The appetite for frameworks is growing. But as Elaine Knutt reports, there are issues that need to be resolved.
Last month, 40 contractors bidding for the North East Procurement Organisation’s four-year framework had their work torn up after the client realised that inconsistencies in the data it had asked for could leave the process open to legal challenge. Housing provider Circle is in fact facing two such challenges, from contractors arguing that the successful bidders put in unfeasibly low bids. Meanwhile, Cyntra, a housing repairs framework operator owned by eight London councils, collapsed in June after being propped up with public money.
These events highlight some of the problems frameworks are facing. And that’s in addition to criticism from SMEs being excluded and lack of standardisation across the UK.
Despite this, frameworks are undoubtedly proliferating. They include the nine major regional frameworks (including NEPO) that market themselves to local authorities and other public bodies; repair and maintenance frameworks run by housing associations; small frameworks run by university estates departments or police authorities; and multi-billion pound deals operated by the Education Funding Agency, Ministry of Justice or Procure 21.
Not surprisingly, frameworks are accounting for a growing proportion of public sector construction spending. Figures supplied to CM by Glenigan show dramatic growth in the value of multi-year frameworks awarded in the period 2009-2012 — advertised values across the infrastructure, community and social housing have doubled from £8.26bn in 2009 to £16.56bn in the first nine months of this year.
Used intelligently, framework agreements can drive down costs by cutting out client and contractor risk and bid costs, create the opportunity for project-to-project learning and provide a stable platform for framework contractors to build their business.
But frameworks can also be expensive to run, exert a heavy cost burden in pre-qualification, and re-introduce risk and bid costs by adopting competitive dialogue between framework contractors for each project (estimated by the National Federation of Builders in its Procurement at a Crossroads report to be a feature of 50% of frameworks.)
Then there are the “hollow horses” — frameworks in name only that are either approved lists under an assumed name, or a means of bundling smaller works into a single OJEU tender. “Often they’re just a list of contractors, they don’t look at target costs, or open book contracting, or a real collaborative process. How can that happen if you have nine or 10 contractors bidding for work?” asks David Benson FCIOB, director of estates and facilities at Cardiff Metropolitan University.
Lack of standardisation
Overall, lack of standardisation means that best practice tends to remain just that: the exception rather than the rule. “No two frameworks are the same. If they’re managed properly, they’re a highly effective vehicle to deliver projects. But you need intelligent clients, and it needs to be done properly,” summarises Milica Kitson, chief executive of Constructing Excellence in Wales.
“There are too many frameworks out there,” adds Alan Coole, development director at Scape, which runs three frameworks that deliver projects for public sector clients. “Government could certainly do more to help the situation, to make sure there are good quality frameworks, and not just everyone doing it for the sake of it.”
But how does a construction company know whether it’s signing up to an intelligent client using a “closer to fewer” strategy, or a procurement team scrambling on a convenient bandwagon? Anyone in search of published data to demonstrate frameworks’ efficiency gains will find relatively little in the public domain.
Individual framework owners may choose to be open with their figures. Cardiff Met, for example, can demonstrate a £1m saving on a recently-completed £21m management school.
In addition, many frameworks, including those associated with the National Improvement and Efficiency Partnership, collate and publish Key Performance Indicators, tracking progress against criteria drawn up by Constructing Excellence, including timescales, costs, quality, local spend and skills training.
But there’s no obligation on frameworks to publish any of this data that would allow scrutiny and comparison, and filling this glaring “data gap” is one of the recommendations of the NFB report. In addition, as Benson points out, the information provided by KPIs tends to reflect the questions asked in the first place. “If the Welsh government were monitoring, for instance, they’d look at different indicators to local authorities, or SMEs. We need to get to a standardised process,” says Benson.
At Scape, Alan Coole agrees. “It should be possible to measure your framework against someone else’s. There was supposed to be a government initiative to measure framework performance, but it no longer seems to be operating.”
