The starting point of this paper is an introduction to framework agreements, a summary of the BAA framework agreement follows along with the review of the decision of BAA to tear up its framework agreement and its consequences to BAA and the construction industry. Issues that have to do with procurement procedures appear to be highly significant in order for a project to be successful (Eriksson &Westerberg, 2009). Thus the way clients manages their procurement issues seems to establish responsibilities and authorities in the construction process, it also goes on to affect the degree of integration and cooperation among the project participants (Love et al., 1998, Briscoe et al., 2004).
With the construction industry been one of the worst hit during the economic downturn since the summer of 1998 this has led to clients been faced with the challenges of affordability and inflation. BBA established their approach to project delivery in the late 1990s they have also been at the forefront of innovative procurement policies from the moment its then chairman Sir John Egan (1998) published his influential report 'Rethinking Construction' into UK construction efficiency. This led to increase to the change of supply chain relationships from the traditional adversarial to the collaborative in the UK construction industry (Meng, 1998).
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In January 2009 the airport operating firm (BAA) decided to stop using its £6.6bn construction framework on major projects and put all projects worth more than £25m out to competitive tender as part of an overhaul of its procurement strategy. This will see BAA shifting from taking the lead role in managing their projects but to instead handing over full responsibility to a contractor with emphasis on value and clear allocation of risk. This new development has lead to debates and arguments from other major players in the industry as to the expected immediate and future outcome of the change on the client, suppliers, practice of frameworks and the procurement/subcontracting process in general.
Frameworks in construction emerged from the post-Latham (1994) and Egan (1998) agendas. They advocated partnerships between clients of the construction process, their consultants and consultants employed around mutual objectives and values. As opposed to the procurement process dominated by lowest price tendering and the tradition of project performance often ruined as a result of cost overruns and delays and unstable relationships and problems between project participants.
Framework is referred to as an agreement is a general term for agreements that involves a partnering type agreement between a contracting authority or client and a single or numbers of suppliers, service providers or contractors for a given period against a set scale of prices/fees (Harris & McCaffer, 2006). The framework agreement is most likely not be a contract itself, but merely an agreement stating clearly the terms and conditions that would apply to any order placed during the duration of the framework. However it could be a contract if the agreement places an obligation to purchase and only when the order is placed and each order is a separate contract (constructing excellence, 2005). Frameworks are mostly used for the purpose of extending the project-partnering agenda from a single project to wider portfolios. Frameworks are used in the public sector as a strategy to secure capacity, improve service delivery and efficiency savings. Procurement rules in the public sector normally limits the framework periods for a duration of about four years. In the private sector frameworks also create similar opportunities with that of the public sector for improved performance; the client will be able to establish relationships in rising markets which could enable them secure their wanted resources (Building Magazine, 2007)
In order to establish frameworks a lot of time and resources are required of the client it also changes the process of their operations and supply chain. This entails full integration, formulating detailed operating arrangements with their consulting/contracting partners and effective management of their supply chain. Thus the client firms/contracting authority have to be fully aware of what the framework is aimed at achieving and identify its scope and purpose ahead of commencement (constructing excellence, 2005, & Building Magazine, 2007).
Through the emergence of frameworks in the industry firms have engaged strategically into long-term partnerships involving clients and construction service providers working together through agreeing mutual objectives in order to improve performance, innovate, access new markets, share risk for mutual benefit, remain in competition, overcome local market restrictions as well as raise entry barriers in the industry (Stanek, 2004).All these has enabled traditional construction roles to change. Framework agreements are often used for prime contracting and design and build procurement routes (Office of Government Commerce, 2007).
SUPPLYCHAIN MANAGEMENT AT BAA: THE TERMINAL FIVE (5) PROJECT
Always on Time
Marked to Standard
The BAA framework began by partnering with some number of preferred suppliers on an ongoing basis. BBA's Genesis project provided the test bed for a new project process(Pryke, 2009) aimed at developing an integrated team approach, mapping and developing their supply chain, developing a process for productivity improvements (BAA, 2007). BAA believed that they will be able to secure 30-50% savings by not going through the traditional approach of procurement but rather sub-divide the project into manageable areas and different levels of expertise (Pryke, 2009). During this period BAA developed strong links with the team of framework partners where they all collaborated on different projects to achieve reduced cost, increased quality and the efficiency of their work (New Civil Engineer T5 Supplement, 2004). The construction of the Heathrow Terminal 5 (T5) was one of the largest and most lucrative projects that BAA has ever attempted (Pryke, 2009). Prior to commencing the T5 project in the early 1990s BBA had been suffering from cost escalations, supply chain problems and adversarial contracts and they realized that it was time to change their construction process. Hence the then BAA boss Sir John Eagan who was considered to be a demanding task master and was also responsible for the transformation in the production process at jaguar cars during his 11yrs as the chairman; was enthusiastic about looking for a world class procurement that would be fully implemented on the project without encountering potential problems like the cost and time overruns which had ruined mega construction projects in the UK such as the Scottish Parliament and the new Wembley Stadium (Building Magazine T5 Supplement, 2004). Egan advocated partnership arrangements on the basis of mutual trust (Black et.al, 2000) and benefits, innovation via continuous improved productivity/performance and best practice. The BAA T5 approach was from the perspective that the client always bears and pays for the risk which involved identifying and exploring possible risk and bringing together the best suppliers with the required and suitable capabilities and resources to manage the risk along with incentive targets having the knowledge that their workload and margin will be acknowledged and protected (Caldwell, Roehrich &Davies, 2009).
