Procurement Strategy And Proposed Improvements Construction Essay

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Operating as a main contractor in the UK construction market the overriding company aim is profit. Whilst this may seem a little abrupt one must remember that the one reason we undertake projects is so the business can deliver a profit to its shareholders and if the business doesn't achieve this it runs the risk of being disbanded. This primary business aim is the driver behind the procurement strategies we implement as a business.

The OGC (2007) defines a procurement strategy as the best way of achieving the objectives of the project, taking account of risks and constraints. A successful procurement strategy will deliver an optimum balance of risk and control. For a main contractor our procurement strategy ensures a consistent attitude to procurement across various projects. In our business the strategy is delivered through working to common best practice guidance which aligns attitudes across regions and sites and safeguards against unacceptable exposure to risks.

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Throughout our operations we focus on selected areas to help achieve the ultimate goal of delivering a profitable business through securing of projects and their successful delivery back to clients. These areas include safety, environmental considerations, quality and corporate social responsibility. These business plan objectives must be reflected in the procurement strategies we operate.

As a main contractor our business only operates through its supply chain, we secure contracts on the basis of what we 'sell' as the management professionals who manage and deliver the schemes however the manual delivery of projects is through the subcontractors and suppliers who we procure, appoint and manage to construct the works- the supply chain. This supply chain must reflect and meet the objectives of delivering safe, environmentally considerate, quality, socially responsible projects with a reasonable profit for both the supply chain and our business.

Any procurement strategy implemented needs to recognise and manage exposure to risk. As outlined by Broome (2002) risk is a source of uncertainty in achieving a defined objective, with the level of uncertainty associated with each individual risk being a combination of the likelihood and the impact of items occurrence.

The basic principle of risk management is to ensure the allocations of individual risks are with those best placed to manage said risk and deal with the consequences should the risk occur. Broome (2002) notes the following four principles for risk allocation and sharing:

Principle One: Risk allocation should acknowledge the consequences, both positive and negative on the risk owners business.

Principle Two: Risks should be allocated to the party with the most influence over the risk occurring.

Principle Three: Negative risks should be allocated to the party who has the most influence over the risk occurring or who is best able to deal with the effects.

Principle Four: Clarity of ownership of minor risks is the most effective way of managing them.

The manner in which we deal with risk is through the selection of the most appropriate procurement method for our supply chain. This process is directly influenced by the main contract which we have entered into with the client as the preferred route is to directly 'step-down' the main contract terms and conditions to our supply chain, thus passing any associated risks to the specialist subcontractors who are best placed to manage them.

Examples of this includes where a main contract is entered into on a traditional basis where the costs are on the basis of a remeasureable bill of quantities. On such projects we will complete our procurement using this same method, using the same bill of quantities which form part of the main contract. This ensures that we are not exposed to any risks on the quantities included within the bills and all subcontract packages will also be subject to remeasurement. This ensures that the risk of the quantities remains with the client and we are not exposed to lump sum orders with our supply chain should the bills of quantities prove to be over or under measured.

The same principles also apply to any contractor designed portions within both traditional and design and build contracts. As we are a main contractor we don't undertake the works ourselves but employ subcontractors to complete the works under our supervision and control, this means that it would not be sensible for us to attempt to complete the design of specific elements ourselves and we will procure the works to include the design in the subcontract package. This process is typical for envelope and building services works due to the specialist design skills required.

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Both of these examples demonstrate how we allocate risks to the organisation best placed to manage them. The procurement route does not allow 100% of the risks we are allocated under the main contract to be passed on, we still retain overall responsibility for ensuring that the works are designed (if applicable) and installed as specified.

Whilst the current business model has proved to be successful by delivering year-on year growth and improved profits it has yet to be seriously tested in these difficult financial times. The nature of construction is that whilst the majority of the country is starting to feel the effects of the recession the construction industry suffers a delayed reaction whilst projects are finished and the new enquiries being to tail off.

