Collaborative Procurement - Constructing Excellence

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ForewordIn 2007, the core members of Constructing Excellence carried out a reviewof futures reports to decide on priorities for new guidance for our memberswho remain committed to a collaborative future. Six themes emerged and taskgroups were established to review existing material and produce a guide to helpmembers stay one step ahead:Vaughan BurnandChairman, Members SteeringGroup, Constructing Excellence Collaborative Procurement Collaborative cost reduction Collaborative design management Whole life costing and facilities management Environmental sustainability Better ways of workingThis guide was produced by a task group of members and others, all of whomcommitted time and resources to support this work, they are duly acknowledgedat the end of this publication. It was also peer reviewed at meetings of thefull membership to ensure maximum relevance and coherence as a set ofpublications.We welcome feedback on all our publications at any time, please contact us atthe address shown on the back cover.22CollaborativeProcurement.indd 214/2/10 16:20:06

1. IntroductionAs clients, contractors, suppliers and consultants all come under ever-sector departments, with spend on construction to become anincreasing pressure to deliver construction-based works and servicesincreasing focus.more efficiently and effectively, so the drive to eliminate waste, andduplication intensifies.With the current efficiency targets set by central government to allThis cost and value for money pressure is compounded by the factadoption of best practice that will deliver the targets. Current guidancethat financial and people resources become ever more difficult tofrom the OGC and other government agencies actively promotes clientsobtain, and retain. This is now driving the need for clients both in theand the industry in general to take up the challenge of Collaborativepublic and private sectors to identify new ways of ensuring that theirProcurement to realise the proven benefits that exist where clients andshort and long term strategic objectives can be achieved.supply chain organisations have adopted this approach.Much has already been achieved within the industry over the lastThis sets a challenge to all clients within the industry to deliverdecade, in part driven by the Rethinking Construction agenda, whichsignificant cost savings through demand aggregation that giveshas seen a real drive to closer working relationships throughout thedue consideration to shared expertise, knowledge and information,supply chain. Many clients are now partnering and using forms ofimproved planning and improved ways of working. True cost savingscontract that encourage team working, greater certainty of cost andcan be achieved in advance of any works being completed through thetime, dispute resolution processes together with robust schemes ofoptimisation of available resources where the duplication of effort isperformance measurement that are linked to financial schemes whichminimised.reward cost reduction, continuous improvement and innovation.departments, both centrally and locally, clients need to consider theThe authors of this guidance document on Collaborative ProcurementThe result of the successes achieved has shown that the industryhave identified the key forms of collaboration that are currently takingachieves higher levels of success when teams ‘work together’,place within the industry, which are delivering real efficiencies andwhether it be for a single contract or more importantly over a longercashable savings.period where a guaranteed flow of work can be guaranteed, aswith framework arrangements. These success stories are now welldocumented within the industry and are acting as drivers for clients inembracing Collaborative Procurement to varying levels.The guide seeks to create awareness of the options that exist forcollaboration within the industry, irrespective of the market sectoror organisation, and to assist in the initiation of a programme ofcollaboration, highlighting the key issues for consideration.Collaborative Procurement itself has within the public sector alreadymanaged to deliver considerable financial savings, improved workingpractices and allowed the realisation of cashable savings that haveRethinking Construction challenged the industryprovided much needed financial resources for improving public“.to commit itself to change, so that, workingservices or works.together, we can create a modern industry .”.Most of the savings achieved have been realised through the successBy extending collaborative working to encompassby the Office of Government Commerce’s (OGC) ‘e-buying solutions’.Collaborative Procurement we believe that bothSince its launch in 2000 it has played a key role in achieving in excessof 8bn of efficiency savings from public procurement . However theseclients and industry can achieve efficiencies andsavings tend to relate to the purchase of general goods and servicesfinancial benefits beyond those envisaged withinand do not relate to the annual 40bn construction spend in the UKRethinking Construction.by the public sector. The Treasury has now increased the powers ofthe OGC to drive through its policies even further across all public33CollaborativeProcurement.indd 314/2/10 16:20:06

