Aecom offices. Lunch time. G4C agents sitting at the back of the room. Constructing Excellence has lined up an impressive panel with Don Ward (CE), Murray Rowden (T&T), Peter Mumford (AECOM) Will Hughes (Reading University), Danny Duggan (Dragados) and Simon Addyman (TFL).
We are here to understand how to move from a transaction based industry to a value based one. Hot topics after the Government 2025 Industry Strategy Report published last July.
To some of my friends reading all the above could be positively meaningless. Let me try to explain.
It is about improving the construction industry. When building a new building or infrastructure a client pays a design team to come up with a design. The client uses the design to inform a tender process. In very simple terms his questions is “how much is that?” The contractors interested in the job review the design with some other bits of information and come up with the best price they can make to deliver the design. One contractor wins and cheerfully get on and build it. They build it exactly as the designers envisaged it. All works fines. They are happy, the client is happy. All happy. The end.
The happy ending rarely happens. Why? Three main reasons.
1. The design is not right.
I don’t mean it is not a good design. Possibly it is excellent. But not perfect. Projects can be improved incrementally over and over again, forever. What goes in the tender is just a snapshot. O dear.
2. The contractor can’t build.
I don’t mean that they cannot technically do their job. Good contractors can build anything. They cannot deliver the design as envisaged by the client. In order to beat the other contractors during the tender they had to cut their cost and the cost of their suppliers and subcontractors. The supply side geared up to promise a perfect product at a super competitive price and after winning the bid they often have to find a way to get the balance sheets back together. Ouch.
3. Wasted resources.
The contractor spends time proposing alternatives to cut costs. Designers reject the proposed changes to make sure their client gets the quality is paying for. Both contractors and designers waste their time. Also subcontractors and contractors waste their time arguing because one or the other over promised in the tender offer. Since the contractor has been solely focused to cut costs, a few coordination issues went unnoticed. When on site they have to find a solution as construction moves forward. Despite the immense knowledge that some contractors can prove on site, solving issues when works have already started is likely to lead to wasted materials and wasted time. Not to mention snagging. Now, that can’t be right.
A better way of arranging the relationship between clients and contractors is not to look at money but to look at value. When building a building very few clients are interested in buying concrete, beams or plumbing (although old fashion copper plumbing can look like an artwork) but they are quite willing to invest significant sums in an efficient space to rent, the satisfaction of their guests or, as in the case of the improvement works for Bank Station in London, quicker journey time.
For the new Bank Station project, TFL not only provided a RIBA stage D design as base of the tender but also shared with the tendering contractors the risk register and their business case.
Most importantly the client asked the right question: ‘How can you make our journey time shorter?’
The tender process, from being a cutting throat cost saving battle, became the development of the design process. Contractors engaged with their own team of consultants – at their own cost and risk – to improve the outcome value of the project.
Dragados, the Spanish winning contractor, changed the client’s design significantly, altering the layout, increasing the number of lifts, adding travelators. Even if the capital cost increased, the overall bid was more competitive as it delivered better value. Improved with contractor’s innovation, the new Bank station will be more resilient, faster and more efficient than the designed scheme used at tender.
Great. For some of us – unfortunately not yet involved in mega projects – it might sound all too flashy and a bit sci-fi.
Many would say that only mega projects (£500m +) offer the required economy of scale for investing in innovation. Some would add that small developers or local authorities are already struggling with capital costs to deliver even just the industry standard. Who can afford to think in terms of whole life costs? We might all agree that there is just not enough money and some works are desperately needed. Let’s just try to save a bit more here and there and it should be alright.
Not quite. The happy ending rarely happens.
Value can be sought at any scale. It’s about asking the right question. Even with small budgets, working towards creating value instead of saving costs is the best way to align the interest of both supply and demand, making the most of a collaborative approach and unlocking the benefits of shared intellectual ownership. If the client’s business case is understood and embraced by the supply chain, contractors will not longer compromising between quality and margins but they will be working to generate objective benefits be it commercial rent, hospitality revenues or transports sales. We could go on as far as including social justice, climate change mitigation or higher students’ marks.
In order to do this both supply and demand must drop the armour of risk transfer and share data openly. How would you measure what you care for? Key performance indicators would become the basis of construction contracts. Pretty revolutionary stuff. It could allow us measuring assets’ performance in real time, sharing data with the supply chain and establishing a life long relationship between client and contractors. To make sure that contractors will build the best building (or infrastructure) possible just make them sharing the cost of maintenance AND the reward for margins. Defining KPI’s and monitoring performance is doable: BIM and smart systems. The technology is ready.
Asking the right question and getting the right answer is more tricky.
It requires changing our mind, leaving prejudgment behind, sharing open books. In one word, collaborate with our enemies.