According to the BCIS indices tender prices have fallen by 11.7% between January 2008 and January 2010 however the building cost index rose by 1.2% on the same period. Tender prices are falling however building costs are increasing; this can only mean that tenders are being submitted for less than it actually costs to construct the projects. Cox and Townsend (1998) summaries the effect of low and cyclical demand in construction, how firms have a tendency to become 'cut-throat' in an attempt to secure work and attitudes become adversarial to try and recover costs.

This situation has a number of impacts on our ability to function as a business:

Tenders are increasingly difficult to secure due to increased financial competition

Clients' are looking for better value from their tenders, decreasing tender costs mean that projects are coming in under budget so they are looking to other criteria for selecting tenders such as quality, safety etc.

Our supply chain are suffering the effects more than we are, smaller business are less able to absorb the effects compared to than larger businesses

Our supply chain is more at risk from other companies going into administration; this can affect their ability to continue trading.

These factors are a catalyst for us to refine and alter our current procurement strategy to review the issues which are affecting us. The main items affecting our procurement strategy at the present time are:

Preferred subcontractors failing to achieve the levels expected on safety and general performance.

Achieving quality projects at handover with minimal defects.

Completing high value projects with significant risks which need to be delivered to a high standard

An increasingly competitive market with minimal profit margins in our tenders, delivering lean construction is key to surviving these market conditions.

Our Current Procurement Strategy.

As a national construction business we employ a variety of levels of procurement strategy from the national business wide guidelines through to regional best practice and project specific strategies which are influenced by the contract type and project specific issues.

National Level Strategy.

On a national level the business implemented PEP [Purchasing Excellence Programme] in 2004 as a system to select, monitor, review and formalise our supply chain.

The objectives of PEP were to encourage our supply chain to strive towards continuous improvement, improve health and safety standards and lead to less adversarial working relationships through agreement of standardised subcontract terms and conditions.

The PEP system implemented four categories of subcontractor which reflect their experience with us, ranging from category four for companies that have not previously worked for us but have been provisionally assessed as suitable to category one for experienced companies with long established working relationships and meet the requirements to achieve category one status.

Category One Sub-contractors are specially selected by regional management as being the best/better sub-contractors. Prior to achieving category one status companies undergo an auditing process which includes reviews of their financial accounts, health, safety and environment standards. As part of the programme annual reviews are held to discuss the working relationship, performance analysis, continuous improvement areas, allowing opportunity to air positive and negative aspects of the agreement.

Being part of PEP does not guarantee any contractor of securing work on our projects and it is not a formal partnering arrangement; PEP only guarantees category one subcontractors the opportunity to tender for our projects and if their quotation is of interest but comparable to a non-category one subcontractor we will usually opt to appoint the category one subcontractor. This arrangement ensures that we can continue to deliver competitive tenders to our clients but with the security of quality subcontractors.

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The PEP system requires a significant amount of administration to ensure it remains accurate with current subcontractor performance. The system includes a performance scoring section where all projects are to score each subcontractor on their sites on a quarterly basis however the system is far too simplistic and does not allow for adequate comments to be made on performance. Also the process each site undertakes for scoring each subcontractor takes too long, it the process was quicker sites would be more inclined to score accurately and scores would be updated more often.

Becoming a category one subcontractor takes a long period of time and there is a lack of category one subcontractors for selected trades such as painting and flooring. This lack of preferred subcontractors for certain trades means that achieving the business target of 80% of all orders being placed with category one subcontractors will be continually difficult.

Regional Strategy for Procurement.

Within the regional business the use of PEP is standard practice however the region also operates its own micro procurement strategy alongside the PEP system. The strategy takes recognition of the following:

Location.

The PEP system includes over 7,000 subcontractors from across the UK and the system cannot be tailored to suit the regional requirements. As a region we cover the North West of England and the use of local subcontractors wherever possible is preferred.

A point to note it that whilst 7,000 contractors may seem a large number one must remember that each construction project we undertake is bespoke and there are a large number of sub-contractors who have made their way into the system by working on one project, we may never use this product or method again but they will remain on the system.

