13 Sep 2010
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Andrew Smith: Going it alone cuts costs

Andrew Smith, Hampshire County Council

The era of national procurement quangoes is ending — local authorities are doing it for themselves. And the contractors that help could be in line for a new boom

At Hampshire County Council, we have a long tradition for architecture. But about eight years ago, we looked at what the design teams would take on in the future, and identified procurement improvement as a key strategy. We recruited staff from BAA and other private sector firms, and developed frameworks for different sizes of project. On a capital programme of more than £200m a year, we looked for better procurement and management outcomes, and soon achieved real cost savings.

Around three years ago, Hampshire was asked to lead Improvement and Efficiency South East (IESE), a regional body of about 50 local authorities. Having delivered our own award-winning HQ through the process, we were confident we could do it for other authorities.

We put the IESE framework contractors into workshops and forums, looked at their capacity, and got them best fitted with the workload coming from the different authorities. A small local authority building two or three projects a year probably doesn’t have much professional procurement capacity, while a big county council does. What we’re trying to do under IESE is share it.

IESE then become the model for Regional Improvement and Efficiency Partnerships (RIEPs), which have helped develop regional capacity — in many areas of the country, local government is now at the forefront of procurement in construction. We were then asked to co-ordinate this expertise on a national scale through the National Improvement and Efficiency Partnership for Construction and the Built Environment (NIEP).

The current government is also endorsing NIEP, giving it support in continuing to improve efficiency, and to look at where local authorities can share leadership and professional expertise.

By a strange set of circumstances we’ve got to a point where the local government sector wants us to be, and where the coalition government wants us to be.

Significantly, the NIEP built 10 secondary schools for BSF — £350m in capital value under one procurement model and one supply chain model. Benchmarked against other BSF schools and the National Tender Indexes, and independent cost verification by Davis Langdon, we achieved 8-10% cost reduction and sometimes as much as 15%.

That led to a memorandum of understanding with Partnerships for Schools to deliver a local government-led procurement model for new schools.
We’re now going to submit that work directly to the Sebastian James review.

Instead of involving a private sector Local Education Partnership, our approach left the risk with the local authorities. Some, such as my own, are comfortable carrying that risk. We’re credit-worthy blue chip organisations, so why should we go to the market and pay a 12-13% premium for someone else to carry the risk?

Overall, the NIEP can demonstrate substantial gains from smarter procurement – perhaps 10-12%. But beyond that, we’re now looking at the opportunities of linking procurement to asset reduction programmes. When you challenge the way buildings are utilised, there is significant scope to reduce the scale of the public sector estate.

The value of buildings held by local authorities and the public sector is estimated at about £400bn, so if you start to get 5, 10 or even 15% reductions in that, you’re talking big numbers. Asset reduction to transform local services could mean reducing the volume of buildings, transforming their use, getting a higher value use, or simply demolishing them.

So the challenge for contractors is to look beyond construction alone. Can they support local authorities in asset rationalisation? Jointly fund new developments based on the sale of redundant assets? It requires leadership from central and local government, but it’s also a huge challenge for the industry. Yes, we’ve come to the end of a building boom, but perhaps we’re now into a rationalisation boom.

Andrew Smith is chief executive of Hampshire County Council and chair of the National Improvement and Efficiency Partnership for Construction and the Built Environment