Framework agreements are widely used in the public sector as they offer a fast and cost effective method of procurement. Following on from its publication of "The Construction Playbook" in December 2020, the Cabinet Office commissioned a report into the use of construction frameworks in the public sector: "Constructing the Gold Standard: An Independent Review of Public Sector Construction Frameworks (the "Report").
The Report identifies that public sector frameworks have not always been utilised effectively or efficiently. However, it identifies frameworks as a 'powerful engine room' for implementing the Construction Playbook. It makes 24 recommendations, referred to as the 'Gold Standards', which the public sector should use to deliver the best practice set out in the Construction Playbook via construction frameworks.
In this article we provide our thoughts on some of the key issues to be considered in light of the Report's recommendations and their practical application.
From vision to reality: Tools of the trade
The Report is an excellent tool to help ensure public sector construction frameworks align with the requirements of the Construction Playbook. The Gold Standards identified by the Report can be used to 'test' whether a framework meets the Construction Playbook's 14 policies. As well as setting out the Gold Standards, the Report provides a framework review process, a checklist, a summary of terms for a Gold Standard framework contract, a supply chain collaboration process and case studies (Annexures 1 to 2). The Report's focus on enabling often resource constrained Authorities to implement the Construction Playbook is to be welcomed and valued.
Be prepared: What do you want from your framework?
What should public sector bodies be thinking about when looking to implement the Report's recommendations? The key strategic issues for consideration that can be drawn out from the Report include:
- Market appetite – what's the scope of the framework, what do you want to delivery through the framework? Is the proposed scope attractive to the market? How does the market feel about how intellectual property rights might be dealt with where emerging technologies and innovation are going to be a focus of the framework?
- Term of the call-off contract – what is the Authority's appetite for taking up the Report's recommendation for longer-term call-off arrangements and the potential use of direct awards as opposed to mini-competitions, given such approaches could deliver improved productivity and efficiency savings?
- Digital technology – in what way could the framework enable and facilitate modern methods of construction (MMC), offsite manufacturing (OSM) and digital in construction and how can building information modelling (BIM) be used to improve performance, safety, sustainability, and value for money over the whole life of a built asset? Answering these questions will require an understanding of industry technologies, the legal and commercial implications of data-sharing and the market's appetite to utilise new and novel approaches to construction procurement.
- Delivery models – what is/are the Authority's preferred delivery model or models and what is the criteria for determining which one will be used and how they will enable early supply chain involvement and collaboration?
- The Construction Playbook – how can the Authority ensure that at all times the policies set out in the Playbook are followed and the framework delivers the Playbook's policies and its strategic imperative to prioritise building safety requirements, social value, net zero and the 'Compact with Industry': long-term relationships, fair returns, equitable treatment of risk, rewards for faster, better and greener delivery and collaboration at all levels of the supply chain.
Authorities also need to reflect on whether it and the suppliers it needs to engage with have sufficient resource to give proper strategic thought to how a framework is to be used. The Gold Standards can only be met if adequate time and staffing is put into the upfront strategy work needed to evaluate the effectiveness of a framework in light of the Report's recommendations, as it is at the strategy stage when key procurement and delivery requirements need to be assessed.
Compact with industry: Equity and collaboration
A key feature of the 'The Compact with Industry' is "equitable treatment….and collaboration at all levels of the supply chain" and the Report identifies a number of ways the Compact can be worked into a framework, including:
- A balanced approach to evaluation of tenders that is more proportionate and consistent, with less focus on financial metrics and more on "qualitative criteria" linked to objectives and measures of success tied to all types of 'value', not least, social value.
- Standard forms of contract should be used that adopt terms and conditions that implement the Construction Playbook's policies. The rationale being that a standard form will improve transparency leading to mutual confidence between parties involved in a framework and avoid wasted cost and time required to create, understand, implement and negotiate a bespoke form of contract. To be effective, robust terms will need to be drafted that support the Playbook's policies, such as value improvement, the exchange of data between clients and suppliers, the joint management of risks and the development of a collaborative approach with supply chain members.
