Best Value and Partnering

John Ruskin, 1860 (quoted in Accelerating Change)

It is unwise to pay too much, but its worse to pay too little.

When you pay too much, you lose a little money - that is
all. When you pay too little, you sometimes lose
everything, because the thing you bought was incapable
of doing the thing it was bought to do.
The common law of business balance prohibits paying a
little and getting a lot - it cant be done. If you deal with
the lowest bidder, it is well to add something for the risk
you run. And if you do that, you will have enough to pay
for something better.

Best Value - Development

In exercising its purchasing power, the Government has two
fundamental aims (HMG, 1994):

value for money; and

improving the competitiveness of its suppliers

Constructing the Team (Latham, DoE, 1994) places 'value for

money' first in a list of eight client wishes.

Latham also suggests that many clients remain dissatisfied with

the value for money they receive from the construction industry
Aimed for 30% cost reduction within 6 years

This tendency to focus on the issue of cost reduction is reflective

of a commonly held (mis) conception that value for money in
construction can be achieved simply by building cost-effectively
Latham's other recommendations related to the need for clients
to formulate a clear project strategy which involved need
assessment and consideration of resources available
Achievement of value for money is dependent upon two
sequential processes.

it is necessary to define a clear and unambiguous set of objectives.

it is then necessary to ensure that the objectives are achieved costeffectively

Want to buy a new car?

Initial cost ?
Fuel consumption ?
Service costs ?
Depreciation ?

Status symbol ?
Performance ?
Luxury ?
Carrying space ?

projects seek to satisfy the differing requirements of

several parties (HM Treasury, 1994)

The process of achieving a consensus cannot be taken for

granted.
One of the key obstacles to the achievement of value for
money is the need to cater for a range of stakeholders, each of
whom may well have a different interpretation of what
constitutes 'good value'
'Defining requirements, and their communication to others is
the root of good briefing. Value for money depends on this
being done. Deciding on a final design or other solution before
making a full assessment of the client's and users' needs and
problems may prove very costly.' (O'Reilly, 1987)

Value where should the focus be?

Viewed over a 30 year period, initial building costs account for

approximately just 2% of the total, while operations and
maintenance costs equal 6%, and personnel costs equal 92%. (US
Dept. of Energy, 1996)

Value Management and Engineering

Value management is the strategic level analysis

that defines the clients business
High

quality vs lowest cost to customer

Stability vs innovation
Corporate value and business value

Value engineering is an organised approach to

the identification and elimination of unnecessary
costs which are defined as costs which provide
neither use, nor life, nor quality nor appearance
nor customer features (Kelly, Morledge and Wilkinson, 2002)

Project Value Chain

Client's value

Client's value
Financier value
Internal stakeholders value

Designer's value
Contractors value
Regulatory value

Corporate value

Business value

Project value

Design value

Construction value

Commission value

Project Mgr value

Customers value
External stakeholders value
Regulatory values

Quality Surveyor value

Sub contractor value
Supplier value

User value
Contractors value
Regulators value

Operational value

Cutomers value
Clients value
Financier value

Procurement for Best Value

Client views project as solution to business
challenge
Project may be short term need / opportunity or
long term business development
Development of client brief must not lose sight of
primary objectives

In

the initial project stage there is a sense of urgency

fuelled by the desire for an immediate solution (CIB,
1997)

Determine Primary Objectives

Performance function and quality
Time duration and time certainty
Cost price and cost certainty
Example
Owner/
Developer

Investor

occupier
Performance

45

20

50

Time

25

50

30

Cost

30

30

20

Procurement Strategy Factors

1.

Outside of project team control

2.

Client resources

3.

Staff, experience, funding

Project characteristics

4.

Interest rates, changes in demand, legislation

Size, complexity, location, novelty

Ability to make changes

Technological, scope, time, cost, performance

Late changes have a disproportionate effect

Procurement Strategy Factors

5.

Risk management

6.

Cost issues

7.

Longer procurement strategies have greater cost

certainty, effect of changes

Time

8.

By contractor for fee or by client accepting risk

Risk minimisation takes time to collect data

Cost of contract crashing or overruns

Performance

Over specification has cost and time implications

Procurement Options
1.

Traditional ( design bid build)

2.

Remeasurement ( cost +, term contracts etc.)

3.

Make changes during design only, client takes

design & performance risk, contractor cost risk
Changes easy, quick overall time, client cost risk

Construction Mgt. (Construction Mgr coordinates design

& construction, trades have contracts with Client)

Changes can be made before trade contractor

starts, less cost certainty, less time certainty, fast
track possible. Relies on good client brief to Constr.
Mgr.

Procurement Options
4.

Management Contracting (trades contracted to Mgt.

Contractor)

5.

