The Government published the Construction Playbook at the end of 2020 - its blueprint for working together with the construction industry to ensure public works projects are delivered "better, faster, safer, and greener". Building on the work of its Outsourcing Playbook, the new guidance document for the construction sector brings together best practices and specific sector reforms to speed up delivery, improve sector productivity and hasten the progress of the socio-economic benefits of the Government's £100 billion "Build Back Better" investment programme.
A few months on from the Construction Playbook's release, we take a closer look at the 14 "key policies" set out for adoption on public works projects and some of the challenges posed. We consider what steps could be taken to aid the public sector and the construction industry in implementing the Construction Playbook, and how individual contractors and suppliers can come together to bring the policies to life in day-to-day projects.
From vision to reality
Ultimately the key to the success of the Construction Playbook will be:
- how effectively its principles are implemented throughout the lifecycle of public works projects by all parties involved;
- whether the public and construction sectors have - either currently or through additional investment - the resources, knowledge and skills to effectively implement the key policies; and
- to what extent the sector's supply chain is engaged when applying the Construction Playbook's principles, as, ultimately, it is at the subcontractor level and below that the technical skills and experience needed to facilitate progress predominately reside.
The collaboration evidenced during the pandemic, including the overnight construction of Nightingale Hospitals, shows that the sector has the skills and willingness to align itself with the ethos of the Construction Playbook. It is now critical that the Government takes the opportunity to build on this collaboration.
There are also other positive signs of progress, including:
- the Government announcing funding for construction skills boot camps via the National Skills Fund;
- the release of the Common Assessment Standard by Build UK to speed up and lessen the cost involved in the pre-qualification phase of procurement;
- the Construction Leadership Council's (CLC) C02nstruct Zero programme; and
- the March 2021 Budget announcement of a £10 million investment in the use of modern methods of construction via the creation of a MMC Taskforce.
A great deal of progress has clearly been made. The Government now needs to draw together the key lessons from its collaboration with the sector during the pandemic and proactively engage with the industry to aid the implementation of the Construction Playbook.
Laying the foundations
The appointment of Professor David Mosey to lead an independent review of public sector construction frameworks will no doubt help support the Construction Playbook's implementation. It will be important that this review tackles the adversarial nature of the UK construction and engineering industry (which is characterised by cost plus pricing models, and low profit margins) as well as new methods of working - such as Artificial Intelligence (AI) and MMC - to address historically stubborn productivity levels.
Another common feature of the sector is that, generally, the contractual framework is made up of employers contracting directly with main contractors at Tier 1, who then engage with a myriad of sub-contractors at Tier 2, who then sub contract with Tier 3, and so on. This complex multi-layered structure exposes the smallest, and often the least financially resilient, contractors to a disproportionate delivery risk. The Construction Playbook presents an opportunity to reflect on whether employers in the public sector could contract directly with Tier 2 and even Tier 3 - the entities in the supply chain doing the design, works and manufacturing, and where a large share of the technical skills reside, while still drawing on the expertise and experience of Tier 1 main contractors. It is clear from the list of contributors to the Construction Playbook that the Government is engaging with the various levels of the supply-chain to shape its blueprint and it may wish to formalise this direct engagement when looking at delivery models and relationships between the parties.
Getting the best value of the policies
Below, we consider the potential challenges proposed by turning the key polices set out in the Construction Playbook into concrete, constructive change for the construction sector.
The health of the construction and engineering market
Policy 2 provides as follows: "Projects and programmes will conduct an assessment of the health and capability of the market early on during the planning and preparation stage. This will enable project and programme teams to identify potential opportunities and limitations in the market and consider what actions would increase competition and improve market health."
The key here is "actions would …improve market health". What will these actions be? What can the teams feasibly do? What "market" are we talking about? The financial strength of the construction and engineering sector in the UK has been precarious for a long time. As important as it is for project teams to assess the market for specific projects, the Government will ideally:
- invest time, resources and finances to engage with the market as a whole to understand its strengths, weaknesses and needs in order to shape the actions that need to be taken to improve the sector's health and resilience; and
- take positive steps now to support the sector with its skills shortage in both traditional and new methods of construction.