2. Evolution of Collaborative ProcurementCollaborative working or Collaborative Procurement is not new to theoperate. More recently, second and third generation partneringUK industry but within the construction industry nothing much hashave moved towards delivery-based agreements rather than call-offchanged for around a hundred years or so from the system used inarrangements.the 19th century where the architectural and engineering professionsled the procurement process. This was the “traditional” system, wherethe designer led the procurement and the contractor responded toAlliances and integrated teams started to attract supply chainmanagement with the first standard form in PPC 2000. Additionally,decisions in the field.thereafter ICE and JCT modernised to reflect the proactiveThis traditional system recognised reimbursable forms of procurementwith the government endorsement of the NEC itself. On larger projectsand became the fore runners to the government forms and the GCand programs of work, there was increased recognition that clientsWorks forms.needed to augment their own management and create a programmeIt was not until the mid 1970s that the US system of constructionmanagement started to be considered on larger process industryprojects and more generally became the vogue in the mid 1980s.JCT modernised the out of date JCT 63 Form and introduced the roleof the contract administrator and management duties in the employerdesigned form.Design and Build models evolved by the late 1980s and what wasoriginally, intended to be for simple forms of procurement, actuallymatured into various design, build and management systems. Thiswas followed by guaranteed maximum price options, where visibilitymanagement function, reflected in some NEC mechanisms coincidingmanagement office, without transferring financial risk. The buoyanteconomic climate also saw the straining of two-stage negotiatedappointments and the closing of deals under PFI arrangements.Generally, history has seen a shift towards the role of managementdistinct from design and the client role.Procurement is now more complex with various procurement routesdepending on the client, the scale and the sector, the stage of maturityand their attitude to risk. We are now at a stage where learning hasdeveloped the industry choices and the appropriate risk model withclients in or out of the supply chain.of package procurement was maintained under a ceiling price. Also, aRelationships must now create value, improvement, alignment and theplethora of warranties and novation arrangements evolved to transfermost cost effective solution.the design risk whilst at the same time maintaining employer controlsof the design.Certainly frameworks are here to stay and meaningful relationshipsIn the early 1990s the construction industry suffered from a claimsfinancial reward linked to performance. Risk and margins may tightenculture and ultimately the government intervened with industrywith the credit crunch and clients will need to be properly advised byreports by Latham, Egan and ultimately legislation to controlconsultants conversant with the various methods to enable clients tocommercial behaviour.make informed choices.A modern form of procurement emerged with the industry movingThe take up within the construction industry has historically been metinto partnering and the new NEC suite which promoted active riskwith scepticism and reluctance to undertake change that breaks awaymanagement and better relationships.from well-established work practices and procedures representativeOpportunity-based framework agreements were also created tofacilitate serial procurement with the same suppliers. At the sametime design and build moved into a new generation responding tofiscal constraints and government measures with the PFI procurementwill start to build more connectivity around workload and capacity, andof lowest price and an adversarial approach to relationships. Honesty,openness and trust are relational attributes that represent a culturalchange in the industry but can only be achieved through a programmeof collaborative working.bringing about consortia and JV vehicles responsible for build and44CollaborativeProcurement.indd 414/2/10 16:20:06

However, since the publication of Sir Michael Latham’s reportFor those clients and members of the supply chain that have alreadyConstructing The Team (1994) and the subsequent Rethinkingmade significant progress towards the Rethinking Construction targets,Construction report from Sir John Egan (1998) there has beenthey are now looking for new means by which to achieve efficienciesan ever-increasing move towards closer working relationships withthat can be delivered through the process of Collaborative Procurement.the adoption of integrated teamworking, partnering and associatedproactive management practices that create sustainable relationships,EVOLUTION OF PROCUREMENTmanage risk, eliminate duplication, stimulate continuous improvementThe chart below provides a simple overview on how procurement ofand innovation that ultimately deliver cost and efficiency benefits.construction contracts has evolved over the course of the last threedecades, representing a gradual move towards more collaborativeways of working.Supply ChainThe futureClients and the Supply Chain2000sAlliance and Multi Party PFICollaborative ive Procurement1970sPartnering andDesign actionalAdversarialIntegrationRelational and .indd 514/2/10 16:20:06

