Jonathan Harris – Procuring a Healthy Project

In light of the Building Safety Act and the 2023 Amendments to Building Regulations, prioritising quality over cost has never been more crucial in construction procurement. Jonathan Harris, calfordseaden Equity Partner, explores why a ‘race to the bottom’ pricing strategy is detrimental to long-term project success.

We’ve all been there before – a client is tendering a construction project, and they split their tender criteria between;

• A qualitative submission – seeking that the tenderer demonstrate how it will provide a senior and competent team, deliver a project using quality materials, keep robust records of design and construction activities, engage specialists to support their design & construction, take health and safety and local engagement seriously, deliver on its social values in the local community, pay its staff and supply chain above minimum wages, and invest in their wellbeing.
• And then… A pricing element where the lowest price wins.

The Impact of the Building Safety Act on Procurement Strategy

In December 2023, I wrote an article on procurement strategy for Higher Risk Buildings, where I mentioned that both clients and contractors are now required to invest greater thought into their procurement strategies. This is due to two-stage tendering and partnering becoming far more relevant due to the Gateway 2 process. I specifically mentioned that I believe that a ‘race to the bottom’ (cheapest price wins) pricing approach is incongruous with the intentions of the Building Safety Act (BSA). Since the implementation of the 2023 Amendments to the Building Regulations, I believe that this carries more weight.

The BSA brought about a totally justified regime of remediation to existing Higher Risk Buildings across the country. I would hazard a guess that much of the defective work which is found to have been built into these buildings during construction or added into these buildings during their occupation can be traced back to procurement methods. These methods are founded on a ‘race to the bottom’ pricing methodology. I wanted to re-visit these ‘qualitative’ aspirations that a client or contractor is seeking in the following text.

Legal Obligations for Principal Designers and Contractors

Senior competent and expert team could now be paraphrased as “the skills, knowledge, experience, and behaviours necessary” – recognise that terminology? It’s straight out of the 2023 Building Regulations Amendments and is now a statutory obligation for clients, Principal Designers (PD), and Principal Contractors (PC) to satisfy themselves relative to those engaged in construction.

Principal Designers and Principal Contractors (now, realistically, the same party under a D&B contract) now have a statutory duty to have “…control over the design work…” and “…control over the building work…” respectively. By virtue of this, they have a need to engage specialists to ensure that the designers and their sub-consultant/contractors have the personal and organisational skills, knowledge, experience, behaviours, and capability necessary. As a result, this ensures that the design work (a requirement for the PD) and building work (a requirement for the PC) is in accordance with all relevant requirements.

Robust records of design and construction activities throughout are now appropriated in law as the Gateway and Golden Thread process, which now applies to Higher Risk Buildings since the introduction of the BSA. However, there is also now a requirement for all building work that falls under the Building Regulations for the Principal Designer to confirm that “…the design work so that the building work to which the design relates, if built, would be in accordance with all relevant requirements…”. Additionally, the Principal Contractor must confirm that “…the building work of all contractors is coordinated so that the work is in compliance with all relevant requirements.”

Most clients in the public and many in the private sector now have well-established modern-day slavery policies, which seek to weed-out the exploitation of staff in their supply chain. Building on this, most clients seek a commitment from their supply chains that their supply chains pay above the national minimum wage. These requirements are critical to a just and equitable society, and it is fantastic that these policies are procured into projects.

Over the last decade, the wellbeing and mental health of those working in and associated with construction has been a key focal point, with an alarmingly high level of casualties of poor practice and over-working, suffering from stress, depression, and an unacceptable level of suicides within the industry.

The ‘Cheapest Price Wins’ Approach and a New Solution

Having established that all the above is of primary importance, a Principal Designer and Principal Contractor should justifiably ask questions of a ‘cheapest price wins’ approach. Let’s not forget that these obligations don’t start and end with the Principal Designer or the Principal Contractor. They pass down the chain to all designers/contractors, where any request to undertake any design or construction work must not be accepted by the relevant party, if it does not satisfy the requirements to have the skills, knowledge, experience, and behaviours necessary and the organisational capability. Clients should not forget that the responsibility ultimately passes up the chain to the client where the buck stops.

One ‘fixed price’ method of a tender assessment, which could encourage honest pricing of a distinct level of quality and performance is a ‘race to the middle’. If the pricing element was set in such a way that the closest price to the mean average of prices received scores highest at tender return, all tenderers would be incentivised to price that which is being asked of them. Clearly, a certain level of service delivery requires a similar level of infrastructure, management, administration, software, and technical expertise.

Broadly speaking; free market economics dictates that the cost of a ‘Senior Architect’, ‘Senior Site Manager’, or ‘Commercial Director’ is dictated by industry level salaries, and not by the company that such a person works for. If one company is offering the same level of staff, over the same period, with the same attendance on site for a significantly lower price – that member of staff is either being:

• Over-worked (breaching the client’s wellbeing requirements)
• Underpaid (impacting minimum wage / London living wage, etc)
• Mis-sold (standard of service delivery will be compromised)

It is generally that simple.

Final Thoughts

I appreciate the constraints that clients generally have across the construction industry, but as I have alluded to already; clients and contractors should ask some honest questions as to whether such constraints are exacerbated by scrimping on capital expenditure (in this case construction activity). This results in increased life cycle cost commitments for their assets and associated administrative and management costs in perpetuity. A ‘race to the bottom’ approach to procurement has hardly been a beacon of success for many clients over recent years with significant contractor and supply chain insolvencies, as a consequence of some tough economic conditions.

With the recent rise in supply-chain insolvencies, an increased focus on social values and wellbeing, and the Procurement Act alongside regulatory changes that heighten corporate and personal liabilities relative to supply chain selection, I hope this article has provided food for thought on how intelligent procurement can achieve genuine value for money. Heaven forbid that there is ever another tragedy as we saw at Grenfell – but if there was I would wager that there would, pretty quickly, be focus and much scrutiny on the client’s and contractor’s decision making as to how they procured and appointed their supply chains.