The Civil Engineering Contractors Association (CECA) has accepted that government efforts to reform the construction industry are yielding cost savings, but warns that the hardest part lies ahead.
The Cabinet Office report Government Construction Strategy: One Year On and Action Plan Update, published this week, claims that cost reductions of £72M on planned expenditure of £476M have been achieved this year, proving that industry is “en route” to the overarching aim of reducing the cost of government construction projects by 15%-20% by 2015.
Yet detailed examination shows that actions taken to make the savings equate to an overall saving on full project costs of £279M on an expenditure of around £2.6bn, a saving of just 10%. The Highways Agency is claiming to be one of the government departments driving the greatest savings, having cut £81M off the anticipated target cost of the three schemes it has had approved for construction this year. Yet it is impossible to say at this stage whether the schemes will actually be delivered for that price.
CECA said that the report showed that government efforts were yielding results, but warned that much of the hard work to implement the government’s reforms to the industry lies ahead.
“CECA recognises the government is making progress on its work to unlock innovation and growth, by using its purchasing power to drive industry change, implement procurement reform, and achieve efficiency savings,” said CECA director of external affairs Alasdair Reisner.
“However, it must be recognised that the industry faces a challenging time ahead, with uncertainty stemming from worsening market conditions, as the UK economy is buffeted by the headwinds of the Eurozone crisis and an increasingly uncertain global economic outlook,” he warned. “The industry will be better positioned to respond to these challenging conditions if the reforms outlined in the Government Construction Strategy are delivered. We hope that the government will continue to support these reforms, delivering benefits for industry and the taxpayer alike.”
WSP managing director Paul Dollin also cautioned that savings to date may have been delivered more by squeezing margins than by true reforms.
“The UK construction industry can deliver government projects more efficiently, effectively and economically - one only needs to draw comparisons from organisations that successfully work on both public and private sector construction projects,” said Dollin. “Successfully implemented, I have no doubt the Government Construction Strategy will achieve the desired outcomes however I am concerned that many of the achievements to date have relied on the highly competitive nature of today’s industry, which will not result in long term sustainable cost savings.”
The Cabinet Office report claims that there has “been excellent” progress against major milestones in its strategy, set out last year.
In particular it highlights that:
- Industry has “engaged energetically” with the reform programme, with around 120 private sector representatives playing an active role in its development and governance;
- Cost benchmarking data has been published by the seven main purchasing departments, providing a clear baseline for targeted reductions;
- Cost reduction trajectories have been published by the seven departments, demonstrating that the proposed 15%-20% cost reductions are achievable;
- Three iterations of the construction and infrastructure pipeline have been published, providing industry with visibility over the forward work programme;
- The 2011/12 target for the value of contracts making use of Project Bank Accounts has been exceeded by 100%, providing improved payment speed and security to SMEs and others in the supply chain, and delivering expected savings of around 1% of project costs;
- The commitment to embrace Building Information Modelling (BIM) in Government projects over a five-year time frame is positioning the UK to become a world leader in the take-up of BIM and has encouraged investment in the industry to support the revolutionary change that the use of BIM represents;
- Trial projects have been established to explore how Government can improve its performance as a client of the construction industry