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Prime numbers

In April the MoD will introduce a new construction procurement strategy, that could signpost changes for the wider industry.

Partnering arrangements between clients and their suppliers have so far been limited to the private sector, where it has been energetically promoted by the likes of BAA and more recently Railtrack.

Now it looks as though the public sector is ready to jump on the bandwagon, with the Ministry of Defence leading the way. In April the MoD plans to launch a new construction procurement strategy known as prime contracting.

A nucleus of the MoD and its chosen contractor will form a ring of strategic partners - specialist contractors and suppliers - each with a role somewhere in the life cycle of the project. Strategic partners will in turn be allied to other groups of

subcontractors and suppliers.

Choosing a prime contractor is an exhaustive process. Bidders are invited to work up detailed proposals with their supply teams. The choice is largely made on the basis of what each team can bring to the table.

Working relationships are founded on close bonds and communication. The system is designed to bring a huge amount of knowledge to bear on developing the project brief, evolving detailed solutions at its inception. It is a bit like partnering, but the range of participants is simultaneously more diverse and integrated.

As a prelude to the launch of prime contracting in the spring, the MoD is running a pilot project, Building Down Barriers, with contractors Amec and Laing. Amec has a £15M recreational and training centre at Aldershot, and Laing a slightly smaller scheme at Wattisham. Both are expected to start on site in April.

Work on the Aldershot scheme has so far focused on 'conceptual engineering and front-end studies,' says Amec director Malcolm Eckersall. The aim is to iron out foreseeable problems at the drawing board stage, to avoid last minute design changes during construction. This should mean that 'the difficult parts of the project are over by the time we get to site,' says Eckersall.

MoD technical standards director Clive Cain expects Building Down Barriers to show cost savings for client and contractors alike.

Defence minister John Spellar believes 30% savings can be made on the £1.7bn spent annually by the MoD on estates projects. Major Contractors Group director Jenny Price says as one of construction's biggest clients the MoD's pursuit of more efficient procurement is a 'real endorsement' of efforts to make the industry more efficient.

Building Down Barriers was born out of the MoD's 1997 Strategic Defence Review. For the last two years, under its Smart Procurement Initiative, the MoD has been buying weapons hardware developed in close alliance with its principal suppliers and manufacturers. According to the Strategic Defence Review, the SPI 'acknowledges procurement is a corporate process involving multiple stake holders, including industry'.

Involving the supply chain in development of project and strategic briefs, means that value management and value engineering, wholelife costing, risk analysis and management is seen as equally useful in procuring barracks as it is in ordering bombs.

The nature of much weapons procurement means manufacturers and suppliers are specialist: smart procurement emphasises repeat business as a means of ensuring quality, minimising risk, and bringing down costs. A relationship in which there is mutual knowledge and trust helps communication. When manufacturers can be assured that work is not one-off, efficiency is improved right along the supply chain as processes are refined and standardised.

In the construction sector too, prime contracting is likely to favour specialists rather than general contractors. Amec assistant managing director Simon Flint anticipates that 'clients will start looking for differential advantage,' attained by the contractor through a process of continuous improvement.

Contractors will probably focus on maximising productivity by specialising in particular types of work, Flint says.

As the client becomes increasingly used to letting jobs under prime contracting, Cain suggests work will be split increasingly into niche areas.

This scenario heralds changes in the way contractors operate. Laing external affairs director Geoffrey Wort believes prime contracting and niche work could see the construction industry re-embrace direct labour.

'Once you've trained people up you want to keep them. That applies from site labour up to managers and company directors,' he says.

As contractors specialise, bidders competent to undertake particular types of work will become fewer. As a result, Eckersall thinks that in the near future a client like the MoD may deal with as few as two tried and tested prime contractors. 'They will be given a very specific problem which is worked out in detail by each contractor,' he says.

Amec and Laing's experience of Building Down Barriers has led them to expect that contractors will have to spend much more on tendering because they are expected to pull together detailed proposals with their suppliers. Evidence from weapons procurement suggests that in future the MoD may recognise this and offer to repay bidding costs, justifying this on the grounds that it is likely to restrict the numbers of bidders for prime contracting projects.

On the assumption that big clients will invite bids from the same contractors at future dates, it is in their own interest to keep losers and winners on side.

'Nobody will be exploited in the way that the construction industry is exploited at the moment,' says Eckersall. 'The client won't waste the contractor's time and the contractors won't waste the client's time.'

The MoD, Amec and Laing are set to share the lessons learned from Building Down Barriers with the publication of a

'tool-kit' - recommendations and project details relating to the Aldershot and Wattisham projects - late this year. Flint says Amec is not concerned that the publication will 'give away the crown jewels' as niching will increasingly take companies out of

direct competition with one another.

In the meantime, neither Amec or Laing is automatically assuming that their participation in Building Down Barriers will set them up as future MoD prime contractors. Nevertheless both believe the working methods they learn will give them a competitive advantage.

The MoD is cautious about the potential for Building Down Barriers. MoD technical standards director Clive Cain says the Building Down Barriers experience has shown 'the introduction of supply chain management is going to be a more difficult struggle than we anticipated. In other industries long term relationships are key but in construction relationships are short term.

'Prime contractors should be able to put in place relationships with two to three manufacturers and establish where things go wrong. But what we find with almost every contractor is they operate on a project by project basis,' Cain observes.

With long term relationships contractors can actively inform the design process. But this in turn yields other problems. Consultants now fear that the close client/contractor relationships could leave them isolated.

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