Wednesday, 22 January 2014

Procuring Value

Martin Gibson

Technical Director, Sustainability

Last week I was lucky enough to be in a forum discussing leadership in sustainable construction. It included sustainability leaders from some key construction companies. We covered a lot of ground but one of the key issues that came up was that most clients decide bids on the lowest capital cost. 
A few years ago this is what you would have expected in construction. A low cost bid wins the contract and then the winner spends the term of the contract making claims for things that weren’t covered. The success of the contract would be measured by how close the final cost was to the original budget and whether the work delivered was close to what the client had asked for.

However, things should have moved on by now!

All the talk of the past few years has been of procuring the best value. Cost is only one aspect of value.

The value should include how well a building or project delivers its intended outcome. For example, a high value new school will help children to achieve higher grades, will have low running costs and will help teachers to perform to their optimum level. It will do this over its entire lifetime. The school with the cheapest capital cost is unlikely to be the one that achieves this! The cost to society of a school underperforming is likely to be many times higher than a slight difference in capital costs between a standard and an exceptional building.

Unfortunately, there are lots of barriers to procuring the best value. One of them is inertia: it is easier to do things the way they have always been done. Another is that it is often very hard to measure value. In the example of the school, determining the value of the performance of a school is difficult and will require the collection and analysis of a range of data over a long time. This is an area where there will be a lot of benefits from collecting and using the so-called ‘big data’ that we can now store and analyse. However, we aren’t doing much of that yet.

Is it time for a new business model – the government has tried investment models on the rehabilitation of prisoners ( Could we ask private finance to invest in the extra capital cost during construction for exceptional schools? Can the benefits to society be quantified and then a model of return identified?

It seems as if we aren’t yet close to having the approaches needed to really procure the best value. However, we should start trying. Tools such as Geographical Information Systems (GIS) and Building Information Modelling (BIM) will have an important part to play in this but how far can the models go? Robust evidence of future performance which factor in return to society would enable better investment decisions. Whether or not you use such tools, the important first step is to understand the value of the outcome you are looking for. Then you need to work out which data can verify that you are achieving it.

So the next time you are looking at procurement, think carefully about what you are trying to achieve and what you need to measure. The lowest capital cost may also give the lowest value.

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