If a subcontractor is based or has a satellite office in the local area it brings benefits with availability of labour as the operatives are not travelling great distances, if the operatives are lodging away from home they tend not to arrive on site until mid-morning on Mondays and usually leave lunchtime on Fridays, this reduces the working week to four days. It also attracts difficulties in having operatives returning for minor works as they are not able to simply 'call-in' the project. If projects experience difficulties it is often easier to meet with the subcontractor management if they are a local company as the logistics are easier.

Current workload.

If the region has its own slimmed down version of the PEP scheme which includes fewer subcontractors it stands to mean that these fewer contractors are going to secure a larger proportion of our projects and we have to be aware of overloading of supply chain. To avoid this it is important that the regional buyer and PEP manager are aware of who is under consideration for which project and strategic decisions can be made if necessary.

Cox and Townsend (1998) explain why it is important for suppliers or clients not to be too dependent on each other in their case study of Rover Group. If there is a dependant relationship suppliers are at risk of financial difficulty if there is a reduction in workflow from a client. Adversely if a client is dependent on a supplier and they fail the client will be heavily affected. Also clients want its suppliers to gain experience and knowledge from working with other clients. A varied supply chain is important and single source arrangements should be avoided unless there is a unique project requirement.

Relationship building and maintaining.

As a region it is important that we have a core of reliable subcontractors who we maintain relationships with. These trusted subcontractors can be relied upon to delivery good quality workmanship and work with us to impress our clients. Key trades where these relationships are important include mechanical and electrical works, partitioning and joinery, concrete frames and groundwork's. These trades are the high-risk activities on our sites, if these trades experience problems it has significant impact on the rest of the project therefore it is important we can rely on these companies to deliver.

Within the region we have established relationships with 2-3 subcontractors for each of these trades and the use of these regional preferred subcontractors is encouraged wherever possible. This preference is not reflected in a formalised supply chain agreement which guarantees share of workload; it is simply implemented through an un-written 'regional favourite' list which is promoted by regional management. These regional favourites are not necessarily a category one subcontractor within the PEP scheme and they may only operate within the North West Region.

Support System Agreements.

Alongside the procurement strategy for sub-contractors we also have established agreements for direct procurement of goods/services and selected materials. These agreements are managed within each region and cover items which are common across all our sites.

The agreements cover items such as waste disposal, stationary, reprographics, labour hire and general builder's merchants. The agreements are negotiated with either a defined schedule of rates or a percentage discount against list cost and cover all sites within the region.

The benefit of such agreements is that a consistent level of service is delivered to all sites no matter their geographic location; the suppliers must cover sites even if it is outside their usual coverage area. The agreements also ensure that services are provided in line with company best practice, this is particularly important for waste disposal as the regulations which cover this area are complex and good records are important for monitoring waste reduction targets.

Preferred Manufacturer Agreements.

The region has also established a preferred materials supplier database. Only a very small minority of materials are procured direct with the significant proportion supplied through labour, plant and material orders with subcontractors. In order to maintain contact with the materials delivery market and deliver a commercial benefit a selected number of manufacturers have entered into preferred supplier agreements with the region.

These agreements cover a variety of standard building products such as drainage, plasterboard, ironmongery, doors and paint suppliers. The agreement system works by subcontractors purchasing the product from the manufacturer and we then receive an annual rebate based on the value of all orders with each manufacture.

The manufacturers on the preferred list are usually the market leaders in their products and the list contains numerous suppliers for individual products, for example Lafarge and British Gypsum plasterboard. This variety of suppliers is an advantage as it guarantees that one of the suppliers is likely to be specified on any given project.

The preferred supplier system does not involve any significant additional workload for projects, it simply requires subcontractors to advise which manufacturers they are procuring materials from and this is then fed-back to the designated person who monitors expenditure in the manufacturer.

By having manufacturer agreements we get the benefit of a dedicated, named account manager who we can liaise with for advice on technical queries and any difficulties encountered in delivery or availability. The preferred suppliers benefit through knowing that we will encourage use of their products where ever possible.

