc) of the organisation
using the facility, and the value added or earned by that user.
Early work suggests the ratio of design input, where what is to
be built is defined, to end value is of the order of 1:400 or
more.
— Bring together and exploit three
inter-related activities which will enable a value-driven process:
(a) post-occupancy continuous in-use evaluation—finding
out on an on-going basis how well a facility actually performs,
how it affects those who use it, and how it meets the operational
needs of the organisation.
(b) evidence-based design—recording,
understanding and cataloguing for use by others those design solutions
which work particularly well.
(c) briefing—this process is more common,
but there is wide variation in its quality, which is hardly surprising
without an understanding of how buildings have worked in use and
what strategic impact they have had on the client's operation,
or which design features are evidenced to work well.
EMPLOYMENT AND
PAYMENT PRACTICES
12. The industry's performance in looking
after its workforce is improving, as the following chart from
the annual construction industry KPIs shows:
13. In the last 30 years the employment
and taxation regime has led to the culture of subcontracting in
the industry as well as the majority of site workers being self-employed,
so much so that the Inland Revenue has a specific Construction
Industry Scheme, recently revised. There are recent signs that
firms are rediscovering the competitive advantage of direct employment,
which is to be encouraged as it should lead to better training
and welfare and hence quality workmanship.
14. Corporately parts of the sector remain
dogged by poor payment practices down the supply chain (paragraph
2), with payments to directly-appointed subcontractors commonly
taking sixty days or more. The "Construction Act" has
undoubtedly helped, and is the subject of review at the time of
writing, and we welcome the work by the Office of Government Commerce
(OGC) and the Local Government Task Force to produce a "fair
payment charter" to go further. There continues to be industry
pressure for the abolition of retentions (the withholding of a
proportion of the contract sum as a financial guarantee for the
defects' liability period, necessary because the industry can
rarely deliver "right-first-time"). This practice should
not be necessary in long-term agreements where the client has
other means by which it can ensure quality, and many leading clients,
the Olympic Delivery Authority amongst them, have abolished them.
Abolition of retentions is a welcome trend, and the supply chain
needs to respond by improving its performance in delivering zero
defects.
15. Fragmentation of the supply chain also
means that constructors cannot leverage much influence with their
supply base. Coupled with the complex discounts and rebates that
exist within the constructor's relationships with suppliers, this
means that much opportunity for improvement is lost because of
the lack of transparency over costs and performance. This transparency
is vital to cost reduction and is discussed further in paragraph
46.
LONG-TERM
CAPACITY FOR
THE DELIVERY
OF LARGE
INFRASTRUCTURE PROJECTS
ON TIME
AND TO
BUDGET, SUCH
AS THE
OLYMPICS
16. "For every Wembley there is an
Arsenal". Large high-profile projects that overspend or run
late receive bad headlines. But those that deliver on time and
on budget do not. Most big projects which have suffered in recent
times have failed in the early briefing phase to identify clearly
and categorically what the client wants and actually needs—not
necessarily the same thing! Clients who are unclear about their
requirements need to be helped by their advisors and the industry
to reach that clarity, and there needs to be enough time at the
early stage of a project to allow this, otherwise big changes
of scope that occur well into the project cause havoc with the
project programme and associated costs (eg Holyrood, Wembley).
Where the client is clear, or alternatively understands that the
project needs to remain flexible and able to change scope later
in the project (perhaps in reaction to changing market conditions),
then the industry can adapt and is much less likely to have problems
(eg Heathrow Terminal 5, Arsenal).
17. From what we see as occasional advisers
to those delivering the construction projects for the Olympics,
the Olympic Delivery Authority and CLM (the ODA's Delivery Partner)
are an excellent "intelligent client", adopting all
aspects of the Common Minimum Standards (CMS) and many aspects
of best practice and innovation that go well beyond the CMS, for
example in the area of environmental sustainability and early
consultation with potential suppliers. As a result of this early
excellence the project is much more likely to be an "Arsenal"
than a "Wembley".
18. The Infrastructure Forum of Constructing
Excellence is currently reviewing the long-term strategic planning
in the infrastructure sector, and has so far engaged over 200
organisations. Just as the Government has set long-term targets
for CO2 reduction, so it needs to have long-term targets
and an accompanying national strategy for integrated infrastructure.
