Advice for Sub-Contracting Arragements: Issues with BIM and Procurement

Advice Report:

Summary: This report is to provide professional advice for DA Construction discussing sub-contracting arrangements and the issues which arise when BIM and Procurement are paired.

Contents…

Introduction

The framework agreement that DA Construction have just entered in to has many projects whereby Birmingham City Council is the client. As part of the first call-off there must be consideration to how the company can improve their performance and achieve a long-term relationship. This advice is based on sub-contracting, partnering and supply-chain management and how each aspect can benefit DA Construction and the client.

Sub-contracting

Due to the framework agreement DA Construction have taken on they must appoint roles for their selected sub-contractors to ensure the work is done on time and to the standard required.

The sub-contractors may be specialised in certain areas for example one of the sub-contractors to be specialised in Cladding systems. This is more in relation to Nominated sub-contracting whereby DA Construction will appoint the sub-contractor and they carry out a part of the contract. This differs from other types of sub-contractors as the Client (Birmingham City Council) will have influence on selection of the nominated sub-contractor. This form of sub-contracting is permitted when a prime cost sum is entered in a bill of quantities- the client will negotiate a price with the nominated subbie and then allows the main contractor to appoint the works. The contractor and the architect must also agree to a specified subcontractor to carry out part of the work and due to time constraints the materials must be ordered early. There are benefits associated for both the client and sub-contractor using the route of nominating sub-contractors. The client is able to select the specialist contractor it wants/prefers, achieve the design the desire and have valuable engineering input, also allows the client to have direct access during the progress of works. The sub-contractor benefits by having much greater certainty of payment.

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Named sub-contracting (domestic sub-contracting) is an alternative option to nominated subcontracting where the contractual relationship is less complex (Design Buildings Wiki, 2018). Unlike nominated, the main contractor has the liability of the construction works which is considered a more favourable approach to the client as there is accountability associated. How it works is there is a list of acceptable sub-contractors provided by the client which are then invited to tender, the client then short-lists the acceptable ones these are put in the tender documents in the main construction contract. The performance of the sub-contractors is the responsibility of DA construction and in which they are also paid by you as the main contractor.

Certain criteria should be put in place when selecting sub-contractors, preferably the contractor will want sub-contractors based on past performance, suitable experience, track record of competitive pricing and financial stability. Birmingham City Council may have a pre-determined list of subcontractors who have been part of projects before who they consider to be trusting. The insurance policies are highlighted in criteria selection as well as the cost and time priority. These factors of the project will contribute to the overall success of the project. On public sector projects such as these in question, a sub-contract for which the client intends to nominate, may be subject to the requirements of the OJEU Procurement Rules however these are subject to changes due to Brexit.

Overall, With the nominated approach the owner is given the authority to select the sub-contractor at any time, even long after the main contract has been entered to. 

In such contracts there is a possibility of cost claims by the Main contractor if there is delay from nominated sub-contractors, but this rarely happens because the contact is between the nominated and the main contractor. Nominated also allows the client can make comparison among the subcontractor and choose the most suitable one to take over the specialist work.

Partnering

There is need for modern methods of procurement stems from the inability of procurement routes to meet all the needs of the employer. The best option would be Partnering for this framework. Partnering is used for collaborative management and openness between parties making them become dependent on each other to be constructive, (Constructing Excellence, 2015). It is a co-operative approach to managing a contract through teamwork with an Open book approach. Resulting in a reduction in litigation and time/cost overruns, payment without delay to all parties and cost savings of which up to 25% has been achieved.

 A framework is defined as “An agreement between one or more contracting authorities which establishes the terms under which the economic operator will enter into one or more contracts with a contracting authority in the period during which the framework agreement applies” (UK Public Procurement Regulations, 2015). This agreement is not a contract, it is the arrangement of the Birmingham City Councils projects whereby contractors will input there tender. These individual projects are known as call-offs which are carried out in different forms of contract basis. Due to the projects being under the council they’re considered public works therefore the most common contract would be NEC for this these types of projects.

As you are procuring on a long-term basis, a framework can deliver many benefits, such as reduced transaction costs, continuous improvement throughout and achievement of better value. There is also Improvements in environmental performance and greater sustainability resulting in a reduction of environmental impact. This agreement ensures performance monitoring where the predictability of cost and time design of the construction is overseen. There is also opportunity for response from clients to say how satisfied they’re with the projects, this is used as a scale of 1-10. As Birmingham City University is continuously commissioning construction work, they may want to reduce procurement timescales and other risks such as health and safety risks. Using a framework agreement allows the Council to invite tenders from suppliers of goods/services to be carried out over a period of time on a call-off basis as and when required. The diagram illustrates how a framework with 2 or more agreements is broken down between projects. Each project called-off under the agreement has its own contract.