The preferred manufacture system does not get used to its fully effect, it should be a feature of our subcontract terms that the supply chain must procure materials from the approved manufacturers, we miss opportunities to use this system to its full effect by allowing our supply chain to use alternative materials, missing out on the potential to secure a larger rebate.

Project Led Procurement Strategies.

Whilst the business and region has a defined overall procurement plan each project has its own individual strategy which whilst remaining in the spirit of the business strategies is heavily influenced by the individual project specific issues.

The main factor which influences the project led procurement is the Main Contract Type and Procurement Method.

Waterman (2002) categorises four types of procurement system,

Separated procurement systems where the client retains responsibility for the project including delivery of the design, usually termed traditional or conventional procurement.

Integrated procurement systems where a contractor is appointed to take responsibility for the design and construction of the project, appointing designers to complete the design on their behalf. Commonly termed Design and Build contracts. This method of procurement has the least level of client involvement.

Management-orientated procurement systems where a management company is appointed to manage the design process and appointment of work package contractors to complete the works. This procurement route requires a greater level of client input.

Discretionary systems where a framework is established but the actual procurement route is decided on a project lead basis.

As a business we complete projects within all four procurement categories however the significant majority of our projects are separated or integrated procurement systems.

Separated Procurement Systems- Traditional Contracts

These traditional projects are tendered on the bills of quantities prepared by the clients cost advisors. During the tendering stage we obtain competitive quotations from the subcontract market to populate our submission. A wide variety of subcontractors are invited to tender and we receive unsolicited quotations which have been prepared for other contractors also bidding for the work. Alongside this market testing we also cost the works using labour only subcontractors to analyse which is the most cost effective method.

The most competitive of these quotations are included within our tender submission to try and secure the project as cost is almost always a significant scoring criteria within clients tender reviews.

During our tender process items such as safety, quality and past experience are low agenda items and do not necessarily form part of the decision making process when selecting which cost to include in our tenders, experience has demonstrated that it is usually the most competitive quotation which secures a seat at the negotiating table with the client. There are of course exceptions to this generalisation and these are reviewed on each individual tender to ensure the client deliverables are achieved.

The outcome of the tendering process for traditional contracts is a contract bill of quantities compiled with rates obtained from a variety of sources including preferred and unknown subcontractors and may include labour only subcontractors with direct supplied materials.

The bill of quantities will be populated into the most commercially viable work package structure and will not reflect any preference for building the project, for example all projects prefer a combined mechanical, electrical and plumbing subcontractor but the most cost effective structure may be several contractors completing this package.

Once a project is secured the rates within the tender bill of quantities are used as the template for procuring the works. The project team will devise a preferred strategy for procurement including a work package allocation for the preferred construction method, for example combined mechanical, electrical and plumbing subcontractor and a total envelope package where ever possible.

This work package allocation is then used as the basis for a proposed subcontractor tender list which selects between four and eight organisations to be invited to tender for each work package. This tender list comprises preferred subcontractors from the PEP scheme, regional favourites, subcontractors who have provided competitive rates during our tender phase for the client, new subcontractors who are trying to break into our supply chain, named subcontractors from the specification and approved installers for specified products.

Whilst the proposed subcontractor list will include a variety of subcontractors selected from various 'pools' the preference is always to appoint a preferred category one or regional favourite subcontractor. By inviting new and less frequently used subcontractors to tender we ensure that we obtain competitive, market value quotations for the works.

Traditional contracts with bills of quantities will usually be subject to remeasurement on completion, the accuracy of the bill of quantities remains a client owed risk. It is therefore important that we procure our subcontractors on this same basis, ensuring that our subcontracts are aligned with the main contract. Exceptions to this rule are when packages are a contractor designed portion in the main contract, these works are usually piling, curtain walling and mechanical and electrical works. For these packages we will procure the works as a lump-sum, non-remeasureable package based on the information available at tender stage. This ensures we are procuring the works as a direct step down from the main contract and limits our exposure to risk.

Integrated Procurement Systems - Design and Build Contracts.