BAA developed what it referred to as "first tier" relationships with key supply partners where they took full responsibility of managing the construction and bearing the risks. By 2002, the format had moved to a second generation of frame work agreement which enabled BAA achieve more accurate project costs by taking on project risk and implementing best practice and work with its suppliers in longer-term relationships. A third generation of frameworks known as "value in partnerships" was introduced in 2009 which involves BAA drifting slightly when it comes to bearing risks that are seem to be more effectively managed by the supply chain along with new framework contractors in place ready to tackle BAA's £6bn-plus, five year capital spending programme. The framework process involves contractor's tendering to be on the framework and when successful the bidders are allocated work on the BAA capital investment programme. The framework lasts for duration of 5-10yrs. The T5 agreement was designed with the intention of contending with the challenges encountered in the project and the capability of the supply chain. The contract between BAA and their suppliers was based on a cost reimbursable form of contract in which the supplier paid his actual cost of operation (labour, materials and plant) separately from their profits which is declared and paid an agreed lump sum and the client is left to bear all the risks (BAA, 2007, & Pryke, 2009). Hence the contractors would be able to lay claims for additional costs and no payment disputes/litigation (National Audit Office, 2005a).
CHANGES TO THE BAA FRAMEWORK
The recent capital programmes director Steve Morgan set out to achieve the best value of money in the BBA's £6.6bn-plus five yr capital spending programme which includes the constructing further terminal buildings at Heathrow East and the expanding the Stansted airport which was intended to be divided up amongst nine firms who had previously bided and made it on the BAA framework agreement. Morgan is a professional acquisition person who had the task of cutting cost by £225m at the British Nuclear Fuels where he was the commercial director. He is also from a military background who had earlier served in the Navy in America his home country. His decision was motivated a desire to cut cost of up to £200m from the total budget of the five-year construction plan (Gardiner, 2009) pointing out clearly that the total value of the projects on ground already exceeds the money available, hence his call for cost reduction in order to cover a growing, £300M-plus shortfall. In achieving this goal, Morgan's strategy was to return to a procurement process similar to that of the traditional client-contractor relationship where BAA would call for tenders in all major projects worth more than £25m an open competition for contractors or consultants from outside the construction industry as part of the transformation in the BBA procurement process where each of them would have an opportunity of bidding for works. In addition most of the smaller contracts were repackaged to give bigger and more attractive, parcels of work. This development disputes the idea of dividing the jobs between the nine firms in the framework. But instead using the frameworks for works valued between £10m and £25m, where the firms in the frameworks would have to compete for the works. Hence BAA will have lesser frameworks and partnerships with more emphasis on good contracts, being intelligent clients and contractor accountability (Wright, 2009). According to Morgan (2009) BAA would work in a cooperative incentivised relationship with contractors and not to be their partner but their customer.
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This new approach is seen by Morgan to enable BAA take a less informal procurement process by ensuring that full contractual terms and conditions are agreed and signed by both parties before work is begun and BBA staying out of the way so as to have clearer lines of responsibilities throughout the project stating how things should be done in order to prevent chaos that might erupt when in a kind of partnership or alliance (Wright, 2009). Morgan's strategy is quite different from that of the T5 agreement which was based on the principles of Egan. He believes that an open competition is a better way and more profitable for the client to demonstrate value for money by getting the job done for a reduced price at the best quality and passing the risks to the contractors rather than the client participating in the management of construction and bearing risks. In his words in Morgan (2009) referred to the T5 as a successful project but expensive saying it could have being achieved for a lesser cost. BAA construction operations would seem take a leaner structure later in the future with the reality of the plans of the new boss aimed at reducing the project team of construction managers and recruiting new employees that would take up new roles as programmers.
