Government is attempting to become more SME friendly in its contracts with trials of new procurement methods. The moves are welcome but firms would like more focus on reducing the indemnity demands being placed on SME consultants by others in the supply chain. Jackie Whitelaw reports from the latest Griffiths & Armour and Infrastructure Intelligence risk management forum.

The clear message given to the latest Infrastructure Intelligence/Griffiths & Armour risk management round table was that change in public sector procurement and project management is inevitable. 

New digital tools such as BIM, a skills shortage and perhaps most importantly a government focused on increasing the sector’s efficiency as it seeks to cut the deficit, mean, finally, that an enduring ambition to create an industry based on collaboration rather than conflict could actually be obliged to happen.

Innovation is crucial to achieving that aim and also to meet government’s immediate target of cutting construction costs by 20%. 

“We need to push and hope demand will allow fees to go up. Low fees will restrict how we grow and our ability to train graduates” 

Neil Smith, Max Fordham

Head of construction at the Cabinet Office David Hancock explained, that government recognises it needs to collaborate and be open to innovation in how it operates as a client. “We know we need to innovate,” he said. “We know, if we carry on doing what we always did, we’ll get what we’ve always got. We are looking for things to be different.”

Innovation could mean new techniques – why build houses out of bricks; why not prefabricate them for instance? Or outcomes – to increase road capacity such as smart motorways rather than new construction. 

It could be procurement processes – trials are underway with cost led procurement, two stage open book and integrated project insurance (see feature on Dudley College as it prepares to nove to site).

In order to embrace the benefits from this drive for innovation, government acknowledges that there is a need upskill and improve its performance as a client. All sponsors of major projects now have to go through the Major Projects Leadership Academy. For those on other important projects there is the Project Leadership Programme. All the training is designed in part to encourage sponsors to challenge the status quo and encourage collaboration with the supply chain.

“We are talking about behavioural change. The understanding that if one party fails, we all fail,” Hancock said. “We want to make the government a client of choice.”

There is recognition in government that innovation is most likely to come from SMEs with the target to place 25% of all public sector work with SMEs still very much in play. Single collaborative teams are at the root of driving innovation from SMEs particularly through early involvement in design. And the procurement trials are part of demonstrating to people operating as government clients as well as the SME sector that the innovations are there to be had and will deliver major efficiencies within a fair system.

“Construction has always had to be a collaborative industry to get anything done. Behaviours enabled and encouraged by BIM are not necessarily new” 

John Henderson, Beale & Co

“We have to have trials and the ones that don’t work, we will learn from,” Hancock said. “We know there is no silver bullet. We are just trying to find what is most efficient and effective. And when people running Government projects start to see what can be achieved when we employ SMEs more they will ask how do I engage SMEs earlier in the process?” 

It is more difficult, he said, for government to contract directly with SMEs on major government construction projects “but we will want to be able to ensure that the Tier One’s have contracted with the right people and that Pre-qualification questionnaires (PQQs) are made simpler so that SMEs can be more involved.”

The conviction that has formed within the the public sector that collaboration is the way to achieve a more efficient industry was welcomed by the SMEs at the round table event. Most however were currently doing very little public sector work and were unlikely to pursue it. This was because they felt that current procurement arrangements were designed to favour bigger firms, and they were handicapped by the increasing scale of insurance being demanded.

“I’d like to think we always collaborate,” said BWB managing director Steve Wooler. BWB does most of its work for private sector clients. “The private sector invariably recognises that the team has to succeed – projects develop at such a fast pace, and you are seeking repeat business, so there is a vested interest for all parties to make it work. Problems can arise when larger consultancies are part of the team, because most tend to be more risk averse and contractual than SMEs”

Roundtable attendees

Steve Bamforth, chief executive,

Griffiths & Armour

Paul Berg, director, Griffiths &

Armour

Alastair Hamilton, director, Pick

Everard

David Hancock, head of construction,

Cabinet Office

John Henderson, partner, Beale & Co

David Johncox, director, Alan Baxter

& Associates

Michael Lawson, senior partner,

CampbellReith Hill

Antony Oliver, editor, Infrastructure

Intelligence 

Dwight Patten, legal and compliance

director, ACE

Miles Penfold, director, RSA

Nick Russell, director, Thomasons

Neil Smith, partner, Max Fordham

Bob Stagg, director, Connisbee

Keith Strutt, operations director –

London and South East, Driver Group

Jackie Whitelaw, associate editor,

Infrastructure Intelligence

Paul Wood, director, Elliott Wood

Partnership

Steve Wooler, managing director, BWB

“I’d like more public sector work to give my company resilience. And I’m frustrated that government is missing a trick in not utilizing the skill and expertise in SMEs. Ironically, however we make good money redesigning for contractors the work done by big consultants. That, as a taxpayer, really annoys me. We could do it from the start and value-engineer really worthwhile savings to the project cost, of the order of 15% from experience”

Max Fordham partner Neil Smith explained that contracts with unlimited liability requirements or intellectual property rights demands make it hard to take the risk of being innovative. “The contracts, especially in the public sector, require a lot of innovation but the way the contracts are formulated means we have to be very careful about doing new ground breaking work.”

Griffiths & Armour chief executive Steve Bamforth said he felt the industry was at a fork in the road, with the route to collaboration being the one to take. “But even on a job going well at the moment, the threat of being sued for millions of pounds has to be at the back of your mind.”

His colleague, director Paul Berg added: “After a recession you expect to see the volume of claims rise. We haven’t seen a dramatic increase in scale in volumes. But the value of claims is far greater as a consequence of ever increasing indemnity limits applicable. It is not uncommon to see £1M claims being pursued within the construction supply chain. The client has a major part to play. Its chosen procurement models affect SMEs.”

ACE legal and compliance director Dwight Patten considered that the trend towards higher and higher indemnity was a serious risk for the sector.

“We are tending to see in some projects the expectation on consultants to have very high levels of professional indemnity and possibly no limit on liability. The question is, how can SMEs take on this work and know that they are not putting their medium term survival at risk? If the supply chain is put under this pressure, it is effectively putting the whole sector in a weakened position.”

It is against this background that the integrated project insurance trial at Dudley College is being undertaken. The IPI product, developed by Griffiths & Armour, insures the whole project team against all risks so they can concentrate on innovations rather than having to cover themselves against potential problems (see box).

 “The initial selection of the team was not on price, but on quality,” explained Pick Everard director Alastair Hamilton. “The process was one of the most challenging we’ve been through, but was delivered on programme, which is very unusual in the public sector at the moment.

Under the IPI model, we have created a multi-party virtual company, called the Alliance, which is contracted to deliver the new college building under an incentivised cost plus contract.

“If there is any issue with IPI, it is that it is still in its infancy, and therefore there are a lot of lessons to be learned on how the process will work and how we will demonstrate value for money across the design and delivery of the new building at Dudley College.

“The experiences we have on this project will be vital in helping others who adopt IPI.”

“We know we need to innovate. We know, if we carry on doing what we always did, we’ll get what we’ve always got. We are looking for things to be different.” 

David Hancock, Cabinet Office

Conisbee director Bob Stagg agreed this could have a major impact on how firms perceive the risks of appointing subconsultants. “The implications on our PI encourages us to avoid taking on subconsultants.”

Driver Group operations director – London and South East Keith Strutt summed up the view of the room on IPI. “Integrated project insurance could be one of the answers to getting more SMEs involved in public contracts. SMEs know how to innovate, they are small and fast moving, and IPI allows the risk to be carried by the project.”