The Effect of the Recession on Partnering in the Construction Sector

“ The effect of the recession on partnering in the construction sector ” Don Ward Chief Executive www.constructingexcellence.org.uk

Our purpose is to
Improve industry performance
The outcome will be
A demonstrably better built environment

Core business activities

UK Construction Key Performance Indicators “A Measured Approach”
Economic
Client satisfaction
Product and service
Defects
Predictability
Cost and Time
Profitability
Productivity
Safety
Construction Cost
Construction Time

Safety Reportable accidents per 100,000 employed (Industry AIR) Better 1354 1271 1318 1217 1097 1172 1023 901 946 865 906 0 500 1000 1500 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Client satisfaction – product Scoring 8/10 or better 72% 73% 72% 73% 78% 80% 83% 84% 82% 83% 86% 50% 60% 70% 80% 90% 100% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Client satisfaction – service Scoring 8/10 or better 58% 63% 63% 65% 71% 74% 77% 79% 75% 77% 84% 50% 60% 70% 80% 90% 100% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Client satisfaction – value for money Scoring 8/10 or better 67% 69% 73% 74% 79% 80% 75% 75% 82% 50% 60% 70% 80% 90% 100% 2001 2002 2003 2004 2005 2006 2007 2008 2009

Profitability Profitability: Median profit on turnover (%) 4.4% 5.1% 5.2% 5.4% 7.0% 8.1% 7.9% 8.2% 9.6% 9.9% 0% 5% 10% 15% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cost predictability - project % On or under cost 50% 46% 48% 52% 50% 48% 45% 46% 49% 48% 0% 20% 40% 60% 80% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Time predictability - project % On time or early 28% 36% 42% 44% 44% 46% 44% 58% 45% 45% 0% 20% 40% 60% 80% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pioneering projects
BAA: Pavement Team, Genesis, mid 1990s onwards
After 7 years, frameworks save 55% on time and 60% on design and management costs
GlaxoWellcome: Fusion, mid-late 1990s
3 projects worth total of £50M saved £8.75M of cost and saved 13 (7+6) months worth £2.25M
MOD
Building Down Barriers, late 1990s
MOD Andover North

Demonstration Programme
Implementing the principles of Rethinking Construction
525 Projects since 1998, incl. 203 housing sector
Value £13bn
430 completed, 95 live
Involvement of 1176 organisations UK-wide
176 case histories
63 associated reports and publications
Innovators Early Adopters Early Majority Late Majority Laggards

Economic KPIs Demonstration v Industry 2009 CE 2009 Industry 2009 = 100 Profitability Client Satisfaction - Product Client Satisfaction - Service Defects - Impact at Handover Predictability Cost Predictability Time Productivity (Current Values) Productivity (Constant 2000 Values)

Demonstration v Industry 2009(2) CE 2009 Industry 2009 = 100 People and Environment KPIs 2009 Demonstrations outperform the industry by an average of 80% Safety – Overall Safety - All Projects Employee Satisfaction Staff Turnover - All Projects Qualifications & Skills Environmental Impact - Product Environmental Impact - Construction Process

Core improvement themes

Construction Commitments
Procurement and integration
Client leadership
Design quality
Commitment to people
Sustainability
Health and safety

26% reduction in new orders (last qtr, £B) - 28% - 57% + 20% + 36% - 36% - 41%

The long-term cycle Page Construction output £m in 2000 prices Source: CSN (ONS, NISRA, Experian)

“ Crisis = danger + opportunity” 危機

‘ Economic climate change’
U-turn back to the old ways
Go for full collaborative working

‘ Economic climate change’
Revert to type
Long tender lists
Lowest tender price
Claims
Cost and time overruns
Abandon sustainability
Shed people
Collaborative working
Best value/real value
Collaborative working
Target price plus lean
Delivery to all KPI targets
Sustainability remains key driver
Retain good people however possible

Collaborative working key principles Leadership Vision Processes ‘Hard’ measures People ‘Soft’ issues

Collaborative working Critical success factors
Early involvement
Selection by value
Common processes and tools
Measurement of performance } continuous
Long-term relationships } improvement
Modern commercial arrangements

