The Scottish Government

« Previous | Contents | Next »

Listen

Section 3 - Procurement Strategies and the Appointment of Consultants and Contractors

Key Points

• Scottish Government policy is that all procurement should be on the basis of value for money (VFM) and not lowest price alone. The selection of the most appropriate procurement strategy, and the appointment of consultants and contractors, should therefore be on that basis
• The decision making process, leading to the selection of the preferred procurement option, should be recorded and should take account of the relative risks, benefits and management team's level of resource and experience
• In the case of mission-critical or high risk projects, the evaluation of procurement options and the recommendation should be presented to the responsible Minister for final decision. Ministers must be informed of the views of professional advisers where there are differences of opinion between them and the responsible managers/owners of the project
• Whatever procurement route is chosen, sufficient time must be built into the overall programme to allow for all planning stages to be fully completed (before construction and during the progress of the project)
• Robust mechanisms specific to each project should be developed to evaluate the quality and price (whole life cost) components of each bid in a fair, transparent and accountable manner
• Selection and Award procedures must comply with EC procurement rules and the relevant Scottish Regulations where these are applicable
• The client organisation must lead the project at all times, even after the appointment of a client adviser, project manager or other consultant
• Teamworking arrangements should be adopted as far as possible on all contracts

Section 3 - Procurement Strategies and the Appointment of Consultants and Contractors

This section gives information on:

• some of the procurement strategies available
• some of the important aspects of achieving VFM
• the consultancy roles and professional advice that may be required at the various project stages
• the value of teamworking
• partnering arrangements
• incentives
• the appointment process

In this section the following definitions are used. They are based on those used in the EC directives and relevant Scottish Regulations and may differ from some of those used in other published documents:

• appointment process - the overall process which starts at establishing the contract requirements and ends after awarding the contract
• selection process - the initial part of the appointment process, involving the selection of suitable organisations for a short list (sometimes referred to as qualification or pre-qualification)
• award process - the final part of the appointment process, covering tender invitation and evaluation, contract award and debriefing
• tenderer - an organisation invited to tender
• bidder - an organisation responding to an invitation for expressions of interest
• EC Procurement Directives are implemented in Scots law in the form of Regulations (Statutory Instruments)
• quality - all factors that influence the selection and award processes excluding price and whole life cost
• works project - a project involving construction activities that has a separate budget and a specific duration

Procurement Strategies

The primary consideration in the choice of a procurement strategy is the need to obtain overall value for money in the whole life of the facility/service. A number of options are available, but the intention should be for all the parties that will be involved in the use, construction, operation and maintenance of a facility to be involved as early as possible in its development in order to establish an integrated team, to encourage innovation and to manage risk in the most effective manner. Consideration should be given to commissioning contractors during the early stages of a project to assess the buildability of options and to contribute to innovation. The range of procurement options described here covers all forms of construction activity including roads procurement, although some of these options are more prevalent in buildings-related projects.

Private finance solutions using the non profit distributing model should be investigated at the earliest opportunity because they may offer a solution that meets user needs and may provide greater value for money than a capital construction project. The Further Reading section includes a link to VFM assessment guidance prepared by the Scottish Government. This practical application note enables procurers to fully consider procurement routes at programme level and, in the case of private finance solutions using the non profit distributing model, provides detailed guidance for the further assessment at project and procurement levels. It also includes guidance on characteristics of projects which are suitable for private finance solutions using the non profit distributing model because of the benefits it can deliver. However, if a construction project emerges as the optimum solution, a number of procurement options are available. In some cases traditional lump sum contracts, where the detailed design is largely completed before the main contractor, sub-contractors and specialist suppliers become involved, may be appropriate and may deliver value for money. However, alternative procurement strategies should also be considered. These include management contracting, construction management, design and construct, prime contracting, the use of framework agreements and other strategies. General principles are also outlined in this section and an example of a mechanism for evaluating alternative procurement routes in terms of meeting requirements and delivering value for money is shown at Annex D. The decisions leading to the selection of the preferred procurement option should be recorded. In the case of mission critical or high risk projects, this information should be presented to the responsible Minister for decision.

What are mission critical projects?

A mission critical project is one that (irrespective of size, value or complexity) delivers outputs that directly support the delivery of a major policy outcome or that delivers an internal business change that supports the administration of the organisation (Scottish Government, Agency or funded body);

What are high risk projects?

They typically display some or all of the following characteristics;

• a novel or untested approach to delivery
• lack of experience of similar project delivery
• a complex matrix of project interdependencies
• a significant impact on the public and other organisations
• business criticality or political sensitivity
• a significant resource commitment

How is the strategy choice made?