Decisions made at a local level will not deal with the big issues
at the necessary scale and over the long-term. For example a 25-year
vision is required, backed by a 10-year programme (currently five
in the utility sectors) and ideally a three to five year cycle
of funding certainty. Only with these timescales can "UK
plc" make the big planning decisions necessary to enable
integrated transport and integrated utilities which can deliver
more efficiently, reduce congestion and reduce associated CO2
emissions dramatically.
DELIVERY OF
THE GOVERNMENT'S
CAPITAL INVESTMENT
PROGRAMME
19. Government has worked hard to improve
its procurement performance in the sector, and deserves credit.
Accounting for around 40% of the industry, the public sector is
probably the most influential driver of behaviour in the construction
industry. The traditional approach of awarding contracts to the
lowest bidder in the name of value-for-money, and then reaping
a harvest of claims and overspend, has been seriously challenged
through Achieving excellence in construction. For example
the March 2005 NAO report Improving public services through
better construction reported an increase of projects coming
in on budget (from 27% in 1998 to 65% in 2006) and on time (from
30% in 1998 to 61% in 2006).
20. The stated objective of public sector
procurement to appoint the most economically-advantageous bid
over the lifetime of the project is widely frustrated in its practical
implementation as a result of the failure to take account of both
capital and revenue expenditures (paragraph 7 above), as a result
of which too many stakeholders design for lowest price not maximum
affordable value. The need to manage for value optimisation not
cost reduction is critical. This is not only a public sector failing.
The OGC has drafted a supplement to the HM Treasury "Green
Book" on this topic, which needs to be published and implemented,
and the Construction Industry KPIs should be extended to cover
the whole life performance of facilities.
21. All clients, and particularly the public
sector, need to understand and manage risk better. The supply
side prices risk, which makes projects more expensive and more
adversarial as the supply chain parties concentrate on minimising
risk for themselves rather than the client. Thus the client needs
to retain more of the risk usually transferred to the supply chain
in order to create the right conditions for collaborative working
(also paragraph 46 below), releasing the team to focus exclusively
on the client's operational needs.
22. Other key points for public sector procurers,
which we made in the Strategic Forum/Constructing Excellence submission
to the Public Sector Construction Clients Forum of the OGC in
March 2007, are:
— Provide clear and long term information
on investment programmes and strategies. This gives confidence
to industry to invest in its supply chains.
— Ensure a steady deal flow which runs
in accordance with previously published timescales. This enables
the industry to keep together experienced teams to deliver projects
more effectively and to benefit from economies of scale.
— Abandon the practice of cut throat
competitive tendering in favour of building long-term relationships
with contractors and their supply chains.
— Involve construction supply chain
partners at the earliest possible stage of projects to ensure
maximum efficiencies are generated in the design and construction
process.
— Deliver more projects through integrated
supply chains.
— Standardise contracts, processes
and design, where appropriate.
23. Government clients tend to operate in
"silos" and as a result there is little sharing of and
learning from practice, representing a major failure to capitalise
on the public sector's collective experience. The responsibility
of the OGC for improving procurement of construction should be
clarified and strengthened, and it should focus on enabling this
sharing as well as measuring how Government Departments are doing
against the benchmark of the Common Minimum Standards (which over
time need to become outcome-oriented rather than prescriptive
inputs—paragraph 25). Above all, we need to overcome the
widespread tendency to underestimate the time and resources required
to embed best practice and thereafter maintain continuous improvement.
UK DEPENDENCE ON
IMPORTED LABOUR
AND EXPERTISE
24. Other industry organisations are better
placed to comment on this topic.
MAINTENANCE OF
STANDARDS WITHIN
THE SECTOR
25. Currently there are over 3,500 standards
relevant to the construction industry but few companies in the
sector would see them as drivers of performance improvement or
as sources of best practice guidance—more prescriptive than
performance-related. "Rethinking construction standards"
is a joint Constructing Excellence—British Standards Institute
project to link standards to value and move away from the current
technical and product-based approach to standards.
26. With major industry engagement we have
created an industry debate on how to make standards more relevant
to outcomes and user requirements and act as a catalyst for the
development of a new generation of performance-related standards
which will improve performance and increase innovation and competitiveness
in the UK and overseas. By linking standards to the Construction
Industry KPIs and performance of core company and industry issues,
future standards will be developed that assist and contribute
to improved performance and enhanced value throughout the built
environment sector.
