Smart Procurement

Smart procurement but more particularly the elimination of waste has been high on the Conservative party’s agenda since before the election but with the recent publication of Sir Philip Green’s Efficiency Review, which found that there is an astonishing level of waste across the public sector, is the matter now at the top of the coalition government’s agenda.”The Government is failing to leverage both its credit rating and scale” (Efficiency Review).

I’d be surprised if there were many people within the construction industry who had not witnessed first hand some of the excesses which have taken place taken place in recent years, so as tax payers we should be pleased this issue has now been brought into sharper focus.

However, contrary to some of the examples cited within Sir Philip’s Efficiency Review, the procurement of a new school or health centre is an altogether more complex process, complicated further by the treatment of risk, than the purchase of a printer cartridge. Smart procurement applies to the whole project lifecycle from inception to completion, operation and decommissioning and requires a series of decisions to be made over a period of time before one can be satisfied that good value has actually been achieved for the public purse. There is a pressing need to look at projects on a whole life cost basis incorporating the business costs rather than just capital and lifecycle costs. Business costs far exceed the capital and running costs so even small business efficiencies derived from one course of action over another can clearly differentiate what is the better solution.

There are in my view many similarities between this concept and Value Management. Put simply the greatest opportunity to influence cost is at the outset of the project and as time passes the ability to influence cost diminishes.

So how does one implement Smart Procurement practice? Is it as easy as ABC or is it actually far more difficult to achieve? I firmly believe it is the latter but the conditions have to be right, so let’s explore some of the key elements.

Senior Level Commitment and Engagement

The procurement of most projects starts its life at the top table and to a greater or lesser extent then filters down through the organisation for implementation.

It is though the senior management team who really understands the business need and the vision so the full engagement of the senior management team is the single most important critical success factor and differentiator between a project which goes well and one which does not. Yet despite this, senior level commitment is generally poor across the industry.

It is vitally important that a governance structure and framework is set up to provide the right environment for the engagement of the senior management team amongst its heavy workload and where such commitment cannot be provided then those responsibilities are delegated to parties who have the time, skills and authority to drive the project forward from day to day In the instances where this does not happen, the important discussions and decisions about design, risk, cost and programme lose their focus, something which can significantly affect the outcomes.

The Business Case Process

This commitment and engagement of the senior management team is most notably felt in the business case planning process where most public procurement involves three stages; the strategic outline case (SoC); the outline business case (OBC) and the full business case (FBC).

In an ideal world the SoC should articulate the case for the whole procurement process but too often its drafting and that of the OBC is a ‘ back filling ‘ exercise. An exercise simply to justify a need which has been poorly articulated and a proposed solution which has been poorly developed, notably regarding the options considered, the rationale for the preferred option (benefits), the programme details, and costs and risks associated with its implementation.

Typically, what is often missing is the timely completion of a thorough options appraisal utilising appropriate professional support at the outset. This does add to the consultancy bill at a time when the public sector are looking to cut consultancy costs but this act need not be expensive, can add a huge dose of reality to the process at a vary early stage and ensure that monies are saved downstream from setting off in the right direction.

Procurement of Professional Team

From a consultant’s perspective the appointment of the right professional team for the scope is a vital ingredient for the successful completion of a project and yet there is a huge degree of variation around the procurement of professional services. This is symptomatic of a lack of understanding of the services being bought, an over emphasis on process and procedure and the provision of poor briefing information. There are in the words of Sir Philip Green “inconsistent commercial skills across departments” which often expose clients to variation claims.

I believe there are three easy ways this can be corrected:

1. Commission an appraisal or feasibility study to develop the brief, work up a cost model and delivery programme, consider the best form of procurement, the key project risks and produce some sketch design proposals. Many clients seem unwilling to follow this route in case they offer an unfair advantage to any particular party but most organisations would agree that such an approach would create the conditions for a far more competitive competition than procuring a team later in the process once more detailed designs had been progressed. The benefits of such an approach are:

• Risk of exposure to client variations is mitigated;

• It fits with the early stages of the business case process where alternative options need to be considered;

• Greater certainty and earlier involvement avoids significant abortive work from being undertaken; and

• Promotes better conditions for competition than later in the design process where likely competitors are always wary of a “stitch up”;

2. Develop a lean and efficient procurement process, possibly using one of the frameworks which are available, with the emphasis on the provision of key information commensurate with the stage in the process. For example pre-qualification questionnaires should focus on statements not 100 page policies (are these ever read?), insurances, availability of resources and relevant experience. Method statements should come later in the process and word limits which are good for both parties should be encouraged; and

3. Establish a clear scope of services with defined outputs against a defined form of procurement.

LEAN Design

Cost is driven by two key components, the rate and the quantity both of which are closely linked to specification. However it’s the size of building footprint which has the greatest impact, so costs can be significantly reduced and value increased by “Managing down demand and specification” (Efficiency Review). This process has already been assisted by the government’s drive for greater deregulation across the sector notably the recent abandonment of the Homes and Community Agency’s core standards but significant strides can be made from the public sector taking a hard look at other industry standards which were born in an altogether less austere world than we currently live and decide where ‘derogations’ can be made. Examples of these are the building bulletins in Education and the Health Building Note’s and Health Technical Memoranda in Health where the Strategic Health Authorities have begun to push such an approach.

As a rule there is a general reluctance to really push this area unless there is a clear appetite from the client. With professional teams working to very tight margins this is all a bit hard work to work through when simple compliance with the guidance might satisfy’s their obligations without taking unnecessary risks. This is the key point, as to make these difficult decisions there needs to be the drive from the top and a full and proper debate around the operational risks which may or may not arise and the diminution in quality. This approach need not add to the professional team’s burden from working through the design options provided it’s done early in the design process rather than in response to later value engineering. It is vital when selecting the team that these qualities are picked out both in the brief and the evaluation. One may call this ‘innovation’ but my view is that this is just good design and not some radical or revolutionary change in thinking. It should not be forgotten that it is a great return on investment to spend an extra 1% on fees if 5% or more can be saved off the building and associated lifecycle costs.

However, the precursor to all of this is that significant strides can be made from the public sector undertaking detailed demand analysis and space utilisation studies coupled with embracing service change and new ways of working so that both the existing and the new estate operates as efficiently as possible.