Senior managers of projects, together with the responsible Minister, should come to a decision on the most appropriate procurement strategy to adopt for mission critical or high risk projects when they have considered the risks and benefits of the available options (outlined in this section) as well as the management team's level of resource and experience. In addition, Ministers must be informed of the views of specialist professional advisers (whether in-house or consultants) where there are differences of opinion between them and the responsible managers/owners of the project.

Wherever possible, specifications should be output based and should be left as open as possible whilst ensuring that they accurately describe the output required and the design quality parameters. Unnecessary detail will tend to inhibit innovation and may result in extra costs.

Non Profit Distributing Vehicles using Private Finance

Why use them?

Private finance solutions, particularly the NPD model, are created for the provision of services and not specifically for the exclusive provision of capital assets such as buildings. For this reason it is preferable to investigate private finance solutions using the non profit distributing model as soon as possible after a user need has been identified rather than leaving it until a conventional construction project has been selected as the solution. It is possible that a private finance solution using the non profit distributing model may result in a provision of services to meet the user need that does not require a construction project. It should also be borne in mind that the tendering process is expensive for potential service providers and takes the form of a negotiated or competitive dialogue procedure.

What is the SG view?

The Scottish Government is committed to using NPD and other private finance vehicles where they achieve value for money in the delivery of the required outcomes. Use of the non profit distributing model requires the private sector to assume responsibility for delivery of elements of service. The public sector sets out those elements of service in an output specification and also specifies the level and quality of service required. This is normally done through a long-term contract and the standard of delivery is monitored by the public sector throughout the contract period, with financial penalties applied if the specified outputs and standards are not delivered. Value for Money is achieved through private sector innovation, effective use of the competitive process, and appropriate allocation of risk to the party best able to manage it.

Section 9 contains references to further guidance on private finance solutions using the non profit distributing model, including a practical application note. More advice and information is available from Scottish Futures Trust.

What are the risks and benefits of Private Finance Solutions using the NPD Model?

Risks include:

• The process will be at risk without a long-term commitment from both the Client and "service providers"
• The process leading up to the completion of a new building can take a long time and needs an extensive and fully refined brief at the outset
• There is a significant cost to the industry in tendering which has to be recovered by each bidder
• Change is difficult to achieve and potentially expensive to incorporate once the contract is let

Benefits include:

• The process is service rather than project focused and concentrates on the whole life of the service and associated assets
• There is a single point of responsibility for service delivery
• There is an opportunity to draw on a wider range of management and innovation skills

Construction projects whose capital value does not exceed £20 million are less likely to achieve value for money under private finance solutions using the non profit distributing model, and projects with prospective capital values of between £10m and £20m should be reviewed on a case by case basis.

Traditional Lump Sum Contracts

With this type of contract, the design team are employed directly by the client to fully develop the design prior to going out to tender. The contract is with a main contractor who has responsibility only for the construction works. If the design has been fully thought out, developed and frozen, then in theory this type of contract should provide a reasonable degree of cost certainty at tender stage. However, the need to work to tight timescales may mean that a fully developed design cannot be prepared in advance of tendering, in which case subsequent design changes will invariably lead to cost escalation.

What are the risks here?

• The overall programme may be longer due to the need to produce a fully detailed design before the project goes out to competitive tender and work starts on site
• The Client must have the resources and access to the expertise necessary to administer the contracts of consultants and the main contactor
• The consecutive timing of design and construction results in a lack of continuity between the designer and the builder (and hence less input on 'buildability)
• Claims for delay and disruption can arise if the design is not fully detailed prior to agreeing the contract sum or if the Client varies the design afterwards

And the benefits?

• Price certainty and transfer of risk to the main contractor is achieved at contract award provided no subsequent changes are instructed to the design
• A high level of quality in design and construction is achievable as the scope of the work is prescribed on an input basis
• The Client retains direct contractual relationships with the design team, cost consultant and main contractor

Changes to the works can be evaluated on the basis of known prices obtained in competition without necessarily excessive cost or time implications.

Management Contracting

This is a 'fast track' strategy which overlaps the design and construction stages and enables early work packages to be placed before the design is complete. A management contractor is appointed by the client to manage the overall contract in return for a management fee. The management contractor, if appointed early before the design is complete, can advise on buildability, programming, sequencing and the procurement of the various works packages. The contracts for the works packages are between the management contractor and the individual trade contractors. Costs are controlled by the development of a cost plan in which estimates of the costs of works packages are initially used for budgeting purposes prior to being replaced with actual costs obtained in competition. The final cost will only be known once the final works package has been awarded and management of the cost plan is, therefore, extremely important.