3. Definition ofCollaborativeProcurementFrameworksThe term ‘Collaborative Procurement’ can mean something verydifferent to both individuals and organisations depending onFramework arrangements are now widely operated within theexperiences and knowledge gained.public sector with variable levels of success.From our own research it is considered that confusion exists betweenBenefits of a Frameworkthe terms ‘Collaborative Working’ and ‘Collaborative Procurement’, Frameworks establish longer term working arrangementsbetween clients and contractors and/or consultants with the Given that this guidance is seeking to be applicable to all marketGreater levels of investment from contractors due to potentiallysectors, plus all clients (buy side) and members of the supply chainincreased workload within defined work areas and/or locations.(sell side) we have adopted a definition that can be applied to all,Greater level of involvement of the supply chain bringingbased upon the following principles:Improvements in cost, time and innovation.Difficulties or disadvantages of Frameworks Requires a greater level of staff input and management of theframework if the benefits are to be realised. Can only operate for 4 years under the EU regulations forpublic sector contracts, which restricts potential to realise objectives and benefits.potential to improve value for money through lessons learntbenefits to the design and delivery processes. which do have different characteristics, but can deliver similarCollaborative ProcurementTwo or more organisations (buy side or sell side) that agree to worktogether having identified the benefits that can be achieved by aligningtheir purchasing power and resources to deliver financial savings,efficiencies and effectiveness without any detriment to the project(s)and/or service objectives.ongoing continuous improvement.It is the best use of procurement expertise and resources thatContractors do not achieve the certainty in turnovereliminates duplicated effort. It should also lead to a collaborativeanticipated and lose interest.working environment which brings about additional benefits notCan exclude local SME businesses that utilise local resourcesdirectly related to the procurement benefits.What next?The Collaborative Procurement of FrameworksCollaborative WorkingTwo or more organisations that work together in a collaborative teambased environment to deliver contract or service objectives efficientlyThe potential exists for the establishment of Collaborativeand effectively that demonstrate value for money. This is reflective ofProcurement of frameworks by local clients that will allow for:the ‘partnering’ culture and associated processes that are now being Work programmes to be aggregated that would give thewidely adopted throughout the industry. Collaborative Procurement cangreater certainty of work that contractors or consultants seekbe, and in many instances is, undertaken as part of a either new orexisting collaborative relationships. Development of common standards Elimination of duplicated processesWe therefore provide below a generic definition that captures the One procurement teamessence of the current markets as they exist: Reduced shared tender costs“Collaborative Procurement is an effective way for more than oneclient, contractor, consultant or supplier to join together to procureworks, services, materials or goods, share expertise, promote efficiencyand deliver value for money savings in the delivery of a project (orseries of projects) or service objectives.”66CollaborativeProcurement.indd 614/2/10 16:20:06

