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Client guide BAA

Why read this

Framework contracts being rebid and doubled in length

£400M construction work on offer per year

Annual checks on contractors' performance

At a glance

Privatised from the old British Airports Authority a decade ago, BAA's role is to manage seven UK airports: Gatwick, Heathrow, Stansted, Southampton, Glasgow, Edinburgh and Aberdeen. It also has interests in several overseas airports including Naples, Melbourne, Mauritius and Pittsburgh.

With its airports described unofficially as vast shopping centres with aircraft attached, BAA claims to be the world's largest duty free retailer. Last year's £485M profit, on turnover of £2bn, was won equally through airport operations and retail income.

Contractors and consultants seeking work from one of the UK's largest private sector clients, BAA, face unprecedented opportunities over the next 18 months as the airport operator renegotiates 42 construction framework contracts. On offer is around £400M worth of annual work awarded this time for double the previous five year term.

And if Heathrow's Terminal Five finally gets approval next spring, as BAA hopes, the following couple of years' workload could be boosted by a further £1bn.

But there is a dark spot on this silver lining: annual MOT tests for the winners. Instead of offering framework contractors unconditional guaranteed work continuity for the full contract term - as in the first round of contracts awarded in the mid 1990s - BAA will this time conduct a rigorous annual performance check on each one.

Contractors face analysis based on a check list ranging from safety and sustainability records to reliability and value engineering. Each audit will be benchmarked back to an agreed standard set when the new framework deal is offered.

Not surprisingly, the most important check will be on costs.

Every year BAA will ask competitors to price key framework bill items. And if the framework contractors or their suppliers do not at least match these sample prices, BAA could terminate the deal.

'Framework contracts are excellent in providing teamwork and continuity, but their downside is that we do not normally revisit the marketplace to check prices, ' explains BAA group supply chain director Tony Douglas.

'By retesting costs every year we can ensure we are still getting best value and, if a contractor can no longer provide that, it is quite possible the company will be replaced.'

BAA oozes all the current construction buzzwords: partnering, frameworks, seamless construction, best practice. With Government appointed construction reformer Sir John Egan as its chief executive until last autumn, the company had little choice but to set itself up as the model client spearheading initiatives emerging from the Latham, Egan and, more latterly, M4I doctrines.

It was the ideal candidate for construction rationalisation.

Overseeing seven of the country's largest airports, around a quarter of BAA's £2bn annual turnover is capital works or maintenance.

The company's operations are vast. Heathrow alone caters annually for 60M passengers and, nationwide, BAA spends £1M a year just on toilet rolls.

Until framework deals arrived, most construction contracts were one-off, bespoke tasks with different designers, contractors and suppliers for every operation. Waste, confrontation, interface problems, and uncertainty over outturn costs and times - British construction's standard cocktail - were commonplace.

Five years ago, amid considerable scepticism from the industry, it all changed. Now 97 framework contracts cover the vast amount of the annual £1bn workload involving every discipline from grass cutting and toilet cleaning to water supply and electrical distribution.

Major construction operations - such as fitout, pavement, infrastructure, shell and core - are grouped into dedicated delivery teams covering all airports. They encompass several framework contracts in each group including consultants, architects, contractors and suppliers.

Group construction director Andrew Wolstenholme calls them 'virtual design and build companies', with each taking on total responsibility for their chosen area.

Standardisation, seamless interfaces, value engineering and teamwork are the new rulers, he says. Much of the restyled fitout work is now the production of preassembled, standardised components rather than one-off design and construction.

BAA's regular supplier list has been slashed from 25,000 just 18 months ago to a predicted 1,000 by December.

A single BAA project team covers all the operations at each airport to smooth the interfaces, and one overall commercial team monitors sample framework prices rather than checking all construction costs.

Results look impressive. The pavement team, with an annual turnover of £55M, has slashed costs by 25% over four years. The shell and core team, formed just a year ago, has already standardised components sufficiently to cut supply bills by 15%.

Procurement routes

Over 85% of the annual £400M construction turnover is offered through 42 framework contracts. Major work areas have been packaged into four delivery groups covering pavement and infrastructure works, fitout, shell and core and baggage systems.

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