We owe it to the taxpayer to procure public sector projects more efficiently.
Celebrating the achievements of projects shortlisted for the Prime Minister’s Better Public Building Award, gives us a good opportunity to reflect on the 18 months that have passed since we set out our cross-government strategy for public sector construction.
It’s an ambitious strategy that aims to foster growth in the sector by working with industry and becoming more innovative and efficient. Every efficiency made within the public sector supports growth. Every pound we save frees up more for investment.
We want to make public sector construction up to 20% more efficient by 2015, and we can already see signs that we are moving in the right direction.
So what are the headlines? Government departments have achieved savings of £279M. Those savings can then be reinvested in other priority projects. And as new ways of innovative working become more widespread and further savings are achieved, even more projects can start, giving the whole industry a boost.
We have made a great start, but, as I say - the plan is ambitious. There remains much more to do. And we won’t be able to do it without industry support.
Obviously, we want to make sure that government is getting the best price on its construction contracts by stamping out unnecessary and inflated price variation. If we don’t know what a project costs, or should cost, how can we manage budgets effectively and drive out inefficiencies? We have a responsibility to the taxpayer to ensure we are doing this.
In February 2012, we published for the first time what the public sector pays on average for projects to provide departments with clear costs to set budgets against and ensure they are getting the best value for money for the taxpayer. These benchmarks help drive down costs and encourage competition by giving industry a clear challenge to beat. And the good news is, the industry has risen to that challenge and found a way to partner with the government in a more innovative and efficient way.
The Education Funding Agency has already used the benchmark to make savings of 40% - it has reduced the average cost of a new secondary school from £2,450/m2 to £1,460/m2.
We want to make it easier for industry to do business with government. For years, government didn’t bother to engage properly with potential suppliers. Reforming procurement will make it easier for suppliers of all sizes, including SMEs, to compete. The industry’s standardised prequalification questionnaire is now mandatory in central government.
Working with industry has been critical to delivering construction projects that are innovative, on time, eliminate waste and reduce costs even further. We couldn’t do it without the ongoing dialogue we have with companies in this sector.
We’ve listened to industry which proposed three new models of procurement and these are now at various stages of development and use within government departments and a number of wider public sector organisations.
At a very early stage is the Defence Infrastructure Organisation which is trialling the integrated project insurance scheme for a new build at RM Lympstone, Devon. This is a new form of insurance that covers against project-wide risk for all those involved and any unforeseen extra costs up to an agreed cap.
In other areas, projects are really making a difference to people. The Department for Communities and Local Government and the Homes and Communities Agency National Change Agent programme has achieved savings of 14% and created opportunities for over 500 apprenticeships.
There are even bigger prizes at stake here. The construction industry is a real driver for growth in our economy. It accounts for 7% of UK GDP and employs 2M people in 300,000 businesses - predominantly SMEs. We, the government, are the sector’s largest client.
So we’re looking to the future and how construction can help build the economy. We’re thinking about how we can set an international standard for government construction.
We’re being more up front about government’s buying needs by introducing pipelines of future opportunities so businesses of all sizes, including SMEs, have advance notice of potential work to help them plan and invest in their capabilities. It also means we can be smarter, spot trends quickly and identify skills gaps as we publish our procurement plans for the next five years.
The government construction and infrastructure pipeline was the first of these to go live in May 2012 and is now worth £40bn with over 1,200 projects. The next publication will be in April and, to ensure it is more useful to SME specialists in the supply chain, we are planning to increasingly include specific information of work packages in projects.
We know how important cashflow is to any business, particularly so in challenging times, and to smaller suppliers.
So government has led the way in introducing project bank accounts to provide security and speed of payment to tiers two and three of the supply chains. We’re on track to make sure that by the end of March 2013 more than £2bn of contracts awarded will use Project Bank Accounts.
The Highways Agency has certainly played its part by using them on all major contracts awarded since October 2011 except in exceptional cases.
We’re trailblazing UK-led digital technologies that strip out waste and unlock new, more efficient ways of collaborative working such as building information modelling (BIM). This shares 3D building plans with multiple contractors working on a building project. Problems can be ironed out in the design stage rather than on site or, worse still, after the asset has been built.
The UK is becoming a world leader and by 2016, all projects worth over £5M will have to use BIM. There’s a real opportunity for the UK both to attract skills and investment to a new digitally enabled construction sector as well as benefiting from the competitive edge that this capability offers to firms competing in a global marketplace.
So, this might be an ambitious and comprehensive strategy, but working together with industry we are right on track to deliver real benefits both to the public purse and to the construction industry as a whole. It’s a challenge, but Britain is in a global race and the old approach just won’t do.
- Francis Maude is the Cabinet Office minister and paymaster general.