Construction Productivity – What Should Clients Do?

Tuesday, January 12th, 2016
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A defining moment during the last industry-wide attempt to improve construction productivity came in a meeting with representatives of the major clients of the industry.

A cornerstone of the thinking behind the establishment of the Construction Industry Development Agency in the 1990s was the proposition that if clients demanded consistent standards of performance from their designers and constructors, and measured that performance, standards would rise.

The key to standard setting was use of Prequalification Criteria (PQC) developed by a working group of industry practitioners, including clients from public and private sectors, facilitated by CIDA. The working groups and agency staff presented a draft of the PQC to a meeting of client representatives, and were promptly shown the door.

The proposition that clients could influence their own project outcomes by using a consistent approach to the selection of designers and constructors was seen as an attempt to shift responsibility for all construction risk to clients. One particularly memorable, and offensive, remark still lingers – the agency’s approach was akin to blaming Jews for the Holocaust.

What then can the industry reasonably expect clients to do to promote greater productivity? What are the chances that the attitudes of 20 years ago have changed?

Construction industry suppliers (designers, project managers, constructors, trade contractors and other advisers) believe a significant potential influence on industry-wide efficiency is consistency in procurement practices amongst similar clients for similar kinds of work. Their experience is that there is considerable wasted effort involved in understanding and meeting varying procurement practices.

Inevitably, the cost of that wasted effort is reflected in either or both of increased overheads built in to prices to project sponsors (end users, owners and financiers) and corner-cutting and “blind” risk taking, reflected in sub-optimal service delivery to project sponsors.

There has not been consistency in procurement practices amongst public sector clients of the industry since the late 1980s. Devolvement of responsibility for capital works expenditure from central public works agencies to operating agencies has freed those agencies from the constraints of a single “one size fits all” approach to procurement. This has led to a proliferation of project delivery strategies, practices, and contract conditions.

This position is not dissimilar to that which prevails amongst private sector project sponsors. With the exception of a handful of regular clients of the construction industry, the in-house project management capability which some organisations once maintained has been diminished. This has too often been combined with a primary focus on low cost of capital works without understanding the longer-term, whole of life cost and revenue implications of initial spending decisions.

The downsizing of traditional public works agencies, and the reduction of private sector in-house capability, has also reduced the pool of executives within private and public investors with wide and varied experience of capital works project initiation and procurement procedures. With rare exceptions (including the Department of Defence), agencies and private investors do not maintain staff with experience regarding construction. Instead, they contract project management in the broad to consultants when needed.

The construction industry understands that both public and private project sponsors need to undertake tendering, selection and contract management procedures to suit their individual needs. However, there are long-term costs associated with investors “re-inventing the wheel” on each project, and costs could be reduced if project sponsors were of the mind to adopt more unified procurement processes, sending clear and consistent signals about procurement standards to private sector suppliers.

Regrettably, the industry’s experience is that the body of knowledge of consistent and well-understood practices, once shared by public and private sector capital works procurement experts and construction industry suppliers, has been diminished. So too has the capacity of project sponsors to send consistent signals to suppliers about what is expected from them.

The public sector has an opportunity to demonstrate leadership by adopting greater consistency in procurement practices across agencies, particularly at the stage of project initiation. This is an opportunity which is unlikely (if not impossible) to be realised by the private sector on its own, given the very nature of the free enterprise system. Consistent Commonwealth and state government practices are a potential catalyst for enhanced performance across the industry.

In the absence of a consistently applied body of knowledge of public (and for that matter private) sector procurement practices, occasional project sponsors run the risk of sound capital works project initiation and procurement being compromised. Wasted effort and unnecessary costs are the byproducts.

Three fundamental and related mistakes in project initiation and procurement decision making cause considerable wasted effort and cost:

  1. Failing to understand the nature of the project process itself. Each construction project creates a temporary enterprise made up of sometimes hundreds of organisations that are relative strangers to each other. Members of project teams are too often selected on the basis of lowest price. Little if any attention is paid to matching the attitudes of key team members. Less is paid to whether they will work well as a team.
  2. Not enough time or effort is spent in making sure the necessary level of management and human resource skills are available to manage each of these new project based ‘enterprises’ as they are created.
  3. Some clients’ expectations of the industry are often unrealistic, treating the procurement of a capital works asset as a repetitive manufacturing process, rather than seeing it for what it is – the provision of a prototype.

Rectification of these and other failures in project initiation require appropriately skilled and experienced client project directors if the best possible outcomes are to be achieved on an individual project for an individual agency. Behaviour consistent with achieving excellence is a combination of personal aptitude, experience and an appropriate project environment.

The starting point to consistently achieve excellence on capital works projects is a consistent framework of learning, focused on producing client project directors creating project environments within which teams are motivated to achieve excellence.

If this approach was to be taken on all new public sector projects, a consistent project initiation, procurement, and management procedure could be achieved. This in turn would send consistent messages to construction industry suppliers, that there is a consistent ‘way we do things here.’ Everyone who aspires to work on public sector projects may either identify with and adopt this mindset or recognize the need for a new career. In time, the benefits would flow to the private sector, as improved project outcomes become the norm in the public sector.

It appears that both public and private enterprises are constrained from improving on demonstrated weaknesses in project initiation and procurement by perceptions of the restraints of policies or processes. These include perceptions of the limitations of policies such as business transparency and probity. Whilst all project sponsors must operate within the bounds of their own legislative or corporate governance requirements, none should continue to be the victims of wasted effort.

The construction industry, whilst employing some very capable people who are able to initiate continuous improvement, behaves within confines, perceived or real, imposed by their clients. In short, industry members respond rather than take the initiative for fear of offending or giving away competitive advantage. In order to release this continuous improvement capability, public sector agencies need to show focused leadership.

Our lawmakers have it in their power to put in place a continuous improvement program, designed to remove wasted effort by reviewing existing processes:

  • Ensuring perceptions are acknowledged as such and worked through so as not to restrain improvements
  • Developing processes that fit within existing policies
  • Encouraging alternative policy development if it can be proven to be value adding and risk averse.

A leading practice approach to project definition and initiation would be reflected in a consistent public sector framework of capital works procurement policies and practices, mandated for use by all public sector agencies, including:

  • A statement of the policy and process limitations that appear to institutionalize wasted effort, in both public and private sectors
  • A statement of leading practice procurement practices
  • A position description setting baseline standards of education, skill and experience for client project directors for major public and private projects
  • A model curriculum delivering those baseline education requirements

Over to you, clients.

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