For single stage design and build contracts the tender process we undertake with the client is similar to that for traditional contracts, the main difference being that rather than a client supplied bill of quantities we will prepare our own. As with traditional contracts we employ a slightly different tactic with specialist contractor designed portions. Whilst we would be responsible for the whole design under design and build contracts there are certain specialist designs which are completed outside of the main design team by specialist subcontractors or it may be that the design will only be completed to a specified level by the design team for completion and coordination by the subcontractor.

A typical example of this is the mechanical, electrical and plumbing design may be completed to RIBA stage E by the services designer; it will then be the subcontractor's responsibility to complete and coordinate the design beyond this. When we are procuring these types of packages we will seek to appoint a subcontractor on the same basis as our appointment, this to avoid any gaps in the design and limits our exposure to risk. If we were to appoint a mechanical and electrical contractor on a remeasureable contract on the basis that they would be issued with a fully coordinated deign we would be left with a gap in responsibilities between the designers who would only be working to stage E and our subcontractor who is expecting fully coordinated information, this would mean we would be responsible for the missing level of information and any costs due design development between the tender and construction information.

Once we have secured a design and build contract we alter our procurement strategy for the placement of orders with subcontractors. As with traditional projects the first action is to prepare a work package allocation and proposed subcontractor list for the preferred construction methodology. Subcontractors from a variety of sources are invited to tender but the tenders will be requested on a lump-sum, non-remeasureable basis on the most current information available.

One of the first items we will complete with the design team once appointed to a design and build contract is to agree an information release schedule for the construction issue designs. This is the opposite of traditional contracts where we will procure subcontractors on the same information we were issued at tender stage and where we seek to appoint subcontractors 'back-to-back' with the main contract. On design and build contracts we use the most current information, preferably RIBA stage F, to ensure that any design development issues are incorporated into the lump-sum quotations and to minimise any opportunity for variations to arise.

As with traditional projects we tender to a variety of subcontractors but the preference is always to place the order with preferred category one or regional favourites.

Key Factors to Improve Procurement Performance.

The key factors which will drive any improvements to our procurement strategy are ones which will improve how we operate as a business and will help to achieve our business objective of being profitable.

If we have a more stable supply chain that is more familiar with our systems it delivers better safety on our site. We have established subcontractors, both category one and otherwise, which are consistently failing to deliver on safety standards. The monthly safety KPI's for the region in October 2010 has nine category one subcontractors in the bottom fifteen contractors, this is totally against the principles of the PEP scheme which expects category one subcontractors to be fully conversant with our procedures.

Making sure we only use quality subcontractors will lead to less defects on our projects. Defects not only effect how our clients view our work as they expect and deserve defect free buildings, they also cost us significant amounts of money in return visits to correct them.

Completing of works efficiently will help to deliver projects for the minimum costs, with tender margins reducing in the current financial times we need to work efficiently in an attempt to continue our profitable business. If subcontractors know they can work on our sites efficiently their tenders will reflect this, these savings can then be passed on to our clients through our tender submissions- making our tenders more competitive and of more interest than our competitors.

Deliver better quality buildings for our clients will improve prospects of repeat business as clients will be more satisfied with our products.

Proposed Improvements

Improve the PEP System

The PEP system is a good vehicle for supporting our procurement strategies however it has areas of weakness which can be improved upon.

As previously outlined PEP system was established to deliver safe working standards and target continuous improvement for the supply chain but the continuing problems with performance of certain subcontractors and trades along with the safety performance table is proof that these targets are not being achieved.

Improve the Scoring System.

If the scoring system was improved it would provide better and more accurate feedback which would be of more benefit to other sites when compiling proposed subcontractor lists. It would also highlight those failing to deliver on quality and general performance and improve feedback mechanisms which can be used as the basis for improvement.

The current system has each contractor scored from 1 to 10, with 1 being unacceptable and 10 being exceeding requirements, on the following criteria:

Standard of Work

Supervision of Work

Compliance with Programme

Health & Safety

Contractual Cooperation

Financial Cooperation

Design Input

If a subcontractor is scored below 3 [poor] or above 8 [very good] a comment must be entered.