The Collaborative Procurement marketsTo apply such a definition across the construction industry as a wholerequires consideration to be given to the different market sectors.2. Client and Supply Chain Collaboration (Buy and Sellside)This market is normally driven by the client with the objective ofmaximising savings and/or discounts achievable from volume buying,Essentially the construction industry has three potential marketforward commitment of works, or framework arrangements that havesectors where the drivers for Collaborative Procurement have distinctthe intent to allocate works, services or materials purchase.relationships and objectives, the market sectors are:This may occur between:1. Client Collaboration (Buy Side)Where two or more clients decide that benefits can be achieved byaligning their purchasing power and resources to deliver financialsavings, efficiencies and effectiveness without any detriment to thecontract or service objectives.Where the client organisation is of a substantial size and has verydifferent operating units, divisions, departments or subsidiaryorganisations, the first level of ‘client collaboration’ may well becollaboration across the wider organisational group where nocentralised procurement group exists. It is not uncommon for localbudget holders to protect their own perceived purchasing powerwhen in reality real financial efficiencies and improvements could beachieved by a more ‘joined-up’ approach being adopted internally. Client and main contractors Client and specialist contractors Client and consultants Client and suppliers3. Supply Chain Collaboration (Sell side)This market has started to evolve over the last few years as contractors,specialist and suppliers awaken to the reality that by working togetherbetter contract solutions can be offered to clients with the achievementof improved value for money. To an extent a number of thesearrangements have existed in the past where organisations have actedas consortia to provide a ‘total service’ to a client where no singleorganisation met the tender requirements.Collaborative Procurement is a market opportunity for the supply sideto join together to reduce costs and offer improved value for money toThis market is already well established across the country with publicclients (the buy side), and with these objectives in mind the ‘sell side’sector clients for the purchase of general supplies of consumablecan in fact become the ‘buy side’.products and general goods. This has been driven by the Office ofGovernment Commerce (OGC) which was established in 2000and up to the end of September 2006 had assisted governmentdepartments in achieving 13.3bn of annual efficiency gains, of which 5.5bn was attributed to procurement (See HM Treasury “TransformingGovernment Procurement” Report).Where a member, or members, of the supply side enter intoframework arrangements or forward purchase agreements with thebuy side then consideration can be given to developing strategiccollaborative relationships with other supply chain members with aview to improving their own collective purchasing power that couldcontribute to the overall value for money offering to the buy side andFurther details on the OGC’s procurement guidance can be found at:also to security of future df.Collaborative arrangements may occur between:Other examples of client collaboration are included within the case studieslater in this document. Contractor and contractor Contractor and specialist contractor Contractor and suppliers Contractor and consultants Consultants and consultants Specialist contractor and specialist contractor Specialist contractor and supplier Supplier and supplier (to purchase raw materials or manufactured goods)77CollaborativeProcurement.indd 714/2/10 16:20:06

The Three Levels of CollaborationExamplesWhat is it?Basic principlesA structured management approach to facilitate collaborative Mutual objectivesteamworking and improved stakeholder involvement Openness and honesty leading to trustPartneringTeam based working Problem resolution Risk and value managementLevel 1 Collaboration Better allocation of risk Improved certainty of time and cost Involvement of supply chain Zero defects Change of culture – no blameFrameworksStrategic relationshipsLonger term bespoke strategic contract to provide for allocationto one or more contractors, consultants or suppliers.ConsortiaCollaboration of supplyStrategic agreement between organisations to tender for andchain organisationsdeliver works and/or services; supply of materials Organisations can make single offering toclients for contract or project delivery Single point or joint responsibility88CollaborativeProcurement.indd 814/2/10 16:20:07

ExamplesWhat is it?Basic principlesStrategic PartneringCombination of the Level 1 collaboration ofAs level 1 Partnering plus:frameworks and partnering Creation of sustainable relationships and change ofculture Adoption of open book approach to costs. Introduction of schemes of incentivisation Pain/gain share schemeStrategic Partnering/ AlliancingPartnering as Level 1 but reflects longer term clientplus single party relationships Shared objectives Increased commitment from client stakeholders Shared risks and rewards Co-locationLevel 2 Collaboration Open-bookOutsourcing of operations and/or services to thirdparty organisation, mainly applicable to public sectororganisationsFramework style relationships between contractorsand specialists Long term performance driven contracts Focus on improved service delivery Arrangement typically led by the contractor to:: Reduce supply chain tendering process and costs Development of longer term relationships Development of pre-agreed costs and pricing schedules Offer clients an established integrated supply chain Improve design process Improve lead in times Secures availability of resources Improve certainty of performance, time and cost Reduce supply chain risks99CollaborativeProcurement.indd 914/2/10 16:20:07

