10 Feb 2012
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Government names price for project types

Every pound of public money spent on construction will deliver up to 20 per cent more by 2015 because of its smarter approach to building public projects, Minister for the Cabinet Office, Francis Maude announced today.

The government claims to have already saved £188 million on construction contracts placed in the past 18 months, including 7% in the Departments of Education and Justice, and sets out how the Government will reduce these costs even further over the next three years. These reductions are part of the Government's ambitious five year construction strategy which will see the role out of BIM across public sector contracts and new procurement processes. Successfully delivering projects at 15 to 20 % less than the historic benchmark, while holding to its budget, will mean that the public sector will be building £1.2 - £1.6 billion worth more in projects by 2015 - equivalent to approximately 60 new secondary schools Maude claimed.

Government will provide a standard average cost for projects that the public sector will use to set budgets, making value for money a clear driver in launching projects, and challenging industry to "beat the benchmark". For example, it shows that in the period up to and including 2009/10, on average it cost:

£2350/m2 to build a new secondary school (including small extensions);

£9.6M/km to build each additional lane for trunk road (major 'A' road) improvements;

£2120/m2 to build a new primary care / community hospital

Minister for the Cabinet Office, Francis Maude, said: "Over the next few years taxpayers will get much more bang for their buck when it comes to construction. We will keep investing in the construction industry, which is vital for growth, and which sustains thousands of SMEs, but we want to stamp out wasteful variation in costs and help to create a stronger cost lead for the industry.

Chief Construction Adviser Paul Morrell said: " I believe we are seeing a fundamental shift in the way the Government relates to the construction industry: in short, getting a more intelligent answer by asking a more intelligent question.”

Details have also been released on seven construction projects to be used as test beds for three new procurement processes recommended by one of the construction board tasks groups. The procurement methods all involve early contractor involvement. They are:

Cost-lead procurement. In this process, client specifies what they want the building to achieve, and how much as a maximum they expect to pay for it, based on previous projects. Bidders are narrowed down based on capability and possibly cost with short list of two being expected to work up schemes for final selection on price design and capability. Successful bidder enters into a GMP contract. Expected to also include incentives for sharing savings.

Two-stage tendering. In the second route the client selects initially on capability and possibly fees; goes onto work up a design with the preferred bidder on an open book arrangement. The final price is agreed – again with pain/ gain share arrangements in place.

Integrated insurance. This recommended procurement route proceeds like the second one, but when the lump sum contract is agreed, clients and whole of the supply chain take out integrated project insurance which reduces costs rather than all parties having separate policies. The saving is then used to buy an additional policy against the scheme running over budget.

The next stage is to start trialling the three processes on government contracts – which it hopes to have under way by April. Meanwhile the Procurement Group is also investigating the best way of setting up frameworks, with a report on recommendations for the same time.

The Ministry of Defence will trial integrated project insurance on a £7.6m contract for training facilities at Lympstone Royal marine base.

The MoD will also set savings targets for its framework contractors with the threat that if they are not met work will be tendered outside the framework.

This cost led procurement approach will also be trailed on a new hangar project at RAF Waddingdon and the Environment Agency’s £2.4m Upper Mole flood alleviation scheme and £5m Rye harbour sea wall defence project secured by Jackson.

Two-stage open book procurement will also be rolled out through two Housing and Communities Agency procurement programmes.

Francis Maude, minister for the Cabinet Office, said: “These savings are not only significant but long overdue. The commitment to reduce the cost of construction by 20% is no small thing, but it will help the Government and the construction industry.

Meanwhile, David Pitchford, executive director of the Major Projects Authority, who is leading the creation of a £408bn portfolio of government projects, including construction, said that as little as 40-45% of schemes were currently being delivered “effectively”, Building reported.

Pitchford said: “The indicators that we have so far - and I stress this is a work in progress - [is] that less than half are being delivered effectively, on time, and to budget.

The admission came as the government announced the launch of a £6.7m tie up with Oxford University’s Said Business School to train senior civil servants to be more effective major project leaders.

Pitchford added: “I’m not great at maths but even I can work out that in a portfolio of £400bn if we can get seriously more efficient and elevate the 40-45% to 80-85%, then the gains for the tax payer are significant.”

Pitchford said he was unable to break down the figures, which include all major capital projects, from High Speed 2, to aircraft carriers and IT programmes, to say specifically how many construction projects were failing to deliver on time and to budget.

The Major Projects Authority was set up in February last year under the Efficiency and Reform Group at the Cabinet Office in order to save money on government capital projects. While the full list of projects covered by the Authority will not be published until its first annual review is made public in the summer, Pitchford said the Authority was now overseeing 206 projects with a whole-life cost of £408bn.

The government claims £147m has already been saved through the MPA’s.