- Focus on outcomes with each outcome linked to a performance measure and incentivise innovation. One concern raised by suppliers is that the value to business of intellectual property rights is not always recognised within specifications. How intellectual property (IP) rights are to be managed throughout the life of the framework should be considered during the strategy stage, including how intellectual property rights (IPRs) are to be shared in a way that facilitates collaboration and innovation but taking account of their value to suppliers, with responsibilities in respect of IP clearly drafted in the contract.
- Best value is achieved when a supplier is not selected on basis of lowest price but on the delivery of best value. Pricing mechanisms need to create more transparency and more certainty and include a commitment on suppliers to pay their supply chain promptly. In short, contractual payment provisions need to be built around outcomes, create fair returns and payment expectations.
- Appropriate allocation of risk is key to the success of all projects and any framework, and the Report suggests "there is rarely justification" for changing the risk allocation already provided for in standard form contracts utilised in the UK. As flagged in the Report, a key concern will be levels of caps and insurance requirements which are often closely intertwined and which should be fully explored at the strategy stage.
- Financial standing of suppliers is key to framework success and is best assessed using standardised, tiered assessment systems such as PAS 91 or the Common Assessment Standard. The Report recommends using "shared and transparent systems" to deal with the risk of financial distress. This will rely on the parties being open and transparent about potentially highly sensitive commercial information, and collaborating with regards to potential solutions.
- Collaboration throughout the supply chain underpins the effective delivery of the Construction Playbook policies and the Gold Standards. The Report recognises that this requires the creation and implementation of "collaborative systems for managing framework relationships", which are then flowed-down to the supply chain relationships. The Report advocates joint decision making through the establishment of a 'Core Group', comprising of the framework provider, the client, manager and supplier.
The effectiveness of the Construction Playbook and the Report in achieving equity and collaboration is closely tied to whether the UK construction and engineering sector's traditional operating model is shaped in a way that allows suppliers the time and resource to enable it to take on the challenges of truly effective collaboration, or whether government investment is needed to help mitigate some of the risks involved for the industry in adopting procurement structures that are not aligned with the prevailing risk profile in the current UK construction & engineering market.
Also, Authorities need to consider if they are faced with any internal organisation/structural constraints that may hinder it from being able fully collaborate, taking into account the particular area of the public sector it works within, for example, are there any constraints on how it can share data? However, Authorities should also take time to test the veracity of any assumptions or concerns about such constraints by engaging with the case studies included in the Report.
Long-term investment within the landscape of public procurement
- The Report goes a long way in helping to answer the questions posed in our article: "The Construction Playbook –What Will Be The Key Factors In Making Its Vision Your Reality" However, it cannot necessarily solve the challenges faced by industry and the public sector around resourcing, knowledge and skills (and access to training) needed to properly implement the Report's recommendations and the policies set out in the Construction Playbook. This is an issue not missed by the Report.
- The Report calls for the inclusion of a contractually binding action plan to ensure that the policies under the Construction Playbook are converted into outcomes along with a timetable for delivery. This highlights one of the potentially more challenging aspects of the Report, in that it considers Authorities could assess existing frameworks against the checklist at Annex 2 to test whether a framework meets the Gold Standard. Where it doesn't, an Authority should "convert improved shared value objectives under their existing framework contracts into shared commitments and that state agreed actions and timetables". Careful thought needs to be given to ensuring such an approach does not alter the overall scope or agreed terms and breach Public Contract Regulations.
So what can be done to support the report's recommendations?
The Report clearly sets out the benefits that will accrue if the public sector and suppliers are willing to take on the challenges identified and then enable the Construction Playbook's vision to become a reality. The Report also provides extremely useful and valuable guidance on how to comply with the Construction Playbook through construction frameworks. All stakeholders with an interest in public works projects now need to consider:
- what further resources, knowledge and skills are needed to bring the vision of the Construction Playbook to reality;
- whether there any elements of the recommendations that maybe prove difficult to comply with and how this might be addressed; and
- how close, realistically, are stakeholders to being able to meet the recommendations, will it require minimal adjustment or wholesale culture change?
If you are interested in discussing the Report or the Construction Playbook further and/or any questions it may have raised in relation to contracting in and with the industry and public sector, please contact partner Ruth Griffin in our Construction & Engineering Team. You can also visit our Government Contracting and Public Sector web page and Construction & Engineering web page for more sector and industry insight.