Procuring for a successful outcome: presentationHow to get on the right track

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Speakers

Nigel Goddard, Partner, Pellings

Professor Stuart Green, Professor of Construction Management, University of Reading

Kristian Melgaard, Managing Director, Barking & Dagenham Reside

Jonathan Sims, Chief Procurement Officer for Engie UK & Ireland

Getting on the right track….

“Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process.

Procurement generally involves making buying decisions under conditions of scarcity.”

The world is changing….

The Five Pillars of procurement ✓ Value for money✓ Open and effective competition✓ Ethics and fair dealing✓ Accountability and reporting✓ Equity

Top objectives of most business's purchasing departments.o Lower costs. This is by far the primary function of the

purchasing departmento Reduce risk and ensure the security of supplyo Manage relationshipso Improve qualityo Pursue innovationo Leverage technology

“Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives. Procurement delivers a range of benefits. It not only seeks to reduce costs and to ensure supply, it also supports strategic organisational objectivessuch as market expansion and product innovation.” (CIPS)

Setting the Scene….Purchasing v Procurement

Construction procurement: Where did it all go wrong?

Stuart Green

14th November 2019

Procuring for a successful outcome

• Promoting innovation through procurement

• Procuring for outcomes and value

• Encouraging collaboration through procurement

• Early contractor involvement (ECI)

• Empowering the supply chain

• Rethinking the business model

• Identifying key enablers

• Managing risk

• Modern methods of construction (MMC)

The standard view of construction

• Industry synonymous with a sick, or even dying patient.

• Dysfunctional training model.

• Lack of innovation and collaboration.

• Non-existent R&D culture.

• Low productivity continues to hamper the sector.

• Critical shortage of skilled workers.

• Flawed business model.

Resistance to change is a myth

An alternative diagnosis…

• Focus lies on understanding how the construction sectorchanges over time in response to an evolving policyenvironment.

• Coverage includes the changing way we think aboutprocurement, and how it is organised.

• Procurement policy dictates what we give attention to; it alsodictates what we ignore.

• Procurement policies over time are directly implicated inshaping the deficiencies which we routinely decry.

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Five distinct phases

• 1945-1979… the age of the planned economy.

• 1979-1997… the dawn of enterprise.

• 1997-2010… enterprise meets social democracy.

• 2010-2016…the new age of austerity.

• 2016-date…a legacy of dilemmas.

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The age of the planned economy

• Nationalisation synonymous with modernisation

• Ministry of Public Building and Works.

• Tripartite social contract.

• Massive investment in public housing.

• Consensus on the role of demand management.

• Widespread support for direct employment.

• Emphasis on consistency in placing of contracts.

• Procurement advice was to fix everything in advance

• Ensure complete information shared with all parties.

Homes for heroes

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1960s High Rise Housing

15

16

(Source: Construction Statistics Annuals)

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The dawn of enterprise 1979-1997

• Trust in top-down State planning had broken down.

• Liberalisation of the economy.

• Extensive privatisation: British Airways, British Gas, British Leyland, British Telecom, BAA, British Rail, PSA, BRE

• Confrontation with trade unions – miners’ strike 1984-5.

• Imposition of spending restrictions on LAs.

• Creeping centralisation in government.

• Right to buy – 1 million homes in 10 years.

The enterprise culture

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Privatisation and outsourcing

• Extensive privatisation of the industry’s client base.

• Widespread outsourcing of professional expertise (PSA,1990; LAs).

• Retreat of government as a provider of mass housing.

• Shift of responsibility for existing housing stock tohousing associations/TMOs.

• Outsourcing strategies driven by regulatory pressuresand the introduction of yardstick competition.

• Demise of Direct Labour Organisations (DLOs).

• Compulsory Competitive Tendering (CCT).

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Housing completions by tenure 1946-2018(Source: MHCLG)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Stacked area

All dwellings Private enterprise Housing associations Local authorities

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Strategic imperative of ‘structural flexibility’

• Systemic reliance on subcontracting.

• Emergence of the ‘hollowed-out’ firm.

• Growth in self-employment from 30% in mid-1970s to 50% in mid-1990s.

• Reduction in trade union membership.

• Decimation of apprenticeship system.

• Proliferation of procurement methods: design-and-build, management contracting, construction management.

• Declining status of the traditional ‘professional’.

Innovation vs change

1979-1997 Conservative Government

New Labour Government

Self-employment: 1984-2003Source: Labour Force Survey

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The Egan Report

• Perennial argument that the construction sector is under-achieving.

• Recurring problems: poor quality, lack of modernisation,adversarial culture, client dissatisfaction, fragmentation.

• Exhortation to procure on basis of ‘Egan principles’.

• Overriding emphasis on efficiency; eliminate waste whichdoesn’t add value to the client.

• Construction sector restructuring legitimised bythe Egan Report (1998) – Year Zero.

• Legitimising storylines: lean construction, supply chainmanagement, partnering, collaborative working.

Dissenters few-and-far between…

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1998 2002 2008 2009

A cloying consensus….