ExamplesWhat is it?Basic principlesCollaborative ClientProcurementClients working collaboratively to procure works, Maximisation of value for money through collectiveservices, materials or goods.buying power to secure lowest and/or consistentpurchase costs Shared knowledge, expertise and experiences Improved certainty of delivery to time and cost Adoption of common values provides for improvedstandardisation and quality control Stimulus for supply chain investment in process andproduct improvement Improved supplier warranties Promotes development of best practice and improvedprocess management Better match to market capacity Ability to influence the market to develop their capacityto meet the known demandLevel 3 Collaboration Existing examples demonstrate significant procurementefficiencies and cashable financial savingsClient and SupplyChain CollaborationOrganisations working collaboratively to: Adoption of ‘Partnering’ principles Create sustainable added value relationships Development of a culture of ‘right first time’ Client/contractor Supply goods or professional services Agreed allocation of risks Client/consultant Design, manufacture and install specialist works Improved design process Avoidance of a blame culture Reduction/elimination of defects Pooling of resources during peak times of demand Programme supplier capacity Elimination of financial disputes Joint training initiatives Share health and safety best practice Benchmarking performance Attractive to clients Improves industry image Client/specialist Client/supplier1010CollaborativeProcurement.indd 1014/2/10 16:20:07

ExamplesWhat is it?Basic principlesPurchasingconsortiaBuying Clubs Maximisation of value for moneythrough collective buying power tosecure lowest and/or consistentpurchase costs Shared knowledge, expertise andexperiences Improved certainty of delivery to timeand costLevel 3 Collaboration Adoption of common values providesfor improved standardisation and qualitycontrol Stimulus for supply chain investment inprocess and product improvement Improved supplier warranties Promotes development of best practiceand improved process management Better match to market capacity Ability to influence the market todevelop their capacity to meet theknown demand Existing examples demonstratesignificant procurement efficiencies andcashable financial savings1111CollaborativeProcurement.indd 1114/2/10 16:20:07

Quotations from Government and Clientson CollaborationWhat the OGC say (1):Collaborative Procurement – the collective purchase by severalDepartments or organisations of commonly used goods and services– is one of the most dynamic means by which we can free up publicsector funds.Transforming Government Procurement 2007What the OGC say (2):All of us in the public sector face the challenge of making scarceresources go further by achieving efficiency savings. With ambitioustargets of 21.5billion annual savings by 2008, including over 6.5 billion from local government, there is no doubt that thechallenge is tough. For those of us involved in procurement, whichis expected to make the single largest contribution to efficiencysavings, the challenge is even more urgent.The first step in meeting these challenges is collaboration. Weneed to work together to secure better deals, by aggregatingdemand where appropriate and competing more effectively in themarketplace.What the ODPM had to say:The strategic objective of collaboration is to obtain better value bybringing councils and other public bodies together at local, regionaland national levels to combine their buying power and createshared services.ODPM 2003 page 331212CollaborativeProcurement.indd 1214/2/10 16:20:07

