Examination of Witnesses (Questions 440-459)
CONSTRUCTION CLIENTS'
GROUP, BAA
15 JANUARY 2008
Q440 Mr Weir: Mr Cunningham, in your
memorandum you say that clients must be trained to be a client.
Could you explain what you mean by this?
Mr Cunningham: Yes, I can. Basically
the delivery of a construction project is that it is a complex
process and the distinction I am trying to draw here in this question
in our evidence is the distinction between the frequent client
and the occasional client. Naturally, if you have a prolonged
programme of activity, then it makes sense for that organisation
to invest in their capability as a client, to train themselves
up to get the best value out of what they can achieve out of their
construction activity. For an occasional client, if you are only
working on one or two projects over a five-year period, for example,
then it sort of negates the opportunity for them, or the investment
that they would need to make in building their capability up.
I think, from our perspective, to actually manage that process,
to understand the construction sector and to become an informed
client, it is critical that clients spend time in training themselves
to develop their capability to manage the construction process.
Q441 Mr Weir: Can you give us some
idea of the proportion of construction work in both the public
and private sector that is undertaken by frequent, as opposed
to infrequent, clients?
Mr Cunningham: I do not have exact
figures, but if you are asking my view by value, I would think
it is 40:60 in favour of frequent projects and clients.
Q442 Mr Weir: Is that in both private
and public sectors?
Mr Cunningham: Yes, that is together.
Q443 Mr Weir: Is there any difference
between the two? Are you likely to have more of one type in either
sector, for example?
Mr Cunningham: There are obviously
more occasional clients in both sectors numerically, but by value
it tends to be that there is more frequently procured work. Obviously,
the difficulties experienced by the supply side of the industry,
in terms of accessing small and medium-size enterprises, is the
same issue that we have, in terms of accessing those occasional
clients to actually advise them and devolve the best practice
that is learned from those frequent and informed clients.
Q444 Mr Weir: When you say "by
value", what is the proportion of value , say, in the public
sector that comes from frequent clients as opposed to infrequent
clients? Is the bulk of the value in construction coming from
public sector clients who come back regularly? Is there any difference
there?
Mr Cunningham: I think that there
is evidence that that is becoming the case now. Certainly over
the last few years, with the advent of partnering and frameworks
across the public sector, there have been great strides made in
the use of those different procurement routes to actually get
more frequently procured projects through a framework, and that
is delivering better value for the construction client. Specific
examples may be, for example, looking at Central Government Clients
Defence Estates, the Highways Agency, et cetera. Then,
looking more at local government—you could look, for example,
at the likes of Birmingham City Council, St Helens Metropolitan
Borough Council, Norfolk—there are a number of different
examples of local government and central government organisations
that are utilising frameworks to procure their construction activity
and getting the benefits from them. An example from Birmingham,
for example, is that they are saving at the moment through their
frameworks eight million pounds a year in terms of tendering costs,
which is a significant step forward.
Q445 Mr Weir: Is there any statistical
evidence you can point the Committee towards as to the difference
in performance of frequent, relative to infrequent, clients? I
appreciate you may not have them with you today, but if you could
let us know of any it would be of some use.
Mr Cunningham: I think there is
evidence, both in the private and public sector, of this happening.
What happens in the private sector is that typically construction
clients keep their construction teams together. If you look at
the likes of a Tesco or a Marks and Spencer, a Nationwide, or
if you start looking at the developers like Stanhope or Land Securities,
et cetera, then you start to see how they are getting the
benefits from those activities. Obviously, I have just mentioned
the cost savings that Birmingham are getting in the public sector,
but I think the key difference between the two at the current
time is that the private sector are absolutely realising the benefits
of the work that they do through long-term procurement programmes.
For example, in a former role I used to work at Mowlem and we
worked on framework contracts with Tesco and when we started out
on those projects they would take 40 weeks. Within six months
of working on that programme activity that was down to 18 weeks.
So you can start to see that there is time compression there,
and if you are talking to the likes of Tesco, an additional 22
weeks of bringing in revenue and profit from going on a one-off
basis of 40 weeks for every project is a huge benefit to them.
Q446 Chairman: You have anticipated
most of the questions I was going to ask you just now.
Mr Cunningham: I am sorry.
Q447 Chairman: No, that is very good,
it is very efficient, I am very grateful, but I just wonder, are
there any other benefits that flow from this example of good private
sector frequent clients using framework contracts, for example
supply chain effects, integrated supply chains?
Mr Cunningham: Yes. Obviously
the key issue that has happened has been that those organisations
are integrating their supply chains at an early stage. Andrew
here, representing BAA, may have some of his own comments he would
like to add here, but what is critically happening is that these
organisations at a very early stage are engaging their supply
chains.