Enterprise meets social democracy

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Enterprise meets social democracy

• PFI relabelled PPP

• Schools, hospitals and prisons

• Performance management runs rampant.

• Discourse of sustainability – triple bottom line

• Proliferation of improvement quangos

• Partnerships, partnering, collaborative working.

• Rapid increase in migrant workers from Eastern Europe from 2004.

• Financialisation of major contractors.

• Emergence of global mega-consultancies.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Self-employment:1997-2018Source: Labour Force Survey

1997-2010 New Labour Government

2010-2015 Coalition

Conservative

One Death is too Many (Donaghy, 2009)

• “The Construction Industry generally is modelled to provide maximum flexibility. Consequently the majority of functions are contracted out and at least 40% of workers are self-employed or CISs”.

• “The advantages are obvious in that it reduces overheads. Some but not all argue that it improves profitability and productivity. The disadvantages are that it become more difficult for a safety culture to flourish, worker engagement is weak, employment security and continuity is minimal and skills training is at best patchy.”

New age of austerity 2010-2016

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New age of austerity 2010-2016

• Bonfire of the quangos.

• Debate stripped back to cost reduction, carbon reduction. Two dimensions.

• Low cost procurement dominates.

• Leanness and agility in the marketplace.

• Partnering marginalised.

• Low carbon jobs, retrofitting the housing stock.

• PFI/PPP exposed as poor VFM.

• BIM becomes the answer to every problem.

24 June 2016: UK votes to leave EU

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Farmer review– October 2016

• Primarily focused on house building – also invited to examine the barriers and enablers to the greater use of off-site construction.

• Egan report is lauded as a ‘watershed’.

• Previous calls to arms have not been acted upon by the industry.

• Ticking ‘time bomb’ is the industry’s workforce size and demographic.

• “The wide-scale incidence of self-employment is a reflection of the desire for flexibility”.

• 10 key recommendations – no cherry picking.

A legacy of dilemmas

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Cole Report (2017): Edinburgh Schools

• “The construction industry … suffers greatly from the boom and bust syndrome, resulting in difficulty in maintaining the availability of highly skilled tradesmen because of the lack of a guaranteed continuity of work”.

• “The traditional and hugely valuable concept of building contractors employing and training tradesmen such as bricklayers and joiners through apprenticeships within their own workforce has also largely disappeared”.

Hackett Report (2018)

• “Roles and responsibilities for ensuring building work meets the requirements of the Building Regulations are unclear”.

• “This lack of legal accountability within the current system is exacerbated by industry fragmentation and multiple layers of sub-contracting. It is inconsistent with other contexts where ensuring delivery of ‘user’ safety is a fundamental issue”.

Raising the Bar – Interim report (2019)

• Low margins and the cyclical nature of construction also contribute to the lack of direct employment, and the proliferation of the sub-contracting model within construction.

• This lack of investment within a directly employed team, can lead to a lack of maintenance and development of workforce skills, which could hamper the safe and competent delivery of the project.

• Contractors are increasingly divorced from the point of execution on site, sometimes by up to four or five layers of contracts and often ending in the use of transient self employed labour.

Concluding thoughts on ‘quality’

• “The place to improve the world is firstin one's own heart and head and hands,and then work outward from there.”

Robert M. Pirsig

Positive steps to take us forward

• Encouragement and support of direct employment and investment in skills development – clients to agree a ‘code of employment’ (CLC, 2019).

• Reflects a broader trend towards supply chain transparency.

• Modern working practices: responsible corporate governance, good management and strong employment relations (Taylor, 2017).

• Sectoral strategy to ensure that the low paid are not stuck at the living wage minimum or facing insecurity.

• Reclaim the idea of building stewardship: thinking beyond fixity and permanence.

• Celebrate and strengthen notions of professionalism – knowledge about construction procurement should be in the public domain.

Procurement: lessons learned from the client side

Kristian Melgaard

Managing Director

Barking and Dagenham Reside

An introduction to me and Barking & Dagenham…

✓ Investing over £750m tobuild over 3,000 newcouncil funded and builthomes over the next fouryears

✓Set up of Be First, a whollyowned council regenerationcompany, to accelerate thepace and scale ofhousebuilding across theborough.

✓Expansion of Reside, awholly owned local housingcompany, to let, manageand maintain the newhomes built.

Start by giving a focus to the…

1. Programme

2. Policy

3. People

4. Politics

5. Problems

Really understand the market…

1. Your current

approach

2. Research good

practice &

innovation

3. Engage your

networks & peer

groups

4. Explore the risks

5. Establish a clear

purpose

Assemble the right team…

1. Identify the

resources required

2. Set your timescales

3. Define

responsibilities

4. Equip your team to

manage complexity

5. Obtain professional

advice

6. Engage stakeholders

Get the governance right…

1. Clarify thepurpose

2. Establish thestructures

3. Develop acommon vision

4. Be clear on rolesandresponsibilities

5. Commit totransparency

Invest in the partnership…

1. Plan a programme

2. Declare commitments

3. Gain support of stakeholders

4. Scrutinise robustly and address issues promptly

5. Review, challenge, and reinvigorate

6. Respect the partnership

7. COMMUNICATE!

Thank you for listening!

