Why Integrated Supply Chains Work

In any construction project products and services account for around 80% of costs. So effective management of that element of procurement can have a significant impact on client satisfaction and contractor profitability – the desired outcome for both parties.

Traditionally in the construction industry the relationship between contractor and supplier is through products and services priced to the lowest bidder, often through separate contracts with the client.

A supplier who has been procured on lowest price against a fixed specification will always bid to do so as cheaply as possible.  They are not really motivated to work in the client’s interest. In some cases even the designers and contractors have separate contracts with the client.

But longer term integrated relationships can reduce real costs while maintaining margins, incentivising efficiency in the processes as well as delivering much greater underlying value to the client.  It’s a win win for client, contractors and suppliers.

Collaboration and strong relationships are key to success.  Involving the designers in the supply chain is essential, along with open and transparent cost management.  Many clients are now beginning to appreciate that they will achieve best value if supply chain margins are preserved.  It means that the supply chain focuses on delivering value rather than working constantly to protect its margins.

Optimising process cost management and a rigorous approach to risk management will ultimately pay dividends for all.

Many of the current frameworks operating in the construction sector encourage and promote flexibility of choice to support supply chain integration.

It is an approach that is fundamental to leaving behind the race to the bottom driven by lowest cost procurement and will result in high quality infrastructure that is fit for purpose and built at best value to last.

Why Integrated Supply Chains Work2018-09-17T14:31:28+00:00

Procurement and Best Value are Key to Better and Safer Buildings

The publication of the Government’s Hackitt Review, commissioned in the wake of the Grenfell Tower tragedy, identifies procurement as the key stage in the construction process and calls for a change in the “race to the bottom culture”. The report also recommends that procurement processes should “obtain best value, rather than lowest cost”.

This may be stark reading for many people in the UK but it doesn’t come as any surprise to the construction sector.

The astronaut John Glenn once said that when travelling through space “one thought kept crossing my mind  – every part of this rocket was supplied by the lowest bidder”.

The public sector is the construction industry’s largest client and in its pursuit of best value now uses the definition “most economically advantageous tender”. But speak to most public sector procurement professionals and they will admit that all too often this translates to lowest cost bidder.

There will be times when the lowest bid does offer best value but as public sector budgets have been stressed post the 2010 banking crisis and contractors competed more aggressively as volumes of projects dried up, the natural tendency has been for many to focus totally on price, ignoring many of the associated risks.

In some cases under pressure contractors have resorted to suicide bids that are below cost, hoping that they can generate more income on contract variations. It’s a cycle that starts with the procurement and leads to projects mired in disputes, delays and, in the most extreme cases, bankrupted contractors and empty building sites.

The “lowest cost” approach is certainly not one that creates high quality buildings that are safe and will remain fit for purpose for years to come.

While the Hackitt Review identifies the problems that exist we should not forget that there are many examples of great buildings being built at genuine best value around the country.

This happens when procurement teams establish open and transparent processes that start at the bidding process and continue through the lifetime of the project. Many of today’s frameworks allow flexibility in choice of pre-qualified contractors and open book accounting policies, all of which encourage genuine best value.

There is no single “best value” model but a relationship that allows contractors to understand the wider strategic needs of their clients with continued engagement and transparency throughout the procurement is a proven approach to success.

Procurement and Best Value are Key to Better and Safer Buildings2018-08-20T15:29:00+00:00

Why Frameworks Matter

Frameworks have become the preferred procurement model to deliver construction projects and services for the public sector. For clients there are clear benefits in terms of procurement cost savings, but the supply chain should also embrace the opportunities that frameworks create.

Frameworks offer the supply chain the opportunity to access a large public sector customer base and build long term relationships in an open and transparent process. The most successful members of supply chains are those that work together recognising the opportunities that frameworks offer and developing strategic partnership to capitalise on them.

For clients, frameworks have become an established model and offers a quick and efficient procurement route that is OJEU compliant, so they save time and costs of running a full procurement every time. Clients have the peace of mind that there is flexibility to choose the most appropriate type of contract and supplier. That choice of pre-qualified supplier ensures that quality standards will be met and open book accounting policies will support best value.

The public sector builds more infrastructure than any other client and accounts for around 40% of spend in the UK construction sector, most of it accessed by frameworks.

Why Frameworks Matter2018-06-12T14:09:24+00:00