4.Benefits of Collaborative ProcurementWhy collaborate?BenefitsCollaborative Procurement is an opportunity to work differently. It isThe range or extent of benefits to be realised by any organisationabout parties attaining success through coming together to procureundertaking a programme of Collaborative Procurement will dependworks, services, materials or goods and through shared expertiseon whether the process is being undertaken by a client or part of theachieving win-win relationships.supply chain.No single client has sufficient sustained workload to make changeThe following sections indicate a sample range of benefits that canhappen on a widescale or national basis. Collaborative Procurementbe realised and enables the reader to make their own assessmentcan deliver efficiencies, improved working practices and real savingsas to the benefits it is seeking to achieve by embarking on a path offor both clients and the supply chain. It is the opportunity for multipleCollaborative Procurement.clients to procure a supply chain under one strategic umbrella.The tables also allow organisations to gain a perspective on theProcuring collaboratively means organisations will need a differentpotential benefits to be achieved by other organisations that are beingmodel for working together. The new model will bring about realconsidered to work with collaboratively.benefits around People, Process, Product and Price through reviewingwho does what; how the process is delivered; what is it that is beingPeoplebought or sold and to what quality and standard; what is the price to Collaboration encourages the establishment and development ofhigh-quality supply chains.buy or sell? All team members are encouraged to express their views up frontand to contribute their core skills. In this way, through brainstormingsessions and open discussions, creative solutions can come to lightearly in the relationships. Working with the same team helps to further develop relationships,and as each party becomes more comfortable with each other, theyproduce better overall results. If the collaborators stay together on aPeople:Roles andResponsibilitiesProcess:How wedeliverPrice:That wepay or selllong term basis, the process becomes more familiar, all parties knowwhat to expect, and both the process and the end results can becontinuously improved.Product:What webuy or offerCollaborative Procurement1313CollaborativeProcurement.indd 1314/2/10 16:20:07

Private sector clientsMain contractorsSpecialist contractorsConsultantsSuppliers444444Accelerated learning444444Greater ‘team’ satisfaction444444Improved project team relationships444444Development of trust444444Creation of sustainable relationships444444CE KPIsPublic sector clientsShared knowledge and experienceBenefitsProcess Collaboration provides a more integrated approach to delivering procurement solutions Collaborative Procurement encourages the sharing of risks and rewards. It also promotes the adoption of the most efficient procedures and processes. Considerable emphasis is placed on the elimination of duplication and waste, plus continuous improvement and benchmarking that when combinedPrivate sector clientsMain contractorsSpecialist contractorsConsultantsSuppliersImproved operational efficiencies444444Adoption of best practice444444Integrated supply chain444444444BenefitsImproved design processesReduction in project changes44444Economies of scale – reduced repetitive processes44444Shorter time frames44CE KPI’sPublic sector clientsdeliver ways of promoting long term performance improvement and improved value for money.4w1414CollaborativeProcurement.indd 1414/2/10 16:20:07

Product Collaborative Procurement by members of the supply chain is the one that can delivery significant benefits to the ‘Product’ and the offering to clients. Collaboration encourages innovation and value engineering solutions; hence the team is more likely to refrain from incorporating design items that donot add value to the project.Improved investment opportunity4Improved client satisfaction444444Improved stronger bids – mature supply chain44Greater interest in innovative solutions444444Improved buildability44Improved certainty of future workloadCertainty of future supply for specialist goods or materials44Improved development opportunity44Continuous improvement from lessons learnt44Improved quality standards44Improved reputationCE KPIsSuppliersConsultantsSpecialist contractorsMain contractorsBenefitsPrivate sector clientsStronger bids will result with improved buildability, cost savings and guarantees on deliveryPublic sector clients 4444444444Price Price will always be the key driver for Collaborative Procurement for clients due to the commercial approach the supply chain will adopt to securingincreased volumes of works, forward commitment and improved levels of standardisation.1515CollaborativeProcurement.indd 1514/2/10 16:20:07

Main contractorsSpecialist contractorsConsultantsSuppliers444444Improved profitabilityVolume discounts (greater buying power)44Reduced procurement costs44Reduction in or elimination of disputes and claims44Improved value for money44Improved whole life costs44Reduction in risks to budget (underspend or overspend)444444444CE KPIsPrivate sector clientsLower design and build costsPublic sector clientsBenefits4Reduced bid costs4BENCHMARKINGCollaboration at a procurement level will allow comparative benchmarkingFor the supply chain Collaborative Procurement will allow benchmarking forthat is otherwise difficult to assess both for clients and members of theper

adoption of best practice that will deliver the targets. Current guidance from the OGC and other government agencies actively promotes clients and the industry in general to take up the challenge of Collaborative Procurement to realise the proven benefits that exist where clients and supply

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