By having strengthened the market as a whole, the sector will have the confidence and freedom to focus even more on innovation, collaboration and long-term investment in, for example, modern methods of construction.
The lessons learnt from market assessment should then inform, for example, the implementation of policy 2, portfolios and longer term contracting and policy 4, harmonise, digitise and rationalise demand. In particular, ensuring implementation of these policies allows for bringing on board new entrants into the market post-procurement, for example, by including and enforcing KPIs tied to investing in the sector, appointing SMEs, innovation and collaborating with supply chain.
The Government should also ensure that any actions identified to improve market health are not fettered by public procurement legislation. Its Green Paper "Transforming Public Procurement" appears to recognise the flexibility needed to drive innovation and participation by SMEs, such as the "competitive flexible procedure" and DPS+.
The post-Brexit procurement regulations should be flexible enough to allow: (1) new entrants to be brought on board throughout the life of long-term projects and programmes; and (2) updating of underlying contract terms to reflect changing standards in technology and environmental factors around how people use their 'space'. As we have seen over the past year, the use of property assets can quickly change due to unanticipated events and external forces. This will also require the underlying contract terms to deal with relief for 'change' in a way that rewards suppliers when they innovate and remain committed to best practice (which ties in with policy 11, risk allocation).
Data is key?
Policy 5 states that: "Contracting authorities should use the UK BIM Framework to standardise the approach to generating and classifying data, data security and data exchange…"
The perennial issues here are: agreement on what the "standard" is; enabling participants to meet such standards; and creating a culture of collaboration where, across the supply chain, the stakeholders are willing to share data, while still availing themselves of the rights and remedies provided by intellectual property law to protect their data. We encourage the Government to continue its investment and support for the Centre for Digital Built Britain (CDBB) and to seek to ensure that the CDBB engages with the whole sector so that its outputs take account of the challenges suppliers and employers have faced to-date in properly implementing the UK BIM Framework. This no doubt will require liaison with, for example, relevant experts in the insurance and legal sector. Once the outputs of the CDBB are delivered, training and learning resources should be provided to enable employers and suppliers to understand how the outputs can be applied.
Much is discussed when reviewing BIM about its value for the ongoing operation and maintenance of an asset, but it is also of great value when dealing with resolution planning (Policy 14). Legal expertise and input is also key to ensuring that the contract terms enable access to relevant data in a distress scenario.
Relationship of the parties
Policy 10 states that: "We will ensure that contracts are structured to support an exchange of data, drive collaboration, improve value and manage risk. They will set clear expectations for continuous improvement and be consistent with the principles in the Construction Playbook… and adopt a new 'gold standard'… This will enable contracting authorities to easily identify frameworks that meet best practices and embody policies set out in this Playbook."
For contracting to be effective, it is key that the chosen delivery model (as covered by policy 9) supports and drives the other 13 policies. To achieve this, the Government will need to invest in making more resources available to the public sector, through increased recruitment and training and engaging private sector expertise, to enable decisions to be made about delivery models that take on-board all of the policies and guidance set out in the Construction Playbook. Only when the best delivery model is chosen, is it the time to consider the contract.
There are plenty of contracts that seek to encapsulate policy 10 and the aim of continuous improvement. The challenge is implementing the contract terms in a meaningful way. This involves investment of time and resource by the public sector and the supply chain so that contracts are not "left in the drawer" but are understood and proactively project managed. Government actions will hopefully include taking steps to (1) improve the health of the market as a whole so that suppliers can invest in resource effective contract implementation and (2) invest in the public sector to make sure it has sufficient skilled resource to implement contracts and drive improved performance.