Contracts are commonly comprising of a partnering agreement in conjunction with an amended typical form of contract. The provisions of the arrangement such as attitude, performance, incentives for reward or consequence as well as allocation of the risks, this is provided in the partnering agreement. As there are several projects, strategic partnering should be used ensuring greater gains through a cumulative effect.

Supply-chain management            

Supply chain management is a network of organisations that are involved in upstream and downstream linkages in which different activities produce towards the construction industry, (Christopher, M 1992). These organisations consist of employers, consultants, contractors, sub-contractors, suppliers and manufacturers. Each company in the chain will have a client associated but they’re all working in favour of the Employer. They work together to ensure added value, in terms of reduced costs and efficient waste removal. Similarly, to partnering, there is a higher level of joint goals where there is a common purpose and a set of mutually agreed goals.

The use of supply chain management will allow for DA Construction to gain many benefits such as reduced real costs and greater certainty of out-turn costs which in-turn helps to increase savings in production and procurement costs. There is also more repeat business with clients as they become more trusting of those in the supply chain. It also achieves greater confidence in longer-term planning due the sharing of resources, information and learning. As there is shared risk and profit there is mutual competitive advantage.   However, there are high costs when it comes to implementing supply chain management and competitors can copy the strategy DA construction will have used. It is also best if those using supply chain management have experience and skills to achieve a greater level of output as the different functions of chain are hard to manage. This management does not encourage new partners and requires a lot of time and trusts between the companies associated. The reasons this main fail is due to the lack of commitment from the parties involved, if there is a lack of leadership and insufficient allocation of resources.

The construction industry has the difficulty that every project is different unlike the automotive industry. This is developed by a team of professionals in the industry and other suppliers that may have not worked together before and may never work together again. Different procurement routes cause building elements of supply chain management with various disciplines and organisations which adds to complexity, this is due to the level of responsibility of client/contractor differs depending on the procurement choice.

Procurement is meant to be in conjunction with SCM however, many times the supply chain suffers from a lack of collaboration between the two. They’re both used to achieve a common goal but when pared effectively they are much more efficient. The objectives they can achieve include reduction in costs through using the ‘just in time approach’ and having strong communication between procurement team and supply-chain team. There is improved flexibility as there is shared operational data, so it can be assessed easily, and management can act quicker (Datex Corporation, 2019). Making the most out of the relationship between procurement teams and SCM teams allows for efficient thinking. Although Supply-chain management has the main disadvantages are the costs and complexity associated with this scheme in which companies will have to hire professionals who are specialised in it (Reference, 2019) however this said if managed properly with reliant partners it can be very beneficial to companies.

Conclusion

With supply-chain management in practice, larger companies offer the continuity of construction and greater appeal in creating relationships beyond direct. Framework and partnering agreements established this approach, encouraging the involvement of selected suppliers at the earlier stages of projects while offering a stable amount of work. This has led to better collaboration between parties of the construction industry. The use of BIM encourages forward movement of the industry shown in the power point provided. These arrangements have one thing in common which is the intention to move beyond the limitations of traditional project relationships.

References

• Bennett, J., Jayes, S. and Bennett, J. (1998). The seven pillars of partnering. London: Telford.
• Christopher M. (1992) Logistics and Supply Chain Management: Strategies for Reducing Costs and Improving Service Pitman Publishing
• Constructingexcellence.org.uk. (2015). [online] Available at: http://constructingexcellence.org.uk/wp-content/uploads/2015/03/supplychain.pdf [Accessed 29 Dec. 2018].
• Constructingexcellence.org.uk. (2015). [online] Available at: http://constructingexcellence.org.uk/wp-content/uploads/2015/03/partnering.pdf [Accessed 7 Jan. 2019].
• Designingbuildings.co.uk. (2018). Supply chain management in construction – Designing Buildings Wiki. [online] Available at: https://www.designingbuildings.co.uk/wiki/Supply_chain_management_in_construction [Accessed 29 Dec. 2018].
• Postlethwaite, K. (2016). An Update on Framework Agreements. [online] Tenders Direct Blog. Available at: https://blog.tendersdirect.co.uk/2016/04/13/an-update-on-framework-agreements/ [Accessed 28 Dec. 2018].
• Datex Corporation. (2019). 5 Benefits of Procurement & Supply Chain Collaboration – Datex. [online] Available at: https://www.datexcorp.com/top-5-benefits-of-procurement-and-supply-chain-collaboration/ [Accessed 9 Jan. 2019].
• Reference. (2019). What Are the Disadvantages of Supply Chain Management?. [online] Available at: https://www.reference.com/business-finance/disadvantages-supply-chain-management-5b96f080aefe1466 [Accessed 9 Jan. 2019].