What are the risks here?

• The final price and timescale are not fixed at the commencement of the works and do not become so until the last work package has been let
• The Client must have the resources and access to the necessary expertise to deal with separate design consultants and the management contractor
• It is unsuitable for an inexperienced and/or hands off Client as there is a risk of increased costs and delays arising from ineffective administration

And the benefits?

• Early completion is possible due to a shorter overall period with overlapping design and construction activities, even in complex buildings
• While the Client maintains direct control over the design team, the management and trade contractors can contribute to early design development and improve the management and buildability of the construction process
• The management contractor assumes some risk for the performance of the trade contractors
• Changes can be accommodated in let and unlet packages provided there is little or no impact on the overall project (timetable and/or budget)

Construction Management

This is also a 'fast track' strategy where works packages are let before the design of later packages has been completed. A construction manager is appointed by the client to manage the overall contract in return for a management fee and, as with management contracting, the project can benefit from the early involvement of the contractor. The contracts for the works packages are placed directly between the client and the trade contractors, and the client can expect to have a high level of involvement during the design development and construction phases of the work. As with management contracting, the final cost will only be known once the final works package has been awarded.

What are the risks with Construction Management (CM)?

• The final design, price and timescale are not fixed at the commencement of the works and do not become so until the last work package has been let
• The Client bears most of the total risk including delays, disruption, design and its coordination with construction; there must be a robust process for instructing and approving changes
• The construction manager does not assume any risk other than negligence, is not responsible for achieving programme and cannot instruct third parties
• The design team must envisage both the totality and detail of the design at the outset, accommodating uncertainty, procuring long lead-time items early and avoiding retrospective change
• Clients need to be experienced, informed, decisive and have the resources to administer the contracts of the separate design team members and many trade contractors
• Construction management consultants must be sufficiently incentivised to avoid fee escalation; they should be experienced in CM and have good leadership skills
• The Client should place a greater premium on risk management in CM than under other approaches, and needs to ensure that roles and responsibilities are well defined at the outset

What are the benefits?

• Construction management should reduce the overall project timescale by allowing procurement and construction to proceed before the design is completed
• The Client controls the design and changes can be accommodated in let and unlet packages provided there is little or no impact on the overall project (timetable and/or budget)
• It can be applied to a complex building and has buildability potential
• The Client contracts directly with trade contractors, which could result in lower prices and allows poor performance to be dealt with directly
• The construction manager can build better team relationships with trade contractors and resolve disputes directly

Construction management was largely devised for use in the commercial development market and, while there are examples of public sector projects being successfully procured via this route, CM is generally unlikely to represent an appropriate option for public sector procurers other than in exceptional circumstances and where the client has the necessary resources and experience. The use of CM is not ruled out entirely but should only be adopted following referral of the choice of procurement route to the responsible Minister and consideration of the risks and benefits as well as the management team's level of resource and experience.

Design and Construct

In a design and construct contract, a single supplier is responsible for both the design and construction of the facility. The supplier is likely to deliver the greatest performance benefits to the client through innovation and standardisation, where appropriate output specifications are used.

Where an output specification is insufficiently well developed, there is a risk that the quality, design and performance of the completed facility may be compromised. Careful attention to the output specification is required to achieve the required outcome.

There may be some circumstances where the design and construct procurement option should be extended to cover maintenance and also possibly operation of the facility for a substantial period. By including the maintenance and operation requirements within a design and construction contract, the supplier has increased opportunity for adopting innovative solutions that provide greater value for money when considering the whole life costs.

What are the risks associated with this strategy?

• The Client's requirements must be properly specified prior to signing the contract as Client changes to the scope of the project, once let, can be expensive
• The Client has little control over design and quality standards once the contract is let, as the building is specified on a performance basis
• Design liability offered by design and build contractors is limited
• Design and build is unsuitable for complex, challenging projects

And the benefits?

• Low tendering and preparation cost to the Client
• Single point responsibility for design and cost risks
• Potential for more economical construction due to early consideration of building methods ('buildability')
• Could result in a shorter overall design and construction period

Variants of this strategy can be implemented which allow the Client to engage with the contractor beyond completion of the construction contract. For example 'Design, Construct and Maintain' and 'Design, Construct, Maintain and Operate' retain the contractor's services after completion. Further refinements can include the incentivisation of the contractor by relating the post-completion element of the contract to the performance-in-use of the building which has been designed (for example, energy consumption).