The contract structures outlined in policy 10 can be difficult to push down to sub-contractors and beyond, and as a result the true benefit of such provisions, such as collaborative working, can easily be lost. This is because margins in the construction sector do not typically leave room for investment by suppliers in the resources, skills and time needed to manage their supply-chain in a way that is aligned with the terms set up at main contract level. Also, main contracts often do not take on board the risk and issues from the perspective of the lower end of the supply chain, for example, the impact of the hardening insurance market, the uncertainties created by Brexit and COVID-19 and less protection for suppliers under the Corporate Governance and Insolvency Act 2020. Hopefully policy 6, early supply chain involvement; policy 11, risk allocation; and policy 12, payment mechanism and pricing, will (if applied properly to inform the choice of delivery model and the contract structure) facilitate the flow-down of the 'gold standard' to sub-contractors and below.
In particular, policy 6, early supply chain involvement (ESCI) has a key role to play in sub-contractor and below engagement. To provide the most benefit to this level of the supply chain, there needs to be:
- early engagement with the right parties to facilitate collaboration;
- an understanding of all stakeholders/suppliers' needs and interests; and
- enough flexibility to facilitate innovation and allow for changes to the delivery model and contract structure.
ESCI can also enable greater trust and sharing of information, facilitating better risk allocation (policy 11).
All of this engagement, preparation and planning comes at a cost, which may not be fully recoverable by suppliers via the contract price. Public sector procurers should consider how they might fund and best support this upfront work to reduce the burden placed on suppliers. Such costs should decrease overtime as the public sector comes to understand the market (policy 2); invests in portfolios and longer term contracting (policy 3); harmonises, digitalises and rationalises demand (policy 4); and, in particular, uses data (policy 5) and benchmarking (policy 8) to assess the value of such upfront investment to achieve best value.
Keeping the cash flowing
Cash-flow through the supply chain has always been a challenge for the construction and engineering sector; no more clearly evidenced than by the introduction of the Housing, Construction and Regeneration Act 1996 and the frequency of insolvencies in the sector. Those working in the sector will be aware that the Construction Act has not necessarily been the panacea for the ills identified in the Latham Report. This was recognised by BEIS in 2017/18 when it consulted on retentions, payment and adjudication in the construction industry.
In this context, it is comforting to see the inclusion of policy 12, payment mechanism and pricing approach - "The payment mechanism and pricing approach goes hand in hand with risk allocation and will be subject to greater consideration and scrutiny to ensure it incentivises the desired behaviours or outcomes".
Thought needs to go into whether those agreeing with, and operating within, the contract have the skills and knowledge to operate the payment mechanism; particularly when utilising new methods of procurement such as MMC, which requires more thought around advanced payments and appropriate securities for the same.
While the Construction Playbook supports prompt and fair payment regimes, along with project bank accounts, it would be a logical step forward to look at the results of the BEIS consultations and actively consider implementing solutions that would enable further improvements in the flow-down of payments through the construction sector supply chain.
Public bodies should also be encouraged to consider assessing, when implementing policy 13, the economic and financial standing of suppliers, how its delivery model and contract terms protect the supply chain in the event of main contractor insolvency (given that the Corporate Governance and Insolvency Act 2020 limits suppliers' rights in such circumstances). For example, could public bodies contract directly with sub-contractors via contract management? Could project bank accounts be mandated for public sector projects?
An industry worth investing in
The Construction Playbook's principles are reflective of the change needed in the procurement of works in the public sector. It will create a platform that has the potential to drive efficiency, improve productivity and strengthen the UK's construction and engineering market, at all levels.
So what can the construction industry and public sector do to support this change?
Bringing the aims and vision of the Construction Playbook into practice will mean overcoming the challenges presented by the status quo. To implement the Construction Playbook's aims and values effectively, all stakeholders with an interest in public works projects should consider and discuss, in collaboration:
- what aspects of the industry's culture and economic structure could fetter the Construction Playbook's application?
- does the industry and the public sector have the resources, knowledge and skills to properly implement the policies set out in the Construction Playbook?
- how can the needs and views of all levels of the sector's supply chain be addressed and taken on board?
Whilst it is early days, it is clear that there is a strong appetite and willingness from the sector to change, and The Construction Playbook is a clear commitment from the Government that it wants to work with the sector to enable the transformation of the UK's infrastructure.
If you are interested in discussing 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 team. You can also visit our Government contracting and public sector web page and construction and engineering team's web page for more sector and industry insight.