It will be widely recognised that over the last 5 years we have seen a slide back to ‘lowest cost’ dominating the procurement thinking in both Client organisations and, naturally therefore, contracting organisations.
Even for those organisations that philosophically support collaborative working, their systems and staff aren’t equipped with the tendering strategies for true collaborative working and aggressive market conditions have ultimately led to the ‘cheapest’ bid delivering most of the UK Construction Industry Work.
The results are clear to see in UK Construction Industry statistics, with only 34% of projects delivered on time in 2012, compared to a pre-recession high of 58% in 2007, where two stage mechanisms dominated with a relatively nurtured supply chain. (Constructing Excellence & Glenigans)
Whilst transfer of risk in a ‘buyers market’ has led to high levels of cost certainty for clients, 2012 contrastingly saw Contractor profits being the lowest on record at 2.7%, with many organisations burning the last of their cash reserves to maintain this position.
In an attempt to squeeze margins out of projects, contractors have given commercial teams aggressive buying targets.
Contractor QS, and also Client PQS, have typically used the programme time to ‘play’ the market and sought new suppliers in an attempt to drive down contractor costs. Before placing orders the commercial teams will seek to tie down designs and transfer risk back out to their supply chains. Reality hits when orders are placed, the appointment triggers Change and redesign to accommodate supplier needs; frequently leading to increased cost and likely delay.
Building Regulations, the sustainability agenda, consultant appointment structures, acoustic standards, changing construction technologies, air tightness demands, renewable technologies have all generated a position where the traditional design team can only progress the design so far before specialist supplier input is required to conclude the building design.
With the advent of Building Information Modelling (BIM) this demand for early specialist input will only increase if the full benefits of BIM to the construction process can be realised.
In a lean world we advocate integrated supply chains and collaborative design and planning to eliminate waste in construction through improved quality, productivity and reduced cost.
In the harsh commercial world of lowest cost tendering the opportunities are limited and the commercial pressure to buy ‘cheap’ generates two key paradoxes:
- How can the QS get design certainty at order stage on bespoke buildings without key suppliers involved in the design?
- How can we effectively plan the works and identify and capitalise on programme opportunities if we are mostly procuring to the “latest start time”?
It is generally accepted that the market is starting to recover and with that there are already indications of a stiffening of resolve within the supply chain, and a change in attitude with regards to whom the suppliers will work with and what projects they will price.
Lean encourages us to maximise value added activity, eliminate waste and reduce support activity. Traditional procurement merely pushes waste and cost from the Client to the Contractor on to the Supply Chain or up the other way, dependent on demand and supply metrics in the market. Under conventional subcontract procurement routes the Main Contractor does not care how efficient the sub contractor is as long as he is cheapest and he gets the job done on time; this approach typically increases waste as both supply chain and main contractors try to reduce cost by reducing supervision and resource rather than focusing on eliminating waste and increasing productivity. One of the key indicators is the cost of poor quality in the industry, which research indicates is at least 5% of turnover when considering both pre Completion and Post Completion defects. Real opportunity exists to reduce cost for all by true supply chain integration.
Lean philosophy and systems thinking offer an effective framework for the UK Construction Industry to excel in meeting the industry technological and legislative challenges; this change requires energy and leadership within organisations to implement the transformations.
The creation of new procurement methodologies requires construction businesses to move away from traditional silo thinking; traditional roles such as Estimator, QS, Project Managers and Designers should be challenged and construction managers encouraged to genuinely interrogate their supply chain and their supply chain processes and staff skills. The tendering process should be considered a genuine preconstruction activity, not merely a mechanism to get work through the door; strategic supply chain relationships and the integration of complex subcontract packages in tender design development should be common place rather than the exception. BIM will demand this.
If Clients and Contractors are to succeed in delivering projects and generating a sustainable business and industry, new supply chain strategies will be needed and organisations need to consider carefully how they integrate the supply chain early on in the project life and develop the trust and mechanisms to ensure they get a genuine market price. The Industry needs to up skill the team, from Client to Supplier, to acquire the necessary hard and soft skills needed to work in a genuinely open and collaborative way to compete, consistently deliver and generate profit through the supply chain.