Prime Contracting

This may be appropriate in certain circumstances, for example where there is a continuing programme of projects. It is unlikely to be appropriate for clients that infrequently procure buildings. Prime contracting requires there to be a single point of responsibility (the Prime Contractor) between the client and the supply chain. The prime contractor needs to be an organisation with the ability to bring together all of the parties (consultants, contractors and suppliers) necessary to meet the client's requirements effectively. A designer, facilities manager, financier or any other organisation can, in theory, act as the prime contractor.

Clients should ask prime contractors to provide details of all the parties in the supply chain, once they express an interest in being selected to tender. It may not be possible to adequately assess the technical capacity of a prime contractor under the EC procurement rules as implemented by the Scottish Regulations unless a significant number of the other organisations that make up the supply chain are known and taken into account during the assessment.

A key part of the prime contracting route is the development of a whole life cost model before construction commences.

What are the risks associated with this strategy?

• Additional layer of costs to client due to in-house resource commitment for the duration of the project
• Larger volume contracts could result in more serious consequences from a failure to deliver
• Continual improvement can be difficult to measure therefore difficult to prove
• Tenderers must have confidence in planning and funding of programme to commit resources to bidding and supply chain management
• It can result in poor price certainty and changes being expensive to implement
• Clients must be assured that tenderers can access finance necessary to meet supply chain payment obligations

And the benefits?

• Centralised contact for quality, performance and compliance issues, potentially reducing reporting and bureaucracy
• Risk to Client reduced by transfer of risks to the prime contractor
• Increased opportunities for economies of scale and incentivisation
• Can deliver cheaper buildings in both initial capital and long-term running costs
• Facilitates continuous performance improvements and collaborative working

Framework Agreements

Framework agreements (including call-off contracts) with a single supplier or a limited number of suppliers can result in significant savings to both parties particularly where a number of projects are involved. The resource implications for the client of managing more than one agreement for each type of work should be borne in mind when deciding whether to award more than one framework agreement.

Framework agreements may cover prime contracting and design and construct procurement routes. They are unlikely to be appropriate for clients that only occasionally procure buildings. They can be particularly appropriate for maintenance requirements.

Each framework agreement must be advertised and competed for in accordance with the Public Contracts (Scotland) Regulations 2006.

The expectation is that savings will come from the following:

• no requirement for rebidding of each individual project
• continuous improvement by transferring the learning from one project to another
• reduced confrontation
• continuity of workflow

What are the risks of this strategy?

• Client needs to be sufficiently experienced and resourced to manage concurrent contracts
• Framework Agreements by their nature restrict the overall choice of suppliers
• Needs early and long term commitment and a continuing programme of work
• Contract periods extending after the framework expires can reduce the incentive to perform well, especially if the contractor's services are not being renewed under the framework. Framework Agreements should only be used after discussions with Construction Advice and Policy Division

And the benefits?

• Ability to call off urgent requirements quickly
• Ease of placing contracts and avoidance of repetition (resource savings for Client)
• Further competition can still take place among the framework suppliers ("mini-competition") to meet the specific needs of the Client

Other Strategies

Other procurement options are available under which a facility can be obtained, including using the services of a property developer or through 'Joint Ventures' or other collaborative arrangements. Developer-led schemes involve the client in preparing an output specification, then seeking a market solution either on a chosen site or in a general location where a choice of site forms part of the competing developers' proposals. The appointed developer therefore carries the full risk during construction, after which the client either leases the facility (for example over 15, 20 or 25 years) or has an option to purchase.

Further advice on alternative solutions can be obtained from Property Advice Division.

Client organisations with suitable qualified and experienced staff may be able to exploit their skills and assets by entering into a cooperative and collaborative partnership with other public or private sector bodies to form a Joint Venture company. Joint ventures can take many forms and often involve complex corporate structures, but can provide innovative solutions. Clear objectives, including certainty on the aims of the partnership and the associated implementation plan, are paramount for the partnership to be successful. All parties must enter into contracts following a competitive, and legally compliant, bidding process.

An example of a joint venture procurement model is the hub initiative which is a long term partnership between public and private sectors for the development and delivery of community based premises which can utilise a range of funding sources (from both public and private sectors). Further info is available from the hub Programme Delivery Office which is located within the Scottish Futures Trust .

General Principles

The procurement strategy is primarily concerned with how design aspects are related to construction such as, who bears the design risk and controls design detail? What degree of completeness of design is required prior to the commencement of construction? All procurement strategies represent a balance between cost, time and quality control.