Chairman: Mr Binley is going to ask lots
of questions later, so I will not go too far on that.
Mr Binley: I am happy to ask supplementaries.
Q448 Chairman: Long-term investment
programmes relating to integrated supply chains. Are there any
other benefits you would like to identify to us from this approach?
You do not have to; it is an open invitation.
Mr Cunningham: In terms of?
Q449 Chairman: Maintaining skills.
Mr Cunningham: Yes, obviously
there are opportunities there to up-skill in terms of a supply
chain, that obviously leads into better consistency of the work
that is delivered through the work framework, and then you can
obviously realise the improvements. By having a more consistent
process, by benchmarking and measuring performance, you can then
put continuous improvement programmes in place, which obviously
has a huge impact as you roll through the lifecycle of a framework.
Q450 Chairman: Do you feel there
are any lessons that the private sector could learn from the public
sector or the public sector could learn from the private sector
in this approach to procurement?
Mr Cunningham: I think there are
lessons that both could learn from each other. I mentioned briefly
some of the real impacts that the private sector is getting from
working on long-term procurement activities. I mentioned the time
compression that Tesco was getting, and they are really realising
the benefits there. Critically, our experience and evidence that
we have got from the public sector is that frameworks or long-term
strategic partnerships are being put into place, but that is where
it stops, and they are not realising the real benefits of, say,
for example, bringing a school coming into operation 22 weeks
ahead of schedule or the same thing for a hospital, giving the
Tesco example.
Q451 Chairman: What you are saying
(that awful cliche) is that the public sector is talking the talk
but not walking the walk; it has got the language right but it
is not actually seeing it through.
Mr Cunningham: I would not say
that. I would not completely agree with that. I think that they
are making the right moves in terms of entering into these longer
term working relationships. It is paying dividends, but I would
say that we need to move on from that and actually start to realise
the true benefits of how a framework operates by making sure you
can secure that continuous improvement and those benefits throughout
the lifetime of the contract. Rather than actually getting through
the mindset, saying, "I have put a framework in place, job
done", it is taking it forward from that.
Q452 Mr Bailey: I must admit I find
this concept of actually training the client an interesting one.
I had not thought about this before.
Mr Cunningham: It is same with
ConstructionSkills. Many had not thought about that much before
either.
Q453 Chairman: That was quite an
interesting aside. I want to make sure that has been properly
noted in the transcript.
Mr Cunningham: I did mention in
"any other business" in my first ConstructionSkills
board meeting in December that there is nothing in their prospectus
or strategy that looks at the construction client.
Q454 Mr Bailey: The public sector
and public sector clients: given the fact, in terms of best practice,
there are both yourselves and the OGC as a potential source of
guidance, do you think that is adequate for infrequent public
sector clients to get the advice that they need?
Mr Cunningham: I think the OGC,
in the role that they have in producing best practice guidance
and guidelines for public sector clients to follow, do an excellent
job. I think the guidance that they produce is good. We have certainly
referenced it in some of our material on the Clients Charter and
the synergies that are there. The only issue that I would say
that the OGC has is that it is under resourced in that they have
the guidance for public sector clients to follow, however, they
do not typically have the resource to turn that into action, so
they do not typically have the resource to engage public sector
clients to make that happen.
Q455 Mr Bailey: Do you think that
is one of the reasons why it is not used more widely?
Mr Cunningham: What is not used
more widely: the guidance in general?
Q456 Mr Bailey: Yes?
Mr Cunningham: Yes; absolutely.
I think it is used across central government clients. A lot of
it is mandatory across central government clients. Where it tends
to become an issue is in local government and where central government
procurement is devolved locally, such as in the health sector
and in education.
Q457 Mr Bailey: Do you think there
is a lack of awareness and, possibly, enforcement?
Mr Cunningham: Lack of awareness
of what, of OGC guidance?
Q458 Mr Bailey: Yes.
Mr Cunningham: I do not think
so. No, not at all. I think the OGC does a good job in both developing
the guidance and promoting it. The critical issue for me is the
resource that they actually have to make it happen, turn it into
action.
Q459 Mr Bailey: The Specialist Engineering
Contractors Group argued in their evidence that procurement funding
for the sector should be contingent on clients' compliance with
the OGC's Common Minimum Standards. Do you agree with that?
Mr Cunningham: To coin a phrase
from Mr Luff, I think that is all about government walking the
talk, is it not? Certainly, from our perspective, and a central
government perspective it is mandatory and they must follow it,
but it becomes a bit cloudier when you start looking at local
government and where central government departments devolve their
procurement activity locally.
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