Kristian Melgaard

Managing Director

Barking and Dagenham Reside

RESTRICTED INTERNAL SECRET

Group Procurement Department

ENGIE Procurement

November 14th, 2019

“We are ENGIE Procurement”

What are ENGIE doing?Our “three pillars”

ENERGY

Power GenerationStorage

RenewablesTradingSupply

SERVICES

Facilities ManagementTechnical Services

Energy ServicesBusiness ServicesLifecycle Services

REGENERATION

Development & InvestmentSustainable HousingBuilding Renovation

Community DevelopmentProperty ServicesRetirement Living

ServicesFacilities Management

Technical ServicesEnergy Services

Business ServicesLifecycle Services

EnergyPower Generation

StorageRenewables

TradingSupply

RegenerationDevelopment and Investment

Sustainable HousingBuilding Renovation

Community DevelopmentProperty ServicesRetirement Living

ServicesFacilities Management

Technical ServicesEnergy Services

Business ServicesLifecycle Services

What are ENGIE doing?Our “three pillars”

JONATHAN SIMS – CPO ENGIE UK

The ENGIE HomesteadFuture Model’s of Procurement

Roof integrated solar PV

Coupled local energy networks & battery storage

Smart heating and hot water solution (smartphone

controlled)

Super insulated, air tight and thermal bridge free envelope

LED Smart lighting throughout and energy

efficient smart appliances

Future proof electric vehicle charging point

and broadband

Shallow loft area for inverter & ASHP

Integrated smart tools and control strategy

Maximising sunlight, greenery and water

harvesting

Smart security and entry system

Supply and Demand

• Key materials and trade availability challenges.

• Planning and visibility of pipeline both internally and externally

Quality

• Ensure our supply chain deliver the quality our clients expect.

• Training

Compliance

• Ensuring compliance to specification and order.

• Insurance

• Quality

Legislation

• Brexit

• Understanding future regulation changes.

MMC

• Need for alternative solutions.

• Understanding what method suits.

• evaluation.

Engagement

• Internally and externally

• Understand what our clients want now and in the future.

Supply chain challengesOur view

Source - Dr Terry Keech B Eng(Hons) C Eng PhD MCIBSE MEI MIET

Supply chain challengesIndustry make up

No experience Little experience Experienced

12

42

91

55

159

40

3225

75

84

9792

99

41

77 71

115

90

111

66

24

53

7

90

104

66

41

Solar Photovotaic

Solar Thermal

Ground SourceHeat Pump

Air SourceHeat Pump

Wind Turbine

Communal Heating / CHP

MVHR (1) Passive Building Design

Biomass

Num

ber o

f Res

pond

ents

Experience of Low Carbon Technologies currently used M&E Contractors in the UK

2 – 13 Employees

Sole Traders

14 – 24 Employees

More than 25 employees

2% 2%

44%

52%

Higher quality Improved planning Risk reduction Innovation &

value creation Collaboration Responsible procurement Improved margin

What are we doing?ENGIE Procurement Client of choice

Stage 1 - Detailed spend cub analysis, top 35 category analysis, rebate generation and compliance reporting. Procurement routes and success.

Stage 2 - Supply chain long-list generation. Multidisciplinary divisional teams across operations, commercial, finance, work winning, legal and procurement.

ANALYSIS

Understanding the current procurement

& supply chain landscape

Supply chain long-list formation via multidisciplinary team

WORKSHOP 1 -FORMATION

Stage 3 - Afford the business with key supply chain information to enable it define, select and consolidate the supply chain with greater certainty.

Stage 4 - Based uponthe business profilingand scoring by the keydivisional stakeholders,we build and structurethe supply chain.

Stage 5 - Production of the category, supplier and subcontract potential work profiles aligned to the business plan - client, sectors and procurement routes. Understand the future supply chain composition, exposure levels and spread of work across strategic, preferred and approved supply chain members. Understand where gaps exist and enable proactive identification, profiling and introduction of new entrants.

Supply chain profiling and assessment

ALIGNMENT

Supply chain selection &

segmentation

Develop the future work profile

WORKSHOP 2 -DIVISIONAL / NATIONAL

SELECTIONStage 6 - Formal communication of the ENGIE supply chain relationship status. Assignment of an ENGIE Senior Point of Contact (SPoC) to be the relationship manager for all strategic relationships. Agree relationship management plans, SLA’s / KPI’s and standard terms and conditions.

Stage 7 -Communication of the process, the journey, our commitment and the future. Awards to leading suppliers and subcontractors. More effective communication, collaboration, alignment and integration.

VALUE CREATION

Supply chain engagement

Strategic Supply Chain Conference

Delivering Client of choice7 Steps

Client of choiceStructure & Reward

Not Approved

New Entrant

(INNOVATION & COMMERCIAL EDGE)

Approved

(TRANSACT)

Preferred

(MANAGE)

Strategic

(INVEST)

InvestmentClean growth fund