Risk and responsibility should go together, so that the party responsible for performing a task is accountable for it and can ensure its successful outcome. The more the client chooses to allocate risk to other parties, the less control the client has over the way in which those tasks are carried out. The greater the risk passed to the supply side, the greater the project costs are likely to be. For example, price certainty achieved under a 'Guaranteed Maximum Price' arrangement (which can overarch any procurement route) will oblige the contractor to charge a premium, in order to cover all eventualities, which may not achieve overall VFM.

The selected procurement strategy must be consistent with the scale and technical complexity of the project and with the other associated risks. It must also take account of the client's ability (and resources) to define the requirements and to achieve direction and control over the project. It should also recognise the client's strengths and weaknesses, and balance the relative priority of the client's objectives in terms of speed, cost and quality/performance.

The client must have a clear understanding of where the ultimate authority and responsibility for controlling and managing the important risks lies.

­ Which key factors should be considered when selecting a procurement strategy?

• in-house resource availability and experience
• project size and complexity
• importance of timescales and possible phased completion requirements
• importance of quality and issues surrounding whole-life use of the facility
• availability of funding (in addition to setting and agreeing the budget for the project)

Whatever procurement route is chosen, sufficient time must be built into the overall programme to allow for all planning stages to be fully completed (both before construction starts and during the progress of the project). Good planning will include getting the construction sequence right, assessing and managing project risks, and using value management to assess the contribution of each part of the construction process. These steps will minimise the likelihood of delays, extra costs, and waste/inefficiency.

All contracts should be made in writing and, whether relating to single appointments or joint ventures, should be in place at the outset along with any appropriate bonds and guarantees.

Table A and Table B indicate in general terms both the appropriateness of each contract strategy and their comparative risk profiles. These tables should only be used for guidance purposes and are not intended to provide a definitive means of choosing a procurement route for each individual project; Annex D provides an illustrative example of a weighted scoring mechanism which can help clients to evaluate procurement route options. Clients can also seek professional advice from Construction Advice and Policy Division.

Y appropriate N inappropriate

Important Aspects of Achieving VFM

Scottish Government policy is that all procurement should be on the basis of value for money ( VFM) and not lowest price alone. The selection of the most appropriate procurement strategy, and the appointment of consultants and contractors, should therefore be on that basis.

The Appointment Process

This has a number of stages, each of which will take time to complete adequately. Planning is essential to ensure that every stage has sufficient time for adequate completion. Attempts to rush may lead to inadequate preparation by the client or insufficient time for bidders to consider, research and refine their bid. This may result in a failure to achieve VFM.

Appointments, whether singly or as part of a joint venture, should be made on the basis of fully executed contracts (in writing), which should be in place at the outset, along with any appropriate bonds and guarantees.

What systems should be developed here?

Robust mechanisms specific to each contract should be developed to evaluate the quality and price (whole life cost) components of each bid in a fair, transparent and accountable manner. Any mechanism of this type should help clients come to a reasoned judgement rather than provide a prescriptive mechanistic approach for its own sake.

Time spent on the careful evaluation of organisations during the selection and award processes normally pays dividends during the contract. Evaluation may include interviews during either process. Care needs to be taken during interviews to safeguard the possibility of information being released that could give an unfair advantage to a particular organisation.

Under the Public Contracts (Scotland) Regulations 2006, each of the award criteria must relate directly to the economic advantage that the contracting authority expects to gain as a result of placing the specific contract. Value management workshop techniques, involving key stakeholders, provide a useful means of establishing the selection and award criteria and their respective weightings. This can also be used to evaluate how well each bid meets the criteria.

Whole life costs need to be taken into consideration in the appointment process, particularly when comparing the tenders submitted by main contractors for works projects procured under design and build contracts.

The Housing Grants, Construction and Regeneration Act 1996 provides a framework for fairer contracts and better working relationships within the construction industry. It specifies that construction contracts (including those with consultants) contain certain provisions relating to adjudication and payment. Where they do not, parties will be subject to fallback provisions contained in regulations laid down in " The Scheme for Construction Contracts (Scotland) Regulations 1998".

What part does design quality play in achieving VFM?

Clients should be aware of the way in which the design process underpins all VFM decisions ranging from the efficiency of the functional relationships that determine the overall form of a facility, through to the level of performance of individual materials and components.

Good design involves the creative resolution of the many, and often competing, objectives and constraints inherent in a design brief. The overall aesthetic of a facility derives from the way in which these objectives and constraints are resolved in built form. An important part of decisions in the design process is the consideration of capital cost versus life cycle and whole life costs.