CONSTRUCTION RESEARCH
AND DEVELOPMENT
27. Compared with other major industrial
sectors, long-term competitiveness of construction continues to
be hampered by under-investment in strategic, pre-competitive
research. The shift to national industry research funding being
channelled through the Technology Strategy Board has exacerbated
this situation as many of the strategic issues needing research
in the industry are not technology-driven. In addition the exploitation
of research findings and industry engagement in the process is
poor, mainly because research outcomes are not meeting the real
needs of industry. This issue drove the establishment of the National
Technology Platforms.
28. Constructing Excellence provides management
support to the National Platform for the Built Environment, which
also inputs at a European Union level into the European Construction
Technology Platform. The UK National Platform aims to increase
significantly the level of business-led, relevant research applicable
to the built environment. It is led by an industry board comprising
the Chief Executives of organisations such as Atkins, Arup, Balfour
Beatty, Taylor Woodrow, BAA. The strategic direction from this
group is implemented by a support group involving representatives
from the research community including academia, research and technology
organisations, trade associations and professional institutions,
and industry. While it is intended that significant additional
amounts of funding and research activity will be generated for
the construction industry through the National Platform, its progress
to date has been hampered by a lack of available "seed funding".
29. Following wide consultation the Platform
developed the UK Strategic Research Agenda, which has three key
themes which require collaborative research projects:
— Reduced resource consumption.
— A new client-driven, knowledge-based
process.
— Information and communication technologies
(ICT) and automation.
30. Working groups for the three themes
are well underway, bringing together stakeholders including industry
and academia (where in general the link is weak) to facilitate
access to European and national research funding, where there
are large sums of money available, as well as undertaking specific
research activity. The industry and its clients need mechanisms
to ensure that the relevant Research Councils, particularly EPSRC,
reflect purposefully in their priorities and programmes the opportunities
identified in the Strategic Research Agenda.
31. In particular the drivers for change
in the sector have changed significantly in the last 10-15 years.
From technically-based drivers, Latham and Egan encouraged product
and process improvement based on partnering and the rest of the
Rethinking Construction model. More recently it is evident from
the European strategic research agenda that the drivers today
are much more society-based, for example sustainability and globalisation,
and the industry is not well informed to understand the consequences
of these and therefore how to respond. There is scope for a major
piece of work in this area.
AVAILABILITY OF
AND INVESTMENT
IN SKILLS
32. Around 2.4 million people are employed
in the sector and the Sector Skills Councils (ConstructionSkills,
SummitSkills, AssetSkills) are doing a good job—although
there is scope for better collaboration to enable a joined-up
approach to skills across the built environment. The latest estimate
is that over 400,000 new workers will be required in the next
five years, and this "skills gap" will be particularly
hard to fill. Other organisations' submissions to this inquiry
will address this subject in more detail, but it is certain that
work-based training and capacity enhancement will be a major component
of the future of the industry.
33. Skills shortages are a driver for other
less labour-intensive and more productive working practices which
would have hugely beneficial impacts on the industry. Modern methods
of construction, IT, automation, off-site manufacture, prefabrication
and other innovations can all be promoted in parallel as contributions
to closing the skills gap. For example, lean thinking and smart
logistics (paragraph 47) are still in their infancy despite being
well-proven in other sectors and having many demonstration projects
in construction. "Work smarter not harder" might be
a useful adage—the productivity of the workforce is badly
affected by deliveries to site, for example up to 20% of an operative's
time is spent looking for material during a shift, and the industry
systematically over-supplies materials to site by up to 15% and
factors in allowances of up to 25% for damage on site and in transit.
34. These new ways of working, and new drivers
such as integration and collaborative working (paragraph 46),
sustainability, and the need for better leadership and change
management, mean that whole new skill sets are required (paragraph
44 below) and these are taking too long to develop and their absence
is slowing the speed of change.
35. There is some better news at a "local"
level. The Housing Forum of Constructing Excellence has worked
with ConstructionSkills to deliver sustainable training for sustainable
communities, renamed "Construction legacy—housing".