As Construction Mgt. Except that client has less

direct involvement with trades

Design & Build

Good client time and cost certainty, performance

dependant on client brief and B&B contractor
Changes difficult

Procurement Summary for Best Value

For a successful project;

A good

client brief must be developed in accordance

with strategic aims
Client should identify which risks he is able / willing to
accommodate
Buildability must be encouraged designers and
contractors jointly develop design
On many projects there should be scope for changes
to allow value engineering
It must be recognised that overlapping of design &
construction has both benefits and risks

Major Clients

Defined as clients who

Regularly

let similar projects or

Large, complex projects

Have well developed strategic objectives

Are less vulnerable to contract risks
Can guarantee recurring work
Have tended to move to closer alliances with
preferred contractors / consultants via
PARTNERING

Partnering
Partnering includes the concepts of teamwork between supplier and
client, and of total continuous improvement. It requires openness
between the parties, ready acceptance of new ideas, trust and
perceived mutual benefit... We are confident that partnering can bring
significant benefits by improving quality and timeliness of completion
whilst reducing costs.
Partnering arrangements are also beneficial between firms... Such
arrangements should have the principal objective of improving
performance and reducing costs for clients. They should not become
cozy . The construction process exists to satisfy the client. Good
relationships based on mutual trust benefit clients. (Constructing the
Team,1994, (the Latham Report)

Definitions

Partnering is the term used to describe a collaborative

relationship between purchasers and providers. It aims to achieve
specific business objectives by maximising the effectiveness of
each partners contribution. It builds on the inherent advantages
of teamwork by creating a positive environment in which risks can
be managed and expertise shared in a mutual search for
improvement.(Davis Langdon Consultancy with Kent C.C., 2001)
Partnering involves two or more organisations working together to
improve performance through agreeing mutual objectives,
devising ways for resolving disputes and committing themselves
to continuous improvement, measuring progress and sharing the
gains. (DETR Rethinking Construction, 1998)

What does Partnering involve?

Most collaborative arrangements involve:

the purchaser entering into a strategic business alliance with

an individual or a limited number of key providers
mutual trust and openness in dealings between team
members
commitment to continuous improvement
incentives related to performance (pain / gain share)
agreed procedures for dealing with problems
measuring, setting targets and benchmarking.

The real value of successful partnering is that it helps

partners focus on the requirements of the end users.

Client Objectives

As the principal purchaser of construction

services, the client expects a partnering
arrangement to:
improve

the project teams focus on meeting the

business objectives
increase certainty of meeting the cost, quality and
time targets
improve the value (cost, quality and levels of service)
obtained from a project
reduce the opportunities for conflict.

Other Partners Objectives

The other partners the service providers consultants, contractors,

specialists, suppliers and so on, all have expectations of partnering.
developing a medium/long-term source of work
increasing the likelihood of making a reasonable profit
improving the value obtained from their supply chain
increased efficiency by removing wasteful practices
building or maintaining a reputation
reducing opportunities for conflict.
These are legitimate expectations for responsible businesses and it is in the
clients interest that construction service providers are healthy, profitable
and efficient. Partnering provides the opportunity to support this aim.

Single Project Partnering

Single-project partnering is a short-term relationship, set up for

the life of a single job to exploit mutual advantage for that project.
It can be used if the project is a one-off, or if it is not possible
to plan more than one job at a time.
While this type of partnering can enhance teamwork and
eliminate unnecessary duplication, it presents fewer
opportunities to take advantage of team learning.
It may be suitable where workload or finances constrain
opportunities for longer-term partnering.
Case study evidence illustrates the value of single-project
partnering in appropriate circumstances, in particular where
the partners are able to contribute to the design process.

Serial partnering/framework agreements

Framework agreements establish a common set of arrangements for a

number of projects.
They are most productive where the workflow allows the same team to
work on all the projects over a specified period of time.
Regular benchmarking is an essential feature of these longer-term
relationships, both to ensure that partnering continues to deliver real value
throughout the life of the agreement, and as a basis for any mutual
incentivisation scheme.
Partnering can be as effective for cyclical repair and maintenance
programmes as for major capital works, provided that the management
arrangements are tailored to the type of work. Indeed, it is often easier to
plan a steady workflow for cyclical maintenance.

Business Alliances

Business alliances are not based on specific projects.

They are adopted where there is a need to develop mutually

complementary services (or skills) over a period of time.
For example, contractors may enter into business alliances
with frequently used specialist suppliers.
Business alliances are most appropriate where the parties
have a regular need for each others services, for example
between main contractors and their regular suppliers or
specialist subcontractors.
The manner in which these different arrangements are set up
varies widely, ranging from voluntary agreements to formally
binding contract.

Size & Type of Project

Dependent on several criteria which are likely to be different for single-project

partnering and framework agreements.
A major factor for single-project partnering is how the time required relates to the
potential benefits.
A single project has to be of a large enough scale, or involve sufficient risk or
complexity, to repay the effort required to prepare and maintain the partnering.
partnering is unlikely to be appropriate for a single project if the value of the work
is less than 1- 2m (2000 prices), unless:
it is extremely complex or risky
a great deal depends on achieving the project targets

the teams already have experience of working successfully together.