Clients need to be aware of the complexity of the design task and should ensure that the project sponsor has access to an adequate level of professional advice. The quality of the brief provided to designers is fundamental to achieving quality in a built facility. Clients should define key design objectives in terms of operational requirements, service provision and quality standards. It is also important that the dynamics of functions that the facility is to accommodate are considered early and that any consequent needs for flexibility are conveyed to the designer. Clients may find it useful to refer to relevant existing buildings that enable them to benchmark the level of design expectation.

Clients should ensure that adequate time and resources are allowed for the design stage. Significant benefits can be accrued from early dialogue with the design team during the development of the brief when alternative solutions may be explored. The project sponsor must be aware that layout decisions made even in the very early stages of building design can impact significantly on the long-term operational costs of a facility.

More comprehensive coverage of this issue is set out in Section 6.

The appointment of suitable consultants is an essential part of achieving VFM in construction procurement. Consultants and client advisers provide the "foundation" on which a project is constructed.

The cost of professional services can account for less than 2% of the whole life cost of a project. Yet the quality of these services has a direct impact on the remaining 98%. Even quite large variations in the cost of professional services can become insignificant in relation to the beneficial effect on the whole life cost. However, care must still be taken to ensure that VFM is achieved for each consultancy service.

The performance of consultants will be reported on as part of the in-project, and post-project, review procedures, to which consultants will be required to contribute.

Roles

The VFM process described in Section 2 Annex A shows the stages at which professional advice may be required during the life of a works project. External advice may not be needed where the necessary expertise is already available in-house. The decision on whether to use existing in-house resources, recruit new personnel or use external consultants should be taken on the basis of VFM.

This section links to the respective consultancy services listed broadly in the order that they may first be required during a project, namely Client adviser, Value manager, Risk manager, Project manager, Design consultants, Specialist consultants, Cost consultants, Contract administrator, Construction manager and Partnering facilitator.

Several of the consultancy roles may be vested in a single consultancy appointment. For example, value management, risk management and partnering facilitation services could usefully be provided by a single organisation under a call-off consultancy arrangement.

A conscious decision will need to be made on the specific project as to whether single point responsibility or multiple appointments will provide best overall VFM. Client organisations should note that the optimum team involves the minimum number necessary to achieve the objectives. The more parties involved, the greater the administration, costs, time and opportunities for misunderstanding.

Any contracts for appointments made in the early planning stages of a project, must allow for all procurement options to be considered and any option to be pursued, unencumbered by earlier appointments.

Client adviser

The client adviser can support the project sponsor in many ways, including providing assistance with the preparation of the business case and option appraisal, submissions for approval, appointments of other professionals for the project definition stage and the appointment of the project manager. Consultants performing the client adviser role should not also be engaged in any delivery role. Client advisers do not relieve the project sponsor of their ultimate responsibility to deliver the project.

Guidance on the role of the client adviser is contained in Section 1.

They arrange value management and value engineering studies with key stakeholders at certain project stages. These studies use group decision-making workshops to:

Further guidance on value management is contained in Section 2 Annex A.

Their role is to help identify risks and assess their potential impact on the project. Risks are controlled and minimised in accordance with documented risk management plans prepared and regularly updated by the risk manager. Risk allowances are set and regularly re-evaluated during project planning and construction stages.

Further guidance on risk management is contained in Section 2 Annex A and in Section 4.

The project manager acts as the interface between the project sponsor and the supply side of the project team. Details of some of the activities that the project manager will carry out are listed in Section 1 and Section 2.

The appointment of a project manager with abilities and experience appropriate to the project is crucial to its success. They may be assisted by deputy or assistant project managers and their terms of reference must be clearly defined and adhered to. In some client organisations, the project sponsor acts as the project manager but this is only recommended where the project sponsor is a construction professional having the abilities and expertise appropriate for the specific project.

The project sponsor's relationship with the project manager will require careful development and nurturing within the following guidelines:

Design consultants include architects, civil engineers, structural engineers, electrical engineers, mechanical engineers, public health engineers, landscape designers and interior designers. They may be involved in preparing outline designs for feasibility studies, conceptual designs for 'design and build' and/or detailed design.

These include a variety of experts such as specialist facility and equipment designers, acoustic and environmental consultants, design consultants advising on specialist aspects and health and safety consultants. Environmental consultants may advise on the environmental advantages and disadvantages of each of the scheme options, prepare environmental statements and identify measures that will mitigate against environmental damage.