CONSEQUENCIES OF THE CHANGES TO THE BAA FRAMEWORK TO BAA AND THE CONSTRUCTION INDUSTRY SUPPLYCHAIN
While frameworks do provide long-term commitments from clients, the SME's market and local supply chain has not benefited from it (Wright, 2009); since it seemed to favour larger companies (construction excellence, 2005).But with the open tender invitation other contractors who were not on the framework will be allowed to bid for specific jobs and at a specific level of expenditure. This change would lead to opening up greater opportunities in the construction industry and also foster a wider choice for BAA and other clients when making decisions about suppliers and ways of obtaining services. This change could enable BAA for on wider management approaches and experiences that can be tapped from new firms in the market (Lee & Moylan, 1996).
Competition between potential bidders from outside the framework creates opportunities for introducing efficient management and work practices and use of capital (Lee & Morgan, 1996) in the supply chain of BAA and creating incentives to minimize costs and develop cutting edge innovations which includes new methods/processes (process innovation) and new materials and technologies (Eriksson & Westerberg, 2009) thus guarantying their value for money, which the BAA's move is explicitly aimed at achieving (Gardiner, 2009) and providing competitive advantage in the construction industry (www.interscience.Wiley.com). Though the process involved in competitive tendering and selecting best fit suppliers and contractors is time consuming which could cause delays in the start date of large projects.
BAA would have to reduce the workforce in construction management as a result of this change since they are no longer going to be involved in the construction process thus their services would not be required instead the services of programme managers would be required thus creating openings for new changes in their method of operations (Morgan, 2009). The firms who were initially part of the framework process might be compelled to cutting cost and effecting strategic changes such as downsizing their workforce due to the probability of lesser jobs than they had initially planned for hence the need to restructure their programme and strategy.
This new approach taken by BAA could have impacts on the industry where other clients would go on to make use of financial and other positive incentives to motivate contractors to accepting greater risks and achieve marginally greater performance (Ashley & Workman, 1986) this could lead to problems in today's challenging project contexts (Eriksson and Laan, 2007) which includes disputes and contractual conflicts associated with these conditions (Thompson, Cox & Anderson, 1998). This would further give rise to unnecessary cost (legal and professional fees) to the industry, waste of management time and organizational resources in addressing the disputes.
With BAA as the company who pioneered frameworks and the drive towards collaborative working to think it right to drift outside the framework as an advantage aimed at sorting for best value of money and save cost £200m (Wright, 2009) will tend to motivate other clients in the construction industry to be more aware of the flexibility about pricing and react more swiftly to downturns and upturns of the market, since no client would want to be locked to a framework where the rates for service are high when they could get similar or even better service at a reduced rate. Clients would tend to be proactive in their operations introducing new talents/skills in order to get greater value for money thus making the market contestable. Such change could lead towards increased flexibility, coordination, knowledge exchange, and cooperation is generally required for the challenging construction project characteristics (Eriksson, 2008a; PesaÂ¨maa, Eriksson & Hair, 2009; Ruuska et al., 2009).
In the event that BAA turn out to be successful and achieve value for money this might induce other clients in the industry who operate a framework system to go into inviting other companies outside their framework to bid for work based entirely on price where contracts would be most likely to be awarded to the lowest bidder (Erridge, Fee & Mcllroy, 2001).
This change would lead to BAA handling contracts in a more formal and contractual way than the way previous deals was handled with the group of in-house firms in the framework. This new system of working will see lawyers working on both sides of the parties involved and all parties would be expected to the terms of the client (BAA) which is far from the partnership approach and long-term relationship espoused by Egan. Though long-term relationships enable the development of trust between clients and the suppliers, at the same time it is inevitable that conflicts will arise in many long-term relationships (Deakin, Lane & Wilkinson, 1997).
By working outside frameworks means going into the market to get whole new team (Wright, 2009) and firms, as a consequence relationships between clients and suppliers would be confined to the discrete duration of the contract where the focus of the transactional would be that of a relational and collaborative. This leads to individualism and self seeking interests in the supply chain and develops an approach to procurement where there is little or no synergy between both parties (Thompson, Cox & Anderson, 1998).
This change would give other clients in the industry the opportunity of developing more optimum contracting strategies of identifying more suitable contractors/suppliers for most large/mega projects using the BAA move as an alternative to increasing their probability of projects achieving the desired outcome (Holt, Omolaiye & Harris, 1994) and successfully serve business needs and ensure best practice project procurement (Thompson, Cox & Anderson, 1998).
With competition been the norm in construction and price the primary determinant of success (Erridge, Fee & Mcllroy, 2001), this change will seem to have impact on the ways at which firms and clients who are still making use of their framework to sort for different commercial models for pricing even when prices have been explicitly negotiated in the early stage of their framework deal. Example of firms still making use of their framework is the retail giants Tesco.