Historic procurement 17 months to “start on site” MONTH ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Appoint Architect Appoint Consultants Concept Design Tender Documentation Evaluation/Negotiation Redesign/Design Dev. Planning Appoint Contractor Mobilise/Procurement Construct Competition Appointment Tender                       

Aspirational procurement 10 months to “start on site” MONTH ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Appoint Architect Appoint Consultants Appoint Contractors Concept Design Design Development Procurement Agree Cost Plan Planning Mobilise Construct Over 6 months early                       

Frameworking clients
Retail: Asda, Marks and Spencer, Sainsbury, Sommerfield, Tesco, Boots
Developers: Stanhope, Slough Estates, Land Securities
Corporates: BT, BBC, Abbey National
Utilities, eg all water companies under AMP4
Central government: defence, health, work and pensions
Local government: “Best Value”
Housing: RSLs

The potential for further value for money savings in the public sector” NAO, 2005 UK public sector construction 2004: £33.5 billion Central govt Local govt Improved productivity based on more effective programmes and streamlined procurement £220M £500M Collaborative working approaches £325M £760M Savings in whole life costs of built assets £770M Total savings £2.6 billion

Early involvement - lead times
System 6-12 weeks
Glass 8-20 weeks
Pressings 4-14 weeks
Auxiliary products 4-14 weeks
GL A M A LCO

Early involvement - design expertise Piping cost = £155,000 Equivalent length = 700m Piping cost = £116,000 Equivalent length = 494m

Old understanding of “price” Tender price, outturn price, claims Tender price Value added/benefit for client - people, supplies Profit Other cost/waste Claims = extra cost + profit ‘ Right’ price Overheads

New understanding of “cost” Value, budget, target price, cost, risk, profit Tender price Manage Agreed ‘ Target price’ Agreed Reduce Increase Claims = extra cost + profit Value added/ benefit for client Profit Other cost – waste Overheads Risk

What is “Value”? Value = Benefit ___________ Cost More for less

Be Valuable How facilities add value for users

Whole life value DEVELOP MANAGE CONSULT CONSTRUCT DESIGN LIFE CYCLE

What the customer really needs Construction Business Costs Operation and Maintenance Process Push User Pull Business outcomes Design Source: Royal Academy of Engineering

What the HEALTHCARE customer really needs Construction 42 Business Costs 4.3 1 Operation and Maintenance Process Push User Pull Healthcare outcomes Clinical outcomes Hospital-acquired infection rates Safety outcomes Medication error rates Medication rates Re-hospitalisation rates Length of stays Costs per unit of service Patient & visitor satisfaction Staff morale & turnover CABE: Patients discharged in 6.4 days rather than 8.1 due to better environment Design 0.1 (ANNUAL COSTS)

What the EDUCATION customer really needs Construction “ 200” Business Costs “ 5” 1 Operation and Maintenance Process Push User Pull
Education outcomes
Building Schools for the Future:
“ enhance teaching + learning
helps to raise standards
address workforce issue”
Design 0.1 Source: Royal Academy of Engineering

St Francis of Assisi Academy, Liverpool
“ A school which offers its pupils a green-focused education has won plaudits for having the best teaching standards in the country.
..John Drane, the school's assistant principal, believes the .. teaching environment has been one of the key factors in motivating the pupils to do better”
Green values help academy top new league table The Independent , 11 Jan 2007

Whitecross High School “The best... secondary school in the country (educational efficiency)” [BRE]
“ [Taking] the number of students who have achieved 5 or more grades at A* - C including English and Maths, this year we achieved 51% compared to last [year’s] 35%.... This... is a massive increase and obviously this is the year.. that .. received all of its .. teaching in the new building.”
This compares to a national increase of 2.5%

‘ Economic climate change’ - value through collaborative working
U-turn back to the old ways
Go for full collaborative working

Value through collaborative working Don Ward Chief Executive Constructing Excellence www.constructingexcellence.org.uk

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The Effect of the Recession on Partnering in the Construction Sector

by John Cave on Jul 27, 2009

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The Effect of the Recession on Partnering in the Construction Sector — Presentation Transcript