Property and infrastructure procurement: The lessons of history


By Dave Ayre, CIPFA Property networks manager

The official publication of post-Brexit public procurement legislation is still forthcoming, but already we know that the proposed flexible competitive procedure will allow for greater freedom — meaning procurement can be designed with the needs of individual communities in mind. In order to maximise the benefits of this new way of working, it's worth considering the recent history of construction procurement and how that can guide its future. 

Latham and Egan Reports

Sir Michael Latham's governmental report on the UK construction industry, published in 1994, concluded that the transfer of some successful practices from manufacturing to construction could save 30% against traditional forms of procurement. This was supported by the findings of Rethinking Construction, a report of the Construction Taskforce published in 1998 by Sir John Egan, which found that construction projects were widely seen as not delivering on time, to budget, nor delivering quality products.

In both instances, lowest price tendering was seen as a major obstacle to change, and the public sector was identified as the main culprit in perpetuating this practice. The report identified five key drivers that needed to be in place to deliver change:

  1. committed leadership
  2. a focus on the customer
  3. integrated processes and teams
  4. a quality-driven agenda
  5. commitment to people

A central recommendation was that job-by-job tendering should be replaced with longer term strategic alliances between client organisations and constructors. Rethinking Construction went on to become a government-led initiative to transform the industry. A demonstration project programme was established, to share new and innovative approaches to the delivery of construction projects.

Some of the early forms of collaboration were design and build contracts which had evolved to overcome some of the problems of traditional procurement, characterised by collaboration between the team and parts of the supply chain. Typically, the principal contractor manages the design and cost consultancy services, thus integrating design, cost, construction and some sub-contractors.

As projects became more innovative, design and build was extended to project partnering whereby more members of the project team were seeking to work together and agreements were developed to share risks, benefits and cost savings. A number of improvements over traditional design and build arrangements were identified arising from the increased collaboration between supply chain partners:

  • improved communication between the team resulted in the earlier identification of difficulties and greater joint problem solving than with traditional procurement and design and build contracts
  • predictability of both cost and time improved as late design changes became less likely with specialist sub-contractors adding to the expertise of the main contractor at the design stage

Project 13

Rethinking Construction subsequently became Constructing Excellence. Although some changes recommended by the group have been embedded within the industry, the full potential of the transformation envisaged in their original report have yet to be realised.

This was the finding of the Project 13 initiative established by the Institution of Civil Engineers (ICE) in 2017, which concluded that:

  • when collaboration and alliancing was at its peak there were some notable successes
  • the governance of procurement and delivery was continuing to be based on obtaining the lowest price through competitive tender, particularly with the public sector when faced with increasing austerity
  • many projects were nonetheless delivering construction on time, within budget and to quality

Project 13 went on to identify a flaw in the current procurement approach based on the presumption that "the client knows best" — that lowest price represents best value and completion on time, within budget and to quality defines the desired outcome.

To illustrate the limitations of this thinking, Project 13 draws upon the experience of HS1, the high-speed rail link between the Channel Tunnel and St Pancras International. The project was delivered on time and to budget, so it had met its specification. However, it failed to achieve the forecasted revenues from international passengers and fell short of the expected returns from property development along its route.

As a result, Project 13 advocates a different approach, much more aligned with some of the original recommendations from Rethinking Construction:-

  • establish a long-term relationship between the project owner, the project delivery team, the constructor and suppliers of services
  • develop relationships based on a shared commitment to deliver continuous improvements in performance over the longer-term
  • engage the right suppliers at the right time and successfully integrate them into the team, which is critical to delivering long-term value

These factors were seen as much more important than extracting the lowest price from constructors and their supply chains through competition. The key lesson to be learnt from Project 13 is that a few percentage points saved in the price of constructor and supply chain services pale into insignificance if they have the technology and know-how that can transform the solution.

Moving forward

Organisations looking to improve the overall outcomes from their capital programmes need to apply this learning to their ways of working and their choice of procurement route. The introduction of the new flexible competitive procedure is the opportunity for public sector organisations to design the procurement process which is best able to deliver the outcomes they are seeking in an effective and proportionate way.

Find out more

Webchat is available Monday to Friday, 09:00 - 17:00 (excluding UK bank holidays).