The purpose is to ensure that the upgrading of homes and estates
and other major projects result in employment benefits at a local
level, eg improved skills, job prospects and reinvestment in local
communities, and also tackle some of the industry's biggest weaknesses
in recruiting women and black and minority ethnics. Some 24 projects
have achieved measurable outcomes in recruitment, retention, training
initiatives, social value, innovation and best practice, aligned
with refurbishment of inner urban housing stock, newbuild and
regeneration projects. A further 25 projects will be recruited
as demonstration projects over the next three years. Specific
highlights include:
— An average of five years training
per project.
— 3,988 trainees, an average of 181
per project.
— High retention rates, an average
of 86.9%.
— Black and minority ethnic (BME) trainees
well above industry average.
— Female trainees increasing and above
industry average at 4.6% of all trainees.
36. The success of these schemes needs to
be replicated across all major long-term projects and programmes.
It is encouraging to report the latest Construction Legacy—London
initiative aimed at local workforces in the Olympic Borough areas
and their catchments. This should deliver a lasting "Olympic
legacy" of industry employment in the local and district
areas.
REGULATORY MATTERS,
SUCH AS
HEALTH AND
SAFETY, AND
THE BUILDING
REGULATIONS
37. Evidence-based policy-making means that
we are regularly consulted by regulatory review teams from the
Department for Communities and Local Government regarding the
local government and social housing sectors. Increasingly such
legislation looks to incorporate performance measurement and benchmarking,
and the Construction Industry KPIs have provided an excellent
common basis for this (also paragraph 26).
38. Strong links between government, strategic
bodies, experts, academia and industry are critical for better
regulation and its impact on performance in the sector. Our Construction
Clients' Group is working with the Health & Safety Executive
to draft additional health and safety guidance for clients, particularly
infrequent clients, which will assist clients to better understand
their obligations under the CDM 2007 Regulations. However, radical
improvement in this area requires more than regulation—it
needs a major culture change, as epitomised by our work with Network
Rail to deliver 55 workshops to "train trainers" on
behavioural safety on site.
ENCOURAGING SUSTAINABILITY
39. The language of sustainability is not
well understood within the industry or by most of its clients.
It has economic, social and environmental dimensions (the "triple
bottom line") but has been somewhat dominated by the "green"
agenda, arguably to the detriment of the overall objective. Using
different terminology—and framing concepts with which the
industry is already familiar—clarifies what we actually
mean when we talk about "sustainable construction",
and demystifies a complex agenda. For example, businesses generally
understand the concepts of profitability and productivity, and
increasingly they understand value (paragraphs 6-11 above), and
such topics are more readily discussed than "economic sustainability".
Similarly, talking about skills and communities, working conditions
and staff retention, is far more straightforward than "social
sustainability". Hence, many of the other sections of this
submission are also highly relevant to encouraging sustainability,
but in this section we will concentrate on environment performance.
40. Further complexity is added when considering
the distinctions between "sustainable construction",
"sustainable communities", etc—all terms which
are commonly used at policy level but not well understood. The
diagram overleaf seeks to represent the relationship between these
concepts (and is intended to represent three-dimensional relationships,
nested boxes rather than flat shapes, to indicate that there are
areas of overlap but also separate activity).
41. Environmental sustainability is better
understood in the industry, as the desirability of reducing environmental
impact is widely recognised—if not well acted upon. Sub-themes
are resource efficiency, the impact of climate change, and "sustainable
procurement". Overall, the KPIs show an encouraging trend:
42. Action on resource efficiency, and in
particular effective waste management, is far more common in the
industry since the introduction of the Landfill Tax. However,
delivery is patchy at best. The larger companies and frequent
clients require systematic approaches to waste management where
we have measured average cost savings of 3% of project costs.
However, waste minimisation—reducing the 15% of unnecessary
material which we estimate is delivered to site in the first place—is
in its infancy.
43. The lack of post-occupancy evaluation
is a problem in this area (paragraph 11 above). Ultimately, however,
it is the perceived cost of environmental sustainability that
is the main barrier. This is often because people treat such features
as add-on extras, thereby automatically increasing the calculated
costs. This betrays a fundamental lack of understanding about
the underlying concept, as demonstration projects both in the
UK and internationally clearly show that increasing the sustainability
of a new building can be achieved at little or no additional capital
cost (the refurbishment of existing buildings is a far more complex
and costly issue that will need significant policy and fiscal
intervention if it is to become truly widespread). However, the
recently published Code for sustainable homes, for example, shows
that clients are not yet informed about product choices available
to meet environmental targets.