Nor is there a Quality Mark or British Standard to mark out good, accredited frameworks. What does exist is a 12-point checklist drawn up by the Cabinet Office’s Effectiveness of Frameworks Working Group, published in March 2012. According to Working Group member Professor Peter McDermott, from the University of Salford, government departments “have been encouraged to look at it, and to disseminate it [to procuring authorities]. I’d like to see this as a first step to expressing what frameworks are, and then for it to be central to collect the data”. However, its failure to make any impact in the past six months suggests that “encouragement” isn’t really enough.
In a recession, when there’s not enough work to go round, it’s probably impossible to find a procurement route to keep everyone happy. “You’ll never find the ideal situation, but you can improve it,” says Milica Kitson. “If the public sector is spending money, it has to be done in the best way possible.” And without greater standardisation and transparency — of bidding processes and costs; outcomes and goals — then confidence in a system that should bring benefits to both clients and industry will be undermined.
Unsuccessful bidders
There’s nothing new or original about questioning frameworks. For every company that is successful in winning a place, there will be dozens of unsuccessful bidders locked out of that particular market for years. For every major national or regional contractor signed up to aggregated contract bundles, there’s a regional or local SME that might previously have taken on this lower value work disbarred for not meeting the turnover or experience threshold.
And the scale of the problems is growing in step with the decline in public sector output. According to ONS figures, new orders for new-build public housing and non-housing stood at £17.2bn in 2009 and only £11.1bn in 2011, meaning more companies are bidding more often for the available framework places — and coming up against all the related problems and frustrations more often.
As construction output continues to drop, it’s no longer just SMEs finding themselves outmanoeuvred by larger, better-resourced national names. Medium-sized or regional contractors are similarly finding that frameworks’ attractively-sized lots bring competition from national players. “Compared to four years ago, we’re seeing more larger companies coming to bid [for Scape frameworks]. The bulk of the time, it’s the companies that previously weren’t bothered four years ago that are now looking to replace their turnover,” says Scape’s Alan Coole.
And there’s a widely-held suspicion within the industry that bid costs and costs of operating the framework can actually exceed the value of any savings made. A recent report from the Housing Forum quoted strikingly high costs for a four-year framework set up by three local authorities. The overall cost of bidding and running the framework amounted to £1,011,340, borne 30% by the client and 70% by the bidders, including PQQ costs of £2,850 each for 80 bidders, and mini-tendering costs for the five contractors of £234,000. The report authors suggest this could represent 5% of the overall framework value, assuming 40 projects at £500,000.
At Greater Manchester Chamber of Commerce, chair of the property and construction committee Phil Cusack recently wrote to cabinet secretary Francis Maude about the iniquities of public sector tendering in general, and frameworks in particular. “There are frameworks out there where I’m pretty sure the total cost of bidding has exceeded the total profits for all the projects. If you have 100 companies each with bid costs of £100,000, then the framework has generate more than £10m in profits before it can add anything to the economy,” says Cusack, a regional director of Aecom company Davis Langdon.
But if you do get on a framework, you’re hardly home and dry. “We’ve got on frameworks, and then get nothing,” says the business development director of a sizeable £150m+ turnover regional contractor, which has won places on around 30 client frameworks. “They publish headline figures that have no relation to what actually happens. So are they just doing it for market testing?
Is it a fall-back option, or a bit speculative? Or sometimes we see work being tendered and not going through the framework, and there’s no dialogue about why it’s happening. “There’s still quite a lot of risk, the projects themselves are smaller in value than we expected, and there’s far fewer coming through. Then they’ve told us to reduce build costs [which depresses margins], but we have the same bidding risks and costs, and [with design and build] we have to pay the same architects’ fees. At the same time we’re competing with larger businesses more able to make that strategic commitment to the client. We thought we’d done well getting on the framework and it’s great to get the experience, but now we’re losing money.”