Main contractors, sub-contractors and suppliers may be required to attend value engineering studies and risk workshops to provide specialist advice in a consultancy capacity.

Crown buildings must adhere to the same standards as other buildings. The Building (Scotland) Act 2003 came into force on 1 May 2005 and Section 53 of the Act to bind the Crown was implemented on 1 May 2009. A more comprehensive description of the arrangements for Crown opinions and Crown verification is set out in the Construction Works Procurement Overview.

Cost consultants (usually quantity surveyors) provide services in respect of estimate preparation, risk quantification, cost planning, cost monitoring and reporting, quantity measurement, interim valuation and settlement of final accounts. It is usual for a cost consultant to report directly to the project manager. The scope of cost management should cover the capital, life cycle and include the costs of the options, and progress with the development of the chosen option all the way to project completion.

The contract administrator looks after the main construction contract. The title of this role and the precise level of responsibility will depend on the form of contract adopted and the department. The contract administrator may also assist in the appointment of the main contractor. The role is often fulfilled by the lead consultant or by the project manager.

The construction manager is an individual or an organisation engaged by the client to secure and manage the services of trade contractors, each of whom has a direct contract with the client department. His/her contract has conventionally excluded undertaking any work on site but this may be permitted where the benefit in doing so can be readily identified. As far as possible, the construction manager should be independent of the suppliers for the project.

Where partnering arrangements are deemed appropriate, a partnering facilitator can assist the parties entering into the partnering arrangement to identify common goals, agree performance measures and dispute resolution mechanisms. These are drawn up and embodied in a partnering charter. The facilitator ideally should be independent of the parties.

This is defined as working together as a team, for the mutual benefit of all, by achieving the common goals whilst minimising wasteful activities and duplication of effort. When problems or difficulties are encountered, all parties should work together as a team to overcome those problems rather than blaming each other.

The concept is simply common sense. It is the starting point on which relationships with other parties should be based and applies just as much to the internal relationships between the members of the client's in-house project team as to the working relationships between members of the client organisation and those of the supply side.

It does not replace formal contracts of engagement, or proper and appropriate management structures and procedures but is a pragmatic manner of working together to find ways of delivering the project to the required quality within budget and within programme. It should promote greater openness and encourage earlier involvement by the supply side.

The benefits include:

• understanding each other's objectives
• use of collective knowledge and experience to find solutions
• reduced numbers of personnel required to monitor progress and prepare or counteract claims
• reduction in correspondence and thereby unnecessary cost
• reduction in duplication of effort
• elimination of "man to man" marking (only one person should do each task and it should be on behalf of all parties)
• improved working environment where the focus is on co-operation rather than conflict
• enhanced reputation of individuals, clients, and supply side organisations when associated with successful projects
• reduction in litigation, arbitration and dispute resolution and thereby unnecessary cost

Teamworking tips

A teamworking culture depends on the commitment and effort of each individual member of the team and can be encouraged or enhanced by holding project specific workshops with the team (including members from consultants, contractors and other suppliers) and arranging for the them to undergo teambuilding training.

Where it is feasible, teamworking can also be encouraged by co-locating all the members of a project team, whether in-house or external. Where that is not practicable, members of a team should if possible be linked through the same IT network (e.g. project extranets, "sharepoints" etc).

Teamworking arrangements should be adopted as far as possible on all projects. The commitment of an organisation to work constructively as part of a team could be included amongst the stated evaluation criteria, where relevant under the Public Contracts (Scotland) Regulations 2006.

Good clear records must be maintained to demonstrate how the parties have worked together to reach decisions, how best value has accrued to the Client and that probity and propriety have been maintained. It is essential to be able to demonstrate proper accountability.

Teamwork does not develop to its full potential until all of the parties, including individuals, have been open about their expectations and returns, the objectives of each are truly aligned and there is mutual benefit from the agreed outcome.

The Construction Industry Board's Model Project Pact is one of several practical tools for teambuilding and greater collaboration at project level. Where the Public Contracts (Scotland) Regulations 2006 apply, users of such tools must ensure that the Regulations are complied with.

Partnering Arrangements

Partnering arrangements may be appropriate, in particular where a continuous programme of broadly similar contracts is envisaged, thus allowing long-term supply chain relationships to be built up.

What is partnering?

