31.10.2018

Inside the mind of a Board member: John Finlay

On Wednesday 24th October 2018, NWCH Board member, John Finlay was a guest lecturer speaking to Project Management and Quantity Surveying MSc students at the University of Salford about the NWCH and value in construction.

Prior to this, John was kind enough to give us his thoughts on the journey the NWCH has been on from it’s infancy, right through the present day to where he sees it heading.

Covering topics such as Contractor responsibilities, management fees, competitive and sustainable overheads and profits, and the evolution of the Frameworks, it makes for some compelling insight into one of the great advocates of collaborative Frameworks.

 

The evolution of the Frameworks

There is a high level split between North West Construction Hub (NWCH) frameworks and life before NWCH frameworks which were actually the Manchester City Council (MCC) frameworks. They were one Client frameworks and it was the great success of those which attracted the central government set up that asked MCC would they be prepared to set up something similar for the benefit of the North West region.

The MCC frameworks really sprung out of the Constructing Excellence agenda which came out in the  90’s and were influenced by the Latham/Egan report.

In procurement terms, this meant that across 4 or 5 years, we completely transformed how MCC procured construction works.

In setting the MCC frameworks up, we knew how much resource was required, i.e. how many contractors. This enabled us to set up frameworks where we could directly allocate projects to specific companies who worked closely with the Capital Programme team.  This could not be done on NWCH frameworks because we did not have visibility of other potential client users work programmes, and therefore there could not be any fair rational to directly allocate projects. This meant that the default project call-off procedure on NWCH was by a streamlined mini-competition that resulted in the selection of a single contractor who then worked with the client collaboratively under the second stage of the call-off.

Some examples of success:

Education Framework 1 – New build primary schools. 5 year period £60m – 3 contractors got £20m each

This was 7% below the cost average benchmarks and contained two award winning designs in the programme.

Building schools for the future – £500m – delivered at 10% below partnership for schools benchmarks – £50m saving – equated to 2 new 1500 place secondary schools free.

Small works – The department could only deliver 35 – 50 projects a year. They moved to direct allocation on the small works framework which was a £20m annual programme consisting of 350 -400 projects a year. The department m

They might have got each project slightly cheaper but it was more important to turn over the number, over projects still at a ‘value for money’ cost.

 

How has the NWCH evolved?

The first phrase that comes to mind is ‘organic benefit’.

The major change that has come about in NWCH has been the nature and culture of working relationships between ‘client side’ and ‘contractor side’. Traditional construction industry working culture was just that … two sides!

Things are done in NWCH collaboratively. More value and benefit is derived from collaboration, and that culture of collaboration begins to grow organically. People get used to working together this way, and improving things can now become a continuous flow.

For many people on the ‘client side’, seeing this new culture of working together was totally unacceptable. A client in a room with more than one contractor equalled ‘cartel’ … dodgy dealing!  However, many more client organisations now see the merits and benefits of collaboration through 2-stage partnering procurement (at least 101 who have used NWCH do!).

In NWCH, the activity of the Special Interest Groups (SIGs) gives further opportunity to collaborate between all of the framework constructor partners and their supply chains, ‘behind’ the delivery of the individual projects.

BIM? Supply Chain? Client engagement? Whatever it was, it was a culture change rather than working in silos. What amazed me as time went on was the benefits in areas that we were not even thinking about. The organic relationship changed it – more collaboration, more joined up thinking. Without being in an environment of collaboration this wouldn’t have happened. More recently where this is a big issue is the area of social value. You won’t get social value outcomes without collaboration between multiple organisations.

 

How has the management fee changed?

In principal it hasn’t changed at all but in matters of how we charge it. We had to fund the NWCH management team.

During the first frameworks, the fee was paid by the client – value ranged based on X£ project – some clients saw this as an additional fee, just because it was an additional cost line. What they were not appreciating was that for the payment of this fee they were getting a faster and more streamlined procurement process, which overall would be much cheaper in terms of procurement activity / costs.

We flipped how it’s charged from being a direct charge on the client, to being included in the overheads of the framework contractors – the contractor now pays NWCH the fee. It gets away from clients thinking it is another cost that if they didn’t use the frameworks, it would cost a lot more to go through a procurement process.

 

Why the contractors aren’t charged to be on the Frameworks

We have never charged contractors out of the frameworks.

They go through a procurement process, win a right to get onto the frameworks, and only pay fees as and when they get on to the frameworks.

The client picks the bill up at the end. However, indirectly the contractors are paying.

The cost of running the frameworks – what do we believe our income stream needs to be? We originally estimated what fee / income levels we would need to sustain the operation. It turned out to be a good guess and because of that we have stuck with that model. We’re not there to make a profit for profits sake, but we do need to cover our costs.

 

What are contractors asked to do in return?

Contractors are asked to evidence that they can work collaboratively, to have a relationship with the hub management where we as a collective can work better together.

It is pleasurable to work within this environment and people enjoy working life better because of it.

Only one pay master at the end of the day – the Client.

Any avoidable added cost is an overhead on construction. Allied to that is the current Get it Right Initiative which says that 21% of the turnover of the industry is spent correcting errors – massive indictment on the industry – equated to £22 billion in the year that data was produced – 2015.

The construction industry is getting it wrong somewhere – how do you fix it? Through collaboration.

Frameworks can only deliver what clients expect from it.

NWCH serves up to 200 public sector organisations, at the moment 101 have used it. Hub management can’t control the management and ethos of the clients nor can it control the consultant’s ethos. There is still much scope for positive development in collaborative working, in client and consultants organisations.

There are a lot more client side/ consultants who don’t believe collaboration works. It took myself a while to understand how to get value if you didn’t do lowest price tendering. Constructing Excellence had a massive impact on my thoughts and made me change how I looked at value in construction, and construction procurement processes.

 

Why do you believe that overhead & profit rates are competitive but sustainable?

In my experience, this is not always the case. There is still some game playing with overhead and profit bidding. Some contractors still bid a lot less than the reality.

Feedback shows that the true rate of overheads and profits (OH&P can’t be done for less than 6% or 7%. Contractors will attempt to ‘claw back’ the difference through various commercial management ploys, but the client still pays in the end!

Queried a few contractors when they submitted very low percentages e.g. 2% – one response was ‘cross subsidising’ from other projects / market areas.

 

What are your views on the future of NWCH?

The biggest blockers will be that more people need to understand collaborative ways of working. This is key.

Educational – some Clients don’t understand how collaboration can positively influence the industry and the value that they can get out of it. This is a real problem and needs addressing in some way.

Also, education in the value and benefits of collaboration needs to become something that we incorporate at entry level into the industry so that it becomes a culture all are accustomed to. Consultants need educating too.

Construction courses should have ‘value in construction’ incorporated into them so that learners can understand value. Which is not lowest cost/squeezing margins. They should understand better value.

Value should always be delivered because that whole basis of 2 stage enables things to be ironed out, de-risked, proposals made leaner.

The question is how much benefit you can get in that process, determined on how clued up the stakeholders are to get this value. If not opportunities for maximum value will not materialise

I would never go back to buying work that isn’t done through collaboration.

I believe at the moment, there is a massive opportunity to use the big crisis’ (Grenfell/Carillion) to use those as examples as to how NOT to buy work and what the underlying issues were which caused these catastrophes. We as an industry can go forward from this.

NWCH is not a recipe for success in itself – if you don’t have the right ingredients to make a cake you won’t get the right cake out of the oven.

Collaboration gives you the opportunity but the participants still need to put in the right ingredients, right formula to get the right outcome and that is where the NWCH is getting to, and will continue to get it right.

 

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