In longer-term and multi-project arrangements, partnering should be seriously

considered where there is a need for:
improved reliability of outcome (time, cost and quality and reducing the likelihood
of claims and disputes),
improved reliability of building performance through repeat building and learning
from job to job
a strong focus on client/user, including the possibility of late changes to the
building requirements
high-level construction expertise to manage technical construction complexity
speed of building by using the contractors knowledge of fast-track construction
techniques and making the building process easier through early involvement of
the contractor and specialist subcontractors
improved buying power by taking advantage of the contractors or specialists
purchasing arrangements

Partnering Questions

Much printed case study material showing

reductions in cost / time.
how

is gain calculated ?
how is gain distributed, client, designer, main
contractor, sub contractor, supplier ?
who benefits the most or is there equal gain?

There are less contractual claim problems.

the

problems that do arise can be much more

complex.

Partnering Questions

Long term partnerships give contractors continuous

work

smaller contractors cannot tender because of overall value of

work
reduced number of main contractors win work
workload implications for unsuccessful contractors ?
what happens to resources at end of partnership period ?

Partnering includes the whole supply chain

what happens to team when 1 company does not perform?

position of specialist sub contractors / suppliers ?

Guidance Notes of the Option X12 (2001)

1.

Parties must recognise that by entering into a

contract which includes Option X12 they will be
undertaking responsibilities additional to those
in the basic NEC contract.

These additional responsibilities require

additional resources. Partners invest these
resources in order to get a return and much of
this return comes from the bonuses associated
with hitting or exceeding the agreed targets
(shown in the Schedule of Partners)

Guidance Notes of the Option X12 (2001)

2.

If one partner lets the others down for a particular

target by poor performance, then all lose their bonus for
that target

3.

This places more dependency on others. One partners

payment is dependent on another partners performance

The final sanction against any partner who fails to act

as stated in the Partnering Option is for the Partner who
employed them not to invite them to partner again.

This suggests that partners get locked into the

partnership for the duration of the contract. Even if one
partner consistently lets others down, for the rest of the
partners, there is no way out of the partnership.

Accelerating Change (SFC, 2002)

Intended to produce a more

modern and dynamic
industry, the report
challenges the construction
industry to provide maximum
value for clients and end
users and provide a
consistently world class
product.

Accelerating Change (SFC, 2002)

Key targets
By the end of 2004, 20% of construction projects by value
should be undertaken by integrated teams and supply chains
to increase to 50% by 2007.
20% of client activity by value should embrace the principles
of the Clients Charter, increasing to 50% by 2007
Strategic Forum members will develop and implement
strategies which will enable the industry to recruit and retain
300,000 qualified people by the end of 2006, resulting in a
50% increase in suitable applications to built environment
higher and further education courses by 2007

Accelerating Change (SFC, 2002)

People Issues:
"The image of our industry lies at the heart of our ability to
attract, develop and retain the best human resources.
We need to marshal our forces to ensure that we have
practical, relevant and joined-up people initiatives in place
that make a real impact on the image of the industry and that
businesses understand and want to adopt. We dont have that
at present and thats why one of our first tasks must be to
critically examine the people initiatives we have in place.

Accelerating Change (SFC, 2002)

Client Leadership
"Clients must identify what functionality and performance they need from
their built environment assets, how these contribute to the efficiency of
their business, and how they add stakeholder value. They need then to
articulate these in a clear brief, so that they lead a fully integrated supply
team to contribute their particular expertise to achieving the optimum
solution to the clients requirements.
Clients want suppliers to come together to give them the mechanism
whereby they can recognise the options available in terms of whole life
performance, cost time and quality reliability and value for money.
They can then move away from the traditional tendering approach, and
select supply teams on the basis of track records of performance,
productivity and best practice.

Accelerating Change (SFC, 2002)

Integrated Team Working:

"If

clients really intend to unlock the potential of the

supply side they will have to start projects entirely
differently. This means assembling alliances (of
consultants, specialists and key manufacturers) into
integrated teams that will genuinely align with
challenging performance targets. Then the supply
side should be expected to drive and deliver.

Accelerating Change (SFC, 2002)

Product Focus:

"The construction industry must reshape the way it

works. In doing so, it must focus as much on the
product it produces as on the way it is produced. We
are urging clients to set clear project frameworks that
enable the industry to deliver sustainable solutions of
demonstrable quality, by safe and efficient means
and in ways that promote the recruitment and
retention of a talented and motivated workforce."

Conclusions
1.
2.

3.

4.

Construction procurement should be Client focused

The Client must be responsible for identifying project
objectives and communicating them to the
construction team
The best procurement option is dependant on client
attitude to risk in time, cost & function
An inclusive construction team will generally provide
best value

Conclusions
5.

6.

7.

8.

Major clients have moved towards alliances

with preferred consultants and contractors
Partnering has many advantages for an
experienced client
Partnering does involve additional resources
and risks
The UK construction industry has seen
developing procurement strategies since the
1990s, but still has scope for improvement