Sustainable buildings need not cost more
Dunston Innovation Centre has clear cost comparisons
available for this local authority scheme, as a very similar centre
was built five miles away, to the same specification apart from
the heating, ventilation and cooling systems. These are new-build
IT incubation centres aimed at supporting new and growing IT-based
businesses and therefore there is a large energy demand. Both
centres were built for the same capital cost, the Dunston facility
using an renewable energy heat exchange system, whilst the other
used standard heating and air conditioning systems. Dunston's
energy costs are just over £10,000pa, under 25% of the other
centre, and their carbon emissions are correspondingly low.
In housing, there are many examples that more
sustainable buildings do not have to cost more. One scheme at
Honingham in Norfolk was built for a local housing association
for the standard Housing Corporation budget, but the houses are
so well-insulated and efficient in their operation that residents
do not need to use the heating system. We visited one couple in
December who had not turned the heating on for a year, and who
had monitored the internal temperature remaining at 22-24 degC
throughout that period. These are all-electric houses, with hot
water pre-heated from solar panels, and average electricity bills
for this couple were £3.80/week. Ironically, however, this
design would now fail to meet Building Regulations standards,
despite its energy efficiency, because of the reliance on electricity—so
there is also a certain amount of work to be done on ensuring
coherence across policy and into delivery.
44. Extra costs are also incurred because
contractors and consultants price for the risk of uncertainties
and increase their cost estimate because they do not routinely
deliver sustainable building projects. There is also a real additional
cost of the time needed to investigate more sustainable approaches,
because skill levels across the industry are in general not high
enough. To this end we have worked with the Sector Skills Councils
(paragraph 32 above) and others to produce a Sustainability Skills
Matrix which sets out the skills needed, and is also being adopted
by individual businesses as well as the SSCs to help identify
training plans for their staff. This skills matrix needs to be
actively disseminated widely within the industry and the education
and training system.
45. To make progress in this area we would
recommend the following:
— More case studies to illustrate real
practical achievements and "prove the business case".
— More evidence of the business benefits
of sustainable construction for different stakeholders.
— More coherent approaches, particularly
across government departments and bodies at national, regional
and local levels.
— Streamlining the number of bodies
working in this field to reduce confusion —including reviewing
government funding of a number of these bodies.
— Developing a sound, evidence-based
strategy for the refurbishment of existing buildings to meet sustainability
standards (including clear fiscal and policy incentives for doing
so).
BEST PRACTICE
ON CONTRACT
MANAGEMENT
46. This requires collaborative working
facilitated throughout the supply chain. Much of the recent advances
in procurement (eg paragraph 19 above) have involved the partial
implementation of collaborative working practices. Client frameworks,
for example, have yielded major savings in the costs of procurement.
However, a much bigger prize awaits if these frameworks and other
models of collaborative procurement can be properly performance-managed.
Our work and others' shows that some processes in the industry
are 95% wasteful, not adding any value to the finished facility.
Recent projects with which we have worked show a 20% cost saving
for the client pre-construction and a further target of 10% cost
reduction post-contract and a reduction in design time by 50%.
47. There are six critical success factors
for effective integrated process:
— Early involvement of much of the
supply chain before a design crystallizes. This is straightforward
in long-term framework relationships where the team are pre-assembled,
but it is more difficult in one-off projects to know who to involve
when. However, specialist suppliers increasingly know more about
their systems and equipment capabilities than do consultants and
it is wasteful to go too far before involving them.
— Selection of teams by value, not
"lowest price", which is absolutely not synonymous with
best value outcomes. For one, the lowest price at tender stage
is too rarely delivered, and on the other hand it ignores the
benefit side of the equation. Choosing the team for quality and
potential, defining the project need so that the team can optimise
first cost to deliver high occupier performance and low occupation
costs over the project lifetime, is a far superior and proven
way of delivering value (also paragraphs 6 to 11).
— Common processes and tools bond the
team together and release major efficiencies. For example, good
inter-operability of ICT systems in the supply chain using Constructing
Excellence's Avanti protocol, project extranets and single building
information models, and common logistics for moving materials
to and from site. ICT is seriously under-exploited in the sector
despite many initiatives and much evidence of the business case.
However, something as simple as co-location of a project team
in the same office is a good place to start.
