The construction industry contributes between £90-£110b to the UK economy each year, approximately 7% of the countries GDP. Harnessing this level of spend, controlling it and turning its focus towards being more efficient, greener, sustainable, and more productive is nothing new as this aspiration has been around for a long time.
However, as the UK Government contributes to around a quarter of this, and therefore is constructions largest ‘client’, it makes sense that they set the tone for what they want from the industry.
This is where The Construction Playbook comes into play. Published in December 2020, it contains guidance on the sourcing and contracting of public sector works, projects and programmes. It’s certainly aimed at the industry as a whole, and there are many lessons and good points that translate to the private sector.
Why has it been produced?
Long dogged by claims of impossibly low-profit margins embedded within high-risk projects, the construction industry’s standard business model is understandably viewed as a recipe for disaster. Moves have been made in recent years to use contracts with a higher emphasis on risk-sharing models, which have improved collaboration. Still, now that more extensive levels of spending are invested in infrastructure, coupled with the issue of a skills shortage, there needs to be a change in how the money is invested so that the industry is fit for purpose and can meet the delivery challenge.
Notwithstanding the levels of investment in skills, there is also a chronic lack of investment in research and development that would help standardise construction and improve productivity. The UK Government mandated all public sector contracts be BIM Level 2 compliant by April 2016, but recent surveys have indicated they are not even achieving this across half of the projects contracted. Also, the Government has a target to end its contribution to global warming by 2050. The Playbook refers to contracting parties needing to provide their strategies for achieving this, including how they should adopt the use of whole life carbon assessments into their design to minimise greenhouse emissions.
Coupled with a lack of innovation, low-profit margins, skills shortages and low productivity, it makes sense for the Government to set out a document detailing what they consider best practice and the focus areas required for the industry to improve the situation. Furthermore, once the playbook principles are adopted, the UK Government aims to ensure that the industry is more robust, with financially sound suppliers that are up to the challenge of delivering on an ever-increasing scale.
What is in it?
There’s a flow diagram depicting the project life cycle through typical gateways required for project development, both pre and post-construction. Against this project lifecycle are 14 key policies, which the Playbook says are mandated on a “comply or explain” basis. Therefore, whilst the Playbook is generally badged as a best practice guide, there is a need for compliance for all public works projects and programmes. It then says that for central Government, this is for projects over £10m transactions.
The 14 critical policies described in the Playbook are:
1. Commercial Pipelines
The focus here is that by demonstrating and communicating to the supply chain a pipeline of work, they can build a sustainable business, which enables the Government to create a level of robustness in their suppliers.
In theory, if they can build a business around a long-term pipeline of work, investment in greener solutions will follow, plus delivery improvements, be it in design or on-site productivity.
2. Market Health and Capability Assessments
The delivery of procurement strategies that support the commercial pipeline will provide healthy markets over the short, medium and long term.
Furthermore, by objectively reviewing and understanding the market’s limitations, the Government will identify opportunities for improving the health of the supply chain.
3. Portfolios and Long-term Contracting
Building on the first two points, a ‘manufacturing approach’ should be adopted for public sector works. This can be achieved through long term frameworks that require continuous improvement in safety, time, cost and quality.
These are mostly in place for public sector contracts already to varying effect, though the target metrics require a clear definition to make a real difference. Also, the metrics should be carried over from one framework to another instead of re-setting them or changing them upon renewal.
One real positive is the support for SME’s, acknowledging their contribution to the industry and how this should be supported by providing an environment where they can thrive.
4. Harmonise, Digitise and Rationalise Demand
Through standardisation, achieved through collaboration, the benefits will be improvements of on-site safety, as products are developed for off-site manufacture as much as possible and installation by removing the people interface.
Also, efficiencies in the design process, greener solutions in design but increasing buying power as products are standardised. To achieve this, it will require consistency in requirements, standards and specifications and then sharing design across workstreams.
5. Further, Embed Digital Technologies Contracting
The Government previously mandated that BIM Level 2 would be required by 2016 for public sector contracts. Still, with no penalty for not achieving this, it was not given the focus for achieving it. Now there is the UK BIM Framework which provides a common framework of standards and protocols.
If this level of organisation can be achieved, efficiency through standardisation and data flow will be attainable.
6. Early Supply Chain Involvement
Collaboration between all parties, contractors, clients, manufacturers, SMEs and end-user operators is needed to develop the best solution against the requirements.
The earlier this engagement starts, the more time there will be to leverage the ideas and opportunities.
7. Outcome-Based Approach
By working with the supply chain on an outcome basis, it allows them to be innovative and drive improvements. The opposite of this is contracts that are rigid in their specification and requirements. Therefore, where an idea for innovation arises, it must pass through a contractual process to be realised, which stifles innovation.