This extends the definition of teamworking by adding the need for a more formal structure to be agreed by the parties which:

• identifies the common goals for success
• sets out a common resolution ladder for reaching decisions and solving problems
• identifies the targets that provide continuous measurable improvements in performance
• sets out incentives where these are not included within the formal contract

These are normally set down in a partnering charter which is signed by all of the individuals who are a party to the partnering arrangement. Annex E lists a number of activities that are commonly included in partnering arrangements, some of which are appropriate to teamworking.

Does this replace a formal contract?

The partnering arrangement and charter should not create a contract or a legal partnership and should contain an express provision making it clear that it is not intended to be legally enforceable. Although there might be a number of fairly standard separate contracts between each supplier and the client, a single partnering arrangement could be developed and agreed by all of the parties. A partnering arrangement developed in this manner is more likely to be appropriate to the specific circumstances and drawn up in a form that the parties to it are happy to sign up to. The alternative of adopting "off the peg" partnering arrangements, to fit over each of the more formal works contracts in a prescriptive manner is less likely to result in success.

The resolution ladder should require problems to be resolved and decisions reached by individuals at the lowest possible level within the respective organisations. It should set a time period by which a decision must be reached at that level before the issue is moved up to individuals at the next level in the respective organisations and so on up to the most senior levels.

What ensures the success of partnering arrangements?

They need the full and visible support from very senior management of each organisation. Partnering is not just a bolt on extra that delivers results through one partnering workshop. It is a continuous process that needs sustained effort by all of the parties to deliver measurable benefits. Partnering arrangements are likely to fail if efforts to contribute to their success are not sustained.

An important goal of partnering is finding ways of doing things differently by accessing the knowledge of all of the people and companies involved in the project to deliver improved performance. This requires flexibility, leadership and significant management skills.

An independent facilitator can be appointed to help the parties to form, and then work together within, the partnering arrangement. The facilitator, who might be an individual or an organisation, and available on call at all times, may be reimbursed in part through a success fee.

Which kinds of partnering arrangement exist?

• strategic partnering (longer term partnering for agreements involving more than one project); which may include framework agreements (covers both binding contracts and non-binding agreements) and contracts specifically written to cover a number of projects

• project specific partnering. These arrangements can be entered into successfully at various stages of a project and even after the construction stage has been completed, but it should be emphasised that the benefits of partnering will be maximised from commencing the process at an early stage in the project

The charter normally includes a statement to the effect that the arrangement only remains operative so long as all parties to it wish it to remain in place.

How to ensure strategic partnering arrangements are continuing to provide VFM

They should be checked from time to time to include, for example:

• comparison of performance against other contracts (total value for money of outputs and not just initial tender price)
• clear demonstration of a regular increase in value for money from the start of the contract
• rebidding the contract after a given interval

A library of case studies showing how strategic partnering and project specific partnering arrangements have been used can be found on the Website of the Government Construction Clients' Panel.

What are the main benefits of strategic partnering arrangements?

Irrespective of the type of partnering relationship that the client enters into with a primary supplier (such as the main contractor or main consultant), significant benefits in achieving overall value for money can be obtained where a primary supplier has entered into strategic partnering arrangements with secondary suppliers (such as sub-contractors or sub-consultants). Supply chain relationships of this type are essential to obtain the maximum benefits from partnering.

When considering whether to enter into a partnering arrangement with a successful bidder, it might be appropriate to ask the organisation if there are any conditions that they would require before entering into a partnering arrangement. It might not be unreasonable for them to expect the client body's most senior official to be personally committed to the success of the partnering arrangement.

It is important that everybody is rewarded when significant successes are achieved. This does not necessarily involve financial rewards but should include the public acknowledgement of the contribution made by team members.

Incentives

The use of incentives should encourage the parties to work together to eliminate wasteful activities that do not add value for the client and to identify and implement improvements, alternative designs, working methods and other activities that result in added value.

When are they appropriate?

Incentives should not be given merely for meeting the contractual requirements nor should they be made for improvements in performance that are of no value to the client (e.g. for completing a building contract three months early when the client is still committed to paying rent, rates and other charges on the existing premises).

When drafting contracts, consideration should be given to how incentive arrangements might be incorporated to deliver greater value for money.

Where possible, incentives should be arranged so that the party (e.g. sub-contractor or sub-consultant) primarily responsible for significant improvements in performance is rewarded accordingly, rather than the main contractor or main consultant.

Performance targets on which incentives are based must be measurable. Clients will need to weigh up the benefits of proposed improvements, exercising appropriate judgement before agreeing to them. Quality must not suffer as a result of accepting proposed improvements. Further guidance on abating the fees of consultants, paid on a percentage basis, is contained in Annex B.

« Previous | Contents | Next »