Consulting Partner Terry McAdam writes in the Construction Industry Federation Magazine that cost and value for money remain valid considerations in respect of the tenders submitted, but they cannot be viewed in isolation. Balancing the procurement scorecard - Terry McAdam writes in the Construction Industry Magazine

 

The confidence of the public in the ability of the State to deliver construction projects of scale has been eroded by a series of recent controversies. The National Children’s Hospital project is only the latest example of delivery issues within projects of this nature. The implosion and collapse of the UK-based Carillion group impacted on the completion of schools here in Ireland while, separately, there have also been reviews conducted to assess the structural integrity of other school buildings already in operation.

There are many lessons to be learned from these projects and the problems they encountered. In the case of the National Children’s Hospital, preliminary reviews have highlighted shortcomings with regard to many critical disciplines including project governance, design and execution. These matters are indeed important, but are they the entire story as to why some sizeable construction projects fail to deliver to expectations? The role of the initial procurement process, in contributing to challenged projects, also seems worthy of some examination.

 

COST FOCUS

Over the past decade, as a response to the financial crisis and its impact on the public finances, there has been an increased focus on the cost of goods and services, and the value for money they represent. There is a very different risk profile attaching to the procurement of a commodity, such as laptops, on a one-time basis from a vendor and the award of a multi-million, multi-year contract for the construction of a hospital or school to a contractor. Cost and value for money remain valid considerations in respect of the tenders submitted for a construction contract, but they cannot be viewed in isolation from other equally important concerns.

 

GOOD PROCUREMENT PRACTICE

The principles of good procurement practice should encourage those who author and approve Requests for Tenders pertaining to construction projects, and those who evaluate the subsequent submissions received, to reward contractors for providing evidence of the following:

  • An extensive track record of the successful delivery of contracts of a similar scale and complexity;
  • An appropriately structured, skilled and experienced management and delivery team of a suitable scale to deliver the project within the proposed timeline brought forward;
  • A comprehensive understanding of the risks inherent within the project and how these may be mitigated where possible;
  • Sustained financial performance and tangible evidence of access to the funds to undertake the project in question; and
  • Robust quality management processes to underpin both the quality of the project deliverables and ongoing engagement with the procuring authority via project reporting and meetings.

The balancing of the tender evaluation scorecard to give proper relative weighting to these non-financial and operational elements alongside the tendered cost is likely to lead to the selection of a contractor on the basis of a tender which can more accurately meet the description of the most advantageous received.

 

PROCURING WITH CONFIDENCE

To approach the delivery of a construction project of scale with confidence, the procuring authority, and its board, will need to feel assured that they have appointed a contractor with the correct skill set, resources, knowledge, experience, financial robustness and commitment to see the project through to a successful conclusion. Both parties will share a common purpose centred around project progression and completion. However, such quality contractors can only exist when they are making an appropriate return on each project, they undertake given the scale and nature of the project concerned and its risk profile. Conversely, procuring authorities who focus excessively on cost and value for money considerations, leading to contractors submitting very keenly priced tenders, may find themselves not receiving bids from the better operators. Hence, the procuring authority may find itself unintentionally increasing the risk profile of a construction project by awarding the contract to operators with less resources, weaker financial standing or reduced track record. Such an outcome is clearly neither in the interest of the State or a taxpayer.

As the country looks forward to the delivery of flagship initiatives such as ‘Project Ireland 2040’ and ‘Rebuilding Ireland’, it is imperative that project delivery issues are consigned to the past. Revisiting the relative priorities within the construction procurement phase is a key step in ensuring we adopt a more sustainable approach to construction project delivery.

 

As seen in the April/May 2019 issue of CONSTRUCTION, the official maazine of the Construction Industy Federation