When specifying outcomes, projects and programmes should focus on whole life cost, performance, and cost. The chosen contracting model should be aligned to this with a suitable risk and reward element for achieving the outcomes.
8. Benchmarking and Should Cost Models
Improving the robustness of cost estimating models using benchmarking data will enable better decisions to be made in terms of project evaluation. From a government perspective, this will achieved via their IPA (Infrastructure and Projects Authority) Benchmarking Hub will be operational in 2021.
Should Cost Models provide a cost forecast but over a project’s complete lifecycle. If a level of understanding and insight can be achieved here, then a contract model incentivising the supply chain to focus on areas of concern is to be adopted.
9. Effective Contracting
There are three points the Government wants to use to create a more resilient supply chain with more effective relationships. These are 1. Outcomes that are clear and transparent, enabling the supply chain to focus on delivery, 2. Contracting models should drive positive relationships and collaboration, integrate the party’s commercial objectives, and provide a joint incentive. 3. Standardise the contract terms so that the speed of procurement increases and the level of risk transfer remains standard but can vary across different contract pricing options.
10. Risk Allocation
Early identification of risks, how to treat them and who is best placed to own them should be collaboratively agreed at the earliest point. Notwithstanding this, a regular review should take place to monitor the risks and provide oversight if the mitigation is being applied.
The allocation of risk should consider who is best placed to manage it, and if the party can carry the financial burden should the risk materialise. The underlying point here is that if the risk is passed entirely to the supply chain, which if it materialises will make them insolvent, is a self-defeating delivery strategy.
11. Payment Mechanism and Pricing Approach
Payment should be linked to the outcome required with appropriate incentivisation included in the commercial models. Models should be stress-tested against suppliers cashflows to ensure they have the opportunity for a fair return to be sustainable as a supplier in the long term.
There should be a move towards digitising and automating payment mechanisms to speed up the payment process, where information can be exchanged more readily, and payment performance can be tracked.
12. Assessing the Economic and Financial Standing of Suppliers
Financial checks are vital in assessing the supply chains ability to deliver specific contracts. However, suppose suppliers score as high risk when undertaking an assessment. In that case, they are to be afforded the opportunity to explain if there are mitigating circumstance and/or what they are doing to manage the risk.
13. Resolution Planning
To plan for insolvencies is to understand the impact of failure and the risk that come with it. The requirement is to work with suppliers to address and mitigate these risks and consider where appropriate the contractual options available such as Bonds, Guarantees and Project Bank Accounts to mitigate the risks.
Once in contract, then on-going financial monitoring should be undertaken at a business level to ensure future decisions, including obtaining further data that will back up the decision-making process for future awards.
How can this be adopted in the private sector?
Whilst spending in the public sector must be fully auditable with an overarching need to demonstrate value for money in its decision-making, this does not apply to the private sector. Therefore, it does not have to adopt the principles set down in the construction playbook.
However, they are beneficial, so why wouldn’t you? As the single biggest client to the UK construction industry, the Government should be setting the tone in terms of what good looks like and how the industry should be shaping up for transformational change in terms of becoming greener and more efficient, which in turn allows the Government to achieve its targets.
However, efforts to standardise design, utilise stakeholders to optimise project designs and de-risk programmes or projects is beneficial for any sector, public or private. Similarly, assessing the supply chain’s financial viability and linking this back to payment, whether it be in terms of shorter payment terms of protecting yourself through bonds and project bank accounts, is just good practice for any commercially aware client.
Other services such as investing money in benchmarking projects, commercial pipelines, portfolios and long-term contracting are scalable and needed if you deliver over £100b per annum. However, it still makes sense to outsource works such as benchmarking services on an ad-hoc basis if you are a small-scale developer.
What are the measures for success?
In terms of public infrastructure, in recent years, Crossrail’s budget required an additional £15.4b whilst HS2’s budget has risen from £32.7b to £56b, increasing focus on delivering major infrastructure schemes on time and budget is paramount. However, getting the schemes moving and the economy seeing the benefit is of equal importance if the business case is to be realised.
Baselining KPI’s on safety, productivity, programme, and cost compared to the measurable success post the Playbook being published and implemented will be the measure of success once results are known. Still, it is undoubtedly a step in the right direction.
It should be seen as a creditable move by the Government to say this is best practice and seek to lead from the front in the industry across programme and project delivery. Whilst there may be specific sectors or departments delivering public sector work that are already doing this, i.e., Highways England, to roll it out across all works on a ‘comply or explain’ basis is undoubtedly a positive move.
Feature image photo by Aaron Burden on Unsplash
About Dean Suttling
A member of the Royal Institution of Chartered Surveyors, Dean has twenty years of experience in commercial management and quantity surveying, undertaking roles for contractors, clients, and consultants.