The designs are ready, the funding has been promised - but when the tender submissions come in even the lowest is way above your original budget. So do you abandon the project completely or start a desperate search for more money? There are some alternative solutions, says Roy Weller.
Procurement is like pruning roses: everyone has their own theory about how it should be done. It is easy and safe to follow traditional methods, but it is also important to occasionally stop and think whether a new approach might help you to achieve better results.
This is particularly important when looking at the mechanical and electrical content of a project, where there is often scope to make substantial savings without taking away from either quality or performance. The conventional approach to procurement in the construction industry can easily miss these opportunities for cost-cutting, sometimes stopping the project ever getting off the ground.
Involved is a major national leisure facility. The client had obtained funding from a number of sources and had been promised grant aid from the Sports Council and other bodies, provided the project went ahead within a given timescale.
An architect and consulting engineer were briefed and prepared drawings and a specification for the work to go out to tender. When the tender submissions came back, the clients realised to their dismay that the available funds were simply not adequate to resource the developed scheme. Fearing that the project would never go ahead, they talked to the lowest priced main contractor to see if there was any way it could be saved.
The contractor then involved Trett Consulting in the discussions, enabling a strategy to be drawn up which eventually reduced the mechanical and electrical costs substantially and enabled the project to go ahead.
The cost savings came from two sources - from alterations made to the initial design and perhaps more significantly by going down the design-and-build route. Working as a team with the consulting engineer, new drawings were prepared eliminating some of the areas of waste -for example, by rationalising plant room locations and avoiding long external pipe runs which would also require trace heating.
Attention then focused on the form of the original specification, which had followed conventional practice by naming specific products, many of which could only be obtained from sole or preferred suppliers. This had the effect of reducing competition between sub-contractors, who were all restricted to buying items of plant and equipment from the same source at the same price.
Instead, a short brief was prepared with the client which stated in the broadest terms their requirements for lighting levels and criteria for heating, ventilation and air-conditioning etc. This was given to the two sub-contractors whose prices had been lowest in the initial tendering exercise, effectively freeing them up to do their own procurement and achieve economy through flexibility of design.
They were able to approach their own suppliers and make their own decisions about the products which gave best value for money and met the needs of the client. Because each was keen to secure the contract, competition was strong and the prices submitted were far below original estimates. The client and his funders were entirely happy with the changes made and the project is now going ahead within the planned timescale.
This is far from being an isolated case. Time and time again we see sole suppliers of engineering components putting a mark-up on a product because it is specified in a tender -and who can blame them? To avoid these pitfalls, contractors need to be given wider parameters within which to achieve savings.
Frequently there are other gains to be made by reviewing when and how contractors are involved - and as a typical contractor's fee is around 5% of the project, compared with 10% for a consulting engineer, these are worth looking at.
Design-and-build gives the contractor the power to do what benefits both his own business and the clients, ie to maximise the savings on site. Quality is no more at risk as long as the client's requirements are clearly set out and the project is carefully monitored at all stages.
It obviously helps to know the market - particularly in a specialist area such as mechanical and electrical engineering. A few chartered quantity surveying practices have their own M and E capability, one or two have concentrated on M and E as their main field of expertise. M and E specialists need to be able to work impartially for client or contractor. Very often their objectives are much more similar than you would imagine.
By acting as the honest brokers, a specialist surveyor can ensure that everyone gains the benefits of procurement techniques such as two-stage tendering. This process offers an increasingly popular alternative approach to that adopted by most professional bodies and clients.
The M and E surveyor, having established what the client is looking for, can produce an indicative programme for contractors to use when determining their overhead and profit recovery, declared labour rates and preliminaries. Comparisons can then be made to establish which contractor will provide the best value for money - perhaps by using modelling techniques to historic cost data.
At the end of the day the client will get a price for the job that is usually hard to better. Contractors also tend to favour this method as a project can be tendered and the contract awarded within a week. It can otherwise take several of the contractor's employees four or five weeks to deal with a conventional specification, where there may be numerous drawings and reams of paperwork to contend with -and this process in itself inevitably adds to the overheads.
Another area where the extent of potential savings is not always apparent is in the preparation of bills of quantities. These appeared to go out of favour for some time but are now coming back into vogue as a means of eliminating ambiguities in procurement and keeping control of costs throughout the contract period.
Finally, with forecasts of major increases in tender prices it will become all the more essential to adopt a flexible approach with regard to procurement. We are all well aware these days that time is money -and nowhere more so than in the procurement stage of a project.