If subcontractors could be scored similar to how the established safety KPI system operates it would produce more accurate scores with some meaning / reasoning to them:

In the safety KPI's there is are set criteria for scoring each point, for example:

Attendance at monthly safety review meetings:

Did not attend- 0 Significant Improvement Required

Has to be reminded to attended meeting - 3 Improvement Required

Attends meeting without any reminders - 5 Basic Standard

Attends meeting and is actively involved, cascades details of the meeting to their workforce and provides confirmation to us of how this was completed- 7 High Standard

An example of the proposed guidance for PEP scoring similar to the safety KPI's is as follows:

Standard of Work:

Works required significant remedial works due to non-compliance with specification - 0

Works completed to a fair standard after significant support from site management, numerous snags and defects at completion - 3

Works completed to a good standard with few snagging items / defects at completion - 5

Works completed in accordance with specification and defects free at completion - 7

Compliance with Programme:

Subcontractor failed to produce programme for their works and needed constant attention to ensure works completed as required - 0

Subcontractor failed to produce programme but completed works in a sensible sequence - 3

Subcontractor produced programme for their works with our support - 5

Subcontractor provided programme at commencement and was able to monitor and resource works with limited input from site management - 7

Scoring against described criteria would also help remove any relationship or personality conflicts which could influence scoring.

Increase number of category one Subcontractors

The lack of category one subcontractors is an issue for selected trades and for the region. The PEP system includes a total of 260nr category one subcontractors, with 31Nr of these being sponsored by the North West.

The main trades identified as having insufficient representation in the category one section are flooring and painting.

For example-

Flooring Subcontractors:

The PEP system includes 11nr category one contractors but only 2nr have a North West presence. In the last 2 years the region has placed 15nr flooring orders but just 5nr have been placed with category one subcontractors. The remaining 10nr orders were placed with a further 4nr subcontractors.

Painting Subcontractors:

The PEP system includes 13nr category one subcontractors but none have a North West presence. Over the last 2 years 14nr subcontractors have been employed to complete a total of 29nr orders.

If we have such gaps in the numbers of category one subcontractors it is impossible to comply with the guidance of procuring majority preferred subcontractors. If we approach subcontractors to become category one status it is a demonstration of our confidence in their business and would help to establish better working relationships.

Framework agreements for key trades

As we are completing an increasing number of high value projects [over £100Million] where we must deliver high standards it is important that we can rely on our supply chain to support these goals. On our smaller projects we are also striving to deliver the best project we can and it is important that we can depend on our supply chain for each project we undertake. A toolkit for achieving these goals would be to establish a series of framework agreements for key trades.

Cox and Townsend (1998) explain how the Rover Groups sought to reduce the cost of construction and achieve greater cost certainty through implementation of Partnership Agreements. This provided a vehicle for appointing preferred contractors whilst maintaining a competitive angle. The short agreement, just 31 clear and concise clauses on cost, time and performance criteria, payment terms, non-performance and dispute resolution conditions is implemented with just three contractors.

The three preferred suppliers compete against each other to secure work with agreed levels of profit and reimbursement on a cost plus basis. The project costs are benchmarked against industry standard by external cost management consultants. Through this arrangement the group targets continuous reduction on costs. The level of profit secured by the preferred contractors is negotiated for each project, suppliers can negotiate a higher profit margin if it is demonstrated that they have achieved reduction in costs or improved efficiencies in construction.

Since the introduction of the preferred supplier agreement the group has achieved 95% of construction projects either on or under target cost, this is compared to almost 50% of projects exceeding their cost plans prior to the implementation of the framework agreements.

A further case study of the relationship between office park developer MEPC, main contractor Balfour Beatty and mechanical and engineering contractor Crown House (Bennett and Peace (2006)) explains the how repeat business has nurtured continuous improvement. Through the completion of eight developments over five years the projects delivered 15% lower cost per sq./ft. compared to traditionally developed offices, the rate of design doubled and the rate of construction almost tripped over three developments, delivery consistently was on time and within budget, developments were handed over defect free, there was a 35% rise in productivity and Balfour Beatty and Crown House earned higher than normal profits.

