Better construction tendering means big savings to Crown

A collaborative exercise between the Government and Industry to improve construction tendering and contracting processes should lead to multi-million dollar improvements for both parties in future years says the Chair of the Construction Strategy Group (CSG), Geoff Hunt.

The CEO of Hawkins Group, Geoff Hunt, says new guidelines produced for state agencies to use in major construction projects should result in cost savings and value enhancements of at least five percent of the annual $7 billion spend.

“This amounts to about $350 million and our view is that the five percent should be regarded as a minimum objective if all or most agencies follow the advice provided in the new guidelines and accompanying manuals.

“It is pleasing to us that the Crown has recognised problems encountered with contracting procedures in the early stages of the Christchurch Rebuild. It was recognition of them, coupled with the establishment of the Centre of Procurement Expertise within MBIE, which enabled the collaboration to get better outcomes.”

Mr Hunt says among the changes the guidelines are intended to bring about are better and earlier communication between the tenderer and contracting parties, greater effort to allocate project risk to the parties best suited to manage them, more regular use of standard contracting procedures and an emphasis on total cost of ownership and “best value” rather than lowest cost.

“Late and infrequent project communication between private enterprise and state agencies, emphasis on allocation of all risk factors primarily to contractors and consultants and the issuing of incomplete contract documents prior to the calling of tenders are problems that these guidelines address. Such practices lead to higher costs of bidding and, as a consequence, increased costs to the Crown.

“The public sector is the dominant force in the overall New Zealand construction market. Realisation by procurement staff of MBIE working with Crown agencies on rebuild projects that there was a need to enshrine best practice procedures was very helpful to industry. It is the effort they put in which laid the foundation for the new guidelines. Their willingness to work with CSG, industry expert groups and engineering and architectural consultancies to remedy the situation was commendable.

“From an industry viewpoint we would like to see the guidelines adopted for use by all local governments and all state agencies. The approach should be that these are automatically followed unless a good reason or reasons can be provided why an alternative process is to be used. The potential savings to taxpayers and ratepayers as well as industry are too great to allow wide-spread non-observance of them. Already both the public sector and industry have contributed a great deal of time and money to produce this best-practice material.”

He says particular sectors which could benefit significantly from the new guidelines are those of education and health.

“The commonly held belief among building contractors is that for a range of different reasons, especially cost pressures, less than optimal results have often been notable in these sectors. Many cases of leaky school buildings could have been avoided if more attention had been given to best value bids rather than the appeal of lowest price tendering.

Mr Hunt says the industry has confidence that projected savings and enhancements can be achieved because of evidence from the United Kingdom which showed that in 2014-15 full year cost savings in excess of $2 billion dollars had been achieved through a combination of collaborative procurement and construction cost benchmarking for core departments.

“Implementation of the principles outlined in the guidelines along with Building Information Modelling (BIM), plus measures to improve public clients understanding of the relationship between forward work pipelines and skills and materials demand and supply, should remain at the forefront of government procurement.

“Introduction of the Global Procurement Agreement (GPA) makes it all the more important that state agencies observe these guidelines and follow the rules and principles established for Government procurement. A strong government procurement platform and consistent adherence to it will give confidence to local and international businesses that there is a fair and stable base on which they can rely.

“There should, in our view, be an obligation on heads of Ministries and Departments to ensure there is such adherence. Confidence within the construction and building materials supply market in the commitment of state agencies to the platform now established will greatly enhance the ability of government to obtain best value from its suppliers.”

ENDS

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