Collaborative ethos
Feedback such as this sits uncomfortably with the collaborative ethos of frameworks, and also the partnership approach between industry and government enshrined in the Government Construction Strategy. But if the mixed quality needs to be addressed and frameworks made more accountable — to the construction companies that make them work and to the tax-paying public — what is the way forward?
The 12-point checklist from the Effectiveness of Frameworks Working Group seems an obvious starting point. “If adopted, these 12 points would give people the tools to have national conversations, and potentially make the whole system more transparent,” says the Working Group’s Professor Peter McDermott. Although it has failed to make much impact, it is being picked up in some quarters — the team at the London Construction Programme framework (see box right) say it has influenced their work.
In addition, McDermott believes the Constructing Excellence KPIs, currently used by government departments and some public sector frameworks, should be revisited in the light of today’s monitoring requirements. “The KPIs were founded at the time of the Egan report, in that they’ve got a particular flavour. When we asked government departments for data [on frameworks], that’s what they came back with. But it may be that someone else could come up with a different or better system.”
Scape’s Coole believes that framework operators need to work harder to improve internal processes, so that the framework is more than a wrapper sitting around the same old procedures. “We can cut costs by doing things simpler and cheaper, such as standard documents and contract processes. It’s often quite difficult for the public sector — it tends to take out risk by adding process. But by standardising things the contractors don’t have to learn loads of different processes.”
Other organisations are making similar moves. “The north east [NEPO] has been trying to lead on unified documents, and making sure everyone in the region is following a certain standard,” says Catriona Lingwood, chief executive of Constructing Excellence in the North East.
In Wales, the forthcoming Construction Procurement Strategy will set out its expectations on frameworks, including best practice on promoting access to SMEs by stipulating that work available should be split into several value bands.
But without a nationally agreed approach, laying down standards that everyone adheres to and can be compared against, it’s likely that these initiatives will create pockets of best practice, and leave under-performing frameworks untouched.
Poor-performing frameworks may be coasting for the moment — after all, it’s fairly easy to demonstrate efficiency savings in a recession. But if they want to drive further savings in the future, or even prepare for an upturn, then government and framework operators should be laying the groundwork for more efficient practices now.
The framework client’s view
The London Construction Programme will build on hard-won experience in many construction frameworks, write Haringey’s head of procurement Michael Wood, and construction procurement manager David Mulford.
Haringey was asked by London Councils to manage a construction procurement strategy for London. As councils’ existing framework arrangements expire, we hope they will come over to us. We have already established a pan-London framework for professional consultants, awarding contracts to 35 firms in April 2012. We’re now looking at the main contractors’ framework.
We’re conscious of the need to have a mixture of large national firms, and to keep the supply chain open for small and medium-sized firms. So we’re currently thinking through the process, with input from a group of councils, as well as the Metropolitan Police and London Fire Authority. We’re also planning market days to have discussions with contractors as we develop our thinking.
The drivers are to take out cost from the client side — the public sector spends a lot of money procuring individual frameworks. We also want to try to reduce the number of frameworks for economies and efficiencies. But we need to balance risk against choice, and give the contractors a programme of work, rather than just individual projects.
We are aware of the Cabinet Office report [including the 12-point “Definition of an effective framework”] and are referring back to it. For instance, it says that frameworks should have “demonstrable business need” — frameworks being put in place but then having no work is something we wish to avoid.
We’re trying to avoid creating a new organisation or quango, so we’re managing this as a “virtual” programme. We’re also trying to steer standard practices in the market — standardisation of documentation is a big aim. We’ve built software that will help us to improve KPI monitoring, which is aligned with the Constructing Excellence KPIs. We are also in discussion with Improvement and Efficiency South East to be able to compare KPIs and performance across the two regions, although doing it across the whole country is probably too ambitious.
Training and development for procurement staff is an issue. We’re having a meeting with CITB-ConstructionSkills to talk about courses they could offer. If we could develop something for the client side, that would be great. And the idea of a national institution for construction procurement, where intelligent clients in the construction sector could share best practice, is something we would welcome.