It is suggested that we establish a similar framework with a maximum of four subcontractors for key trades such as mechanical and electrical services, brickwork and partitioning that are appointed for all projects unless directed otherwise by specific client directive.

Taking guidance from the Rover Group example the preferred contractors would continue to tender for the work in a competitive arrangement however they would have the assurance that they are only bidding against contractors of a similar nature.

Bennett and Peace (2006) reviewed the mutual objectives which should be considered within a partnering arrangement, ones with particular relevance to our needs include:

Value for money

Guaranteed profit

Reliable quality

Fast construction

Handover on time

Cost reduction

Cost within agreed budget

Safe construction

No claims.

Efficiency KPIs within framework agreements to encourage lean construction

As succinctly put by Thomas and Thomas (2007) if you do what you always did you'll get the results you always got. The key to improving our business is the on-going pursuit of added value through reduction of waste and the greater satisfaction of user needs. This principle should be the underlying basis for any framework agreement, the framework is being established to bring added value to existing informal relationships, moving the focus from one-off projects procured on a cheapest price wins approach to value lead attitude.

A concern with any framework is that if it cannot demonstrate continuous improvement and added value it runs the risk of being overlooked in favour of competitive tendering to get the cheapest tender price. To remain valid the framework must be able to exhibit how it has brought improvements to the process and how the cheapest tender price will not lead to the cheapest outturn costs on completion.

Thomas and Thomas (2007) explain how a KPI process can demonstrate improvement and added value by analysing and comparing project performance, identifying successes, weaknesses and opportunities. They recommend that no more than 10 KPI's are measured and taking guidance from their suggestions it is recommended that we establish the following criteria:

Satisfaction with product

Satisfaction with service

Defects

Construction cost

Profitability

Productivity

Waste Generation

Health and Safety is not listed as this is already measured elsewhere and the existing system can be altered to provide the comparable results which can be used to monitor performance.

Recording and measuring against these criteria will allow direct comparisons to be made through projects and against the different framework members. The results could also be turned into financial values which would allow the added value from the framework to be put into monetary perspective.

The KPI's from the framework contractors could also be compared to non-framework contractors to see how the results compare.

Summary and Conclusions

It is important to remember that our existing procurement strategy has proven to be successful and has delivered good results however we are in the midst of difficult financial conditions and the delivery of successful projects with fair profits is increasingly important for us and our supply chain.

The key areas for improvement identified were:

Preferred subcontractors failing to achieve the levels expected on safety and general performance.

Achieving quality projects at handover with minimal defects.

Completing high value projects with significant risks which need to be delivered to a high standard

An increasingly competitive market with minimal profit margins in our tenders, delivering lean construction is key to surviving these market conditions.

Implementing the recommended changes within the PEP system will allow the existing supply chain members to be reviewed more accurately and will lead to improvements in safety, quality and performance which will result in better projects being delivered and to a higher quality.

Establishing framework agreements will assist in delivering the high value schemes and will reduce the opportunity for risks occurring on all projects as they can be mitigated through the framework. Continuous improvement will be a key target of the frameworks and this will help to deliver lean construction and maximise profit opportunities.

References

Bennett, J and Peace, S (2006). Partnering in The construction Industry, A Code of Practice for Strategic Collaborative Working. Oxford: Butterworth-Heinemann.

Broome, J (2002). Procurement Routes for Partnering. London: Thomas Telford Publishing.

Cox, A and Townsend, M. (1998). Strategic Procurement in Construction. London: Thomas Telford Publishing.

Office of Government Commerce. (2007) Procurement and Contract Strategies - Achieving excellence in Construction, Procurement and Contract Strategies. London.

Thomas, G and Thomas, M. (2007). Construction Partnering and Integrated Teamworking. Blackwell. Oxford.