Construction excellence targets in Public sector

Improved performance, but some way to go to meet construction excellence targets in the public sector.

The huge contribution that construction activity makes to the United Kingdom economy is amply acknowledged by the National Audit Office in its latest report on the progress that government departments and agencies are making to their construction delivery performance.

The new document entitled Improving Public Services through Better Construction traces the many steps that have been taken towards more efficient and cost effective procurement practice in the public sector since the Modernising Construction report was published in January 2001.

That document was issued at a time when studies such as the Egan task force report Rethinking Construction revealed that more than 70 per cent of departmental construction projects were being completed at costings over budget, and no more than 30 per cent were being delivered on or before time.

What this highlighted was the inefficiencies inherent in traditional forms of construction management, in particular the common practice among public authorities of awarding contracts solely on the basis of the lowest bid.

This has now been accepted as not providing value for money.

Moreover, the adversarial atmosphere in which lowest-bid projects were being conducted gave rise to conflict and distrust contributing to poor performance.

The new report says that while departments still have some way to go to meet the Achieving Excellence 2005 targets for 70 per cent of government construction projects to be delivered to time and budget, performance has improved considerably compared with the 1999 baseline for the projects included in the NAO's analysis.

The outcome to date is that 55 per cent were being delivered to budget last year compared with 25 per cent in 1999.

The report comments that if the level of cost overruns reported then had continued (6.5 per cent on average), the overspend on 142 central government projects delivered between April 2003 and December 2004 would have been GBP 77 million on work worth just under GBP1.2 billion.

"The actual overspend on the 89 projects in this time period was, however, only 4.1 per cent.

If this improvement in the average overspend is scaled over the GBP 33.5 billion spent on public construction in 2003, then we estimate that the post contract cost overruns which have been avoided when compared to the price expected at the time the contract was let would be of the order of GBP 800 million." On timely delivery, the report says that 63 per cent of departmental projects were delivered to time compared with 34 per cent in 1999.

"It is clear from our examination that the guidance and support provided by the Office of Government Commerce under the Achieving Excellence in Construction programme has made a considerable contribution." It continues: "A range of value for money gains from partnering and the early development of integrated project teams are beginning to emerge from the improvement programmes of the case study organisations included in our 2001 report (Defence Estates, Environment Agency, Highways Agency and NHS Estates).

"These include streamlined procurement processes, innovative solutions to the design and delivery of construction projects, fewer legal claims, reduced environmental impacts, safer working and improved whole life costs and value as a result of more open and integrated team working between departments and contractors." Widened scope for Commerce Office From April 2005, the Government has extended the remit of the Office of Government Commerce to include working with client organisations across the wider public sector covering among others local government and the National Health Service.

But the Office has been given no extra resources to cover these additional activities, emphasising the need, says the report, for OGC to target its future efforts where they will have the most impact.

For all this progress, the report notes however that there are still many projects across the public sector as a whole which do not fully employ the good construction practice identified in this better construction report and the supporting case study volume.

"If these benefits, and those achieved through the good practices of leading public and private sector organisations, can be applied more widely then considerable value for money gains and service delivery improvements could be achieved in future public sector construction projects.

"Recognising that public sector bodies are already making improvements, but that others are not, we estimate that just under ten per cent of annual public sector construction capital costs and five per cent of building operating costs could be saved if these benefits were realised.

"On the basis of simple extrapolation, further value for money savings of up to GBP 2.6 billion in annual construction expenditure may be possible if good practice was applied across all of the public sector.

"Even the more conservative assumption that just 20 per cent of these improvements are practicable would still release some GBP 500 million to be reinvested in frontline public services or higher quality built assets to deliver better services.

"There may be circumstances where relatively small increases in the capital costs of construction will deliver significantly greater whole life value for example, through reduced energy costs and lower carbon dioxide emissions." Six aspects of better performance The Audit Office has identified six main aspects of construction performance on which departments need to focus their efforts for improvement.

Good practice most likely to achieve better performance includes: reduce uncertainties in the industry about work flow and funding of construction programmes improve construction management capability (shortage of skilled people is hampering ability to improve performance) introduce independent challenge to conceptual thinking in early stages of projects overcome difficulties in procurement and design on basis of sustainable whole life value plan and manage projects and programmes across the organisation as a whole produce timely information on the condition and fitness of existing assets ensure that fully integrated supply chains are appointed at the earliest opportunity Royal Mail Group saves GBP 80m annually One example of management of an estate and its facilities brought under a single in-house organisation comes from the Royal Mail Group.

Savings of some GBP 81.5 million (13 per cent on GBP 650 million annual expenditure) are reported from unified control of property and services.

This, says the Audit Office, provides an indication of the level of savings that departments could expect to make by adopting a similar approach.

In the National Health Service, value for money gains of around 10 per cent are reported against project costs achieved using ProCure21 compared to costs for conventionally procured schemes.

The principal recommendations arising from this latest study are that more time needs to be spent on planning major construction programmes and early assembly of integrated teams; leadership of construction programmes must be strengthened and strategies put in for developing construction management capabilities; engaging fully with the OGC Gateway process for monitoring construction activities; making criteria for tender evaluation more transparent to suppliers.

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