— Performance measurement. Measurement
and benchmarking of performance and customer satisfaction is a
fundamental tenet of modern management, and is able to drive learning
and continuous improvement, particularly with repeat processes
(of which there are many in construction) or where teams stay
together for repeat projects. Following the principles of "lean
thinking", a key improvement technique, waste in all its
forms can then be identified and eliminated wherever possible.
— Long-term supply chain relationships.
Such relationships, for example framework agreements, allow teams
to learn together and refine their ways of working or innovate.
They have been widely applied by repeat clients but are less evident
in the supply chain, where constructors seem obsessed with the
need to tender every package every time and at best one sees "preferred
supplier" arrangements. However the potential benefits and
savings down the chain are at least as great, and our Housing
Forum has worked with the Housing Corporation to develop a "supply
chain diagnostic tool" which enables social housing landlords
to measure the extent of supply chain partnering and its potential
for cost reduction.
— Modern commercial arrangements that
support collaborative intent. A contract strategy which ensures
that risk is owned and shared by the entire project team (paragraph
21) is required. Early exercises in partnering in the 1990s used
conventional contracts but "locked them in a drawer"
and relied on agreed partnering charters, often coupled with that
great motivator of the promise of more work if all went well.
Nowadays there are sufficient modern standard forms of contract
to provide the right legal basis for collaborative working (eg
Engineering and Construction Contract, PPC 2000 and its variants,
the JCT/CE contract). Target cost contracts with open book accounting
are increasingly common, where a target cost is derived by a number
of routes, profits are ring-fenced, any savings or over-spend
is shared, and team members are released to find ways to reduce
cost. This creates an excellent alignment of interests of all
parties. However, insurance remains a problem, with redundant
layers of consultant, contractor and supplier cover which often
do not protect the client anyway. An innovative new category of
Integrated Project Insurance is emerging, where the client covers
any residual risk not designed out on a non-recourse basis and
reduces the contract sum and fees commensurately and the project
team can then collaborate to solve problems without backing into
their corners. This needs some learning from demonstration projects
before it can be promoted with confidence.
THE UK INDUSTRY'S
PERFORMANCE AGAINST
OTHER COUNTRIES
48. There have been some efforts in this
regard, but none have come close to being sufficiently robust,
for example the European Commission-funded report by Bernard Williams
Associates was widely criticised as a crude methodology which
is highly misleading. A major benchmarking study is required,
perhaps under the auspices of the Commission, and we are already
engaged in early work with the Commission to agree a common set
of measures which would enable European-wide comparisons.
49. We have a UK-Sweden collaboration supported
by the Swedish Embassy here in London. The project was initiated
by the Swedish Ministry for Sustainable Development and DEFRA
to share best practice across the two countries, and was a response
to the EU Environmental Technologies Action Plan which was strongly
supported by the respective premiers. There were clear areas identified
by the Swedish partners where they wished to learn from the UK:
in the development of a holistic and strategic approach, for example,
and in selection and use of materials. Swedish expertise lies
particularly in the delivery of extremely energy-efficient buildings
(to the extent of housing which does not need heating systems—for
example at Lindas, in southern Sweden). The project also aims
to support the development of business opportunities between the
countries. This initiative has attracted much interest from other
European countries, and it remains a strong possibility for them
to join as partners, although a lack of funding to support the
management may put expansion (or even continuation) of the collaboration
at risk.
50. In the absence of other reliable benchmarking,
our knowledge comes largely from anecdotal comparisons with visitors
from eg New Zealand, Hong Kong, Australia, South Africa, Japan,
South Korea, the Netherlands, Finland and Luxembourg, where those
visitors report that their own searches have identified the UK
as leading, particularly in the approach to pan-industry reform
and in the adoption by the public sector of more enlightened procurement.
CONCLUSIONS
51. The industry is much improved over the
last ten years. We recommend the prioritisation of three areas
where, with the Committee's support, additional effort can enable
major steps towards a more vibrant and sustainable industry:
— All stakeholders in the industry
need to understand better how the industry can add value through
providing built facilities.
— All stakeholders need to improve
their processes and behaviours to enable and deliver integrated
and collaborative working in order to deliver "whole life
value".
— An industry which delivers whole
life value through integrated and collaborative working will be
much more sustainable economically, socially and environmentally.
The latter requiring further encouragement in the short term through
the specific actions listed in paragraph 45.
52. With the Committee's support we are
confident that this vision can be realised.
11 May 2007
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