Is Two-Stage tendering & collaboration being discarded in pursuit of lowest price?
Yes is the short answer but I am increasingly of the view that smarter procurement incorporating greater collaboration such as that offered through two-stage, open book procurement routes is urgently required in order to buck the trend in the savage bidding taking place across the industry.
The same is also true for the procurement of consultancy services which have also nose dived to quite frankly unsustainable levels and the combined effect of both these aspects is exposing clients to a whole host of risks and liabilities which few truly understand and will give rise to a greater incidence in delays, insolvencies, claims and building defects as time goes by. These are reasonably well understood if not still relatively intangible but a further fear which I have relates to increased operation and maintenance costs, at a time when we need to build more sustainably.
Meanwhile I believe many clients feel that they are getting ‘more for less’ when in fact behind all the smoke and mirrors thrown up by the industry it’s really ‘less for less’. Yes, wasteful practices are being eliminated which accounts for part of this fall but a simple illustration of this springs to mind from the recently completed Royal Shakespeare Theatre redevelopment where the architects produced numerous iterations of the auditorium designs – in excess of 40 versions in order to get the sightlines, seating and acoustics exactly right. In today’s climate a client might be lucky to get two or three versions as there simply aren’t the fees for designs to be perfected to the same extent. This is being compounded as design risks are being passed onto contractors, where it’s possible to do so, who are in a similar jam.
All of this spells trouble for the unwary but who can blame clients for taking advantage of the current climate? Many are inexperienced and haven’t the knowledge and understanding to see the picture. Moreover, how can clients protect themselves from the pitfalls touched on above?
The answer to this has to be in smarter procurement of both professional services and construction works; something which I touched on earlier in the year. In effect, devising a go to market strategy and plan that seeks long term value rather than short term savings. Tesco’s refer to it as ‘active procurement’ but it is the same concept.
This is where I feel that clients need most help, yet due to the squeeze in public sector finances and the desire for self preservation, clients are eschewing up-front advice in order to save costs and are using in-house resources to determine vital components of a brief such as budget, programme and procurement strategy. In-house resources which in my view are often not competent to make such decisions without the right support.
So how does this fit with Two-Stage tendering?
Well, it was not that long ago that this option was the preferred choice for many government organisations for its collaborative qualities. It still remains the case for some, though by and large the recession has given way to the more widespread use of single stage tendering as a means of securing the lowest possible price.
The reason for the shift being that many view two-stage as being c.10% dearer than single stage tendering and often consultants don’t like the process due to the time and effort required to support the process and get it right. I was in this camp not so long ago but as time passes I find myself of a different heart and now see the need for a return to two-stage tendering in order to deliver better whole life value.
Why? Well principally for the reasons touched on above. We have all been involved in projects where many requirements such as programme, the scope of services or even the procurement strategy have been determined before a team is appointed and work really gets underway which drastically influences the outcomes and restricts how value can be achieved. Never is this truer than for two-stage procurement which needs the right conditions to flourish and deliver best value.
First amongst these conditions is a client who understands the pressures across the industry, the risks this spells and is willing to work more collaboratively;
Second, is the procurement of up-front advice to guide the brief and develop an integrating procurement strategy for both the professional and construction team with the attendant scopes of services;
Third, there needs to be greater focus on the procurement of individuals and teams, who have the experience and understanding of the issues, to work together to achieve best value. All businesses are people businesses, involving relationships yet procurement is often undertaken in a vacuum; and
Fourth, and arguably most importantly, the programme needs to be structured to suit the process and allow time for design development. This is true for all projects, but a two-stage process really needs a well developed design (RIBA Stage E) to properly articulate the design and underpin the open book procurement of the packages which represents c.80% of the construction cost. If inadequate design information is produced or the programme is too tight then high risk pricing can become a material factor during the second stage and costs for incomplete elements of design have to be negotiated, often with poor results.
If correctly set up I believe this option can
- Secure the best talent to deliver sustainable projects;
- Promote closer collaboration across the industry;
- Provide an active hedge against a claims culture beginning to take a foothold, insolvencies and quality; and
- Help meet the government’s aim to increase standardisation and to build more cost effectively.
One effective means of achieving two-stage tendering is by using the JCT Pre-Construction Services Agreements in conjunction with the main building contract.