Select Committee on Public Accounts Second Report


The Committee of Public Accounts has agreed to the following Report:C



1. Business generated by the UK construction industry is worth some 65 billion a year, of which direct expenditure by government departments and their agencies accounts for 7.5 billion. Government departments and agencies can have a major influence on the construction industry as sponsors, regulators and purchasers of building and repair and maintenance projects.[1]

2. Government-funded construction projects have a long history of being delivered late and substantially over budget. Numerous reports by this Committee's predecessor have highlighted the need for improvements and the importance of tendering arrangements which encourage contractors to put forward bids that will provide value for money. We have stressed the need for strong budgetary control throughout the duration of construction projects and vigorous quality assurance systems operating as construction progresses.[2]

3. On the basis of a report[3] by the Comptroller and Auditor General, we examined the action which the Department of the Environment, Transport and the Regions and the Office of Government Commerce are taking to improve the way departments and agencies procure and manage construction projects, and to encourage the UK construction industry to innovate and be more effective in providing construction services. We draw three general conclusions:

  • A recurring feature in traditional construction projects is the acceptance by departments of lowest price tenders, following which contractors[4] seek to recoup their profit margins through variations and claims for additional work. This often results in poor performance, made evident by confrontation, delay and substantial cost overruns. Better value for money may therefore be found by looking beyond the lowest price, as long as the improvements to be secured are clearly identified and closely monitored.

  • Longer-term collaborative relationships (partnering) between departments and contractors have the potential to improve value for money. Departments need, however, to put in place well thought through arrangements to ensure that, over the lifetime of the relationship, continuous measurable improvements in performance are achieved.

  • The ability of the construction industry to provide cost effective construction services for both public and private sector clients depends on their having the necessary skills, but the industry appears to be becoming reliant on a less skilled workforce. The Department of the Environment, Transport and Regions should work with the industry to improve its technical and professional skills and also its performance in protecting the health, safety, and well being of the workforce.

4. Our more specific conclusions and recommendations are as follows:

On improving value for money in departments

  (i)  We welcome recent initiatives to improve construction performance. There have been, however, numerous previous initiatives over many years which have failed to secure improvements. If the current drive is to succeed it is essential that all departments and their agencies promote change in the industry by improving their management of construction projects through practices such as clear project sponsorship and robust project management (paragraph 17).

  (ii)  Ensuring that departments improve their performance in managing construction projects requires reliable information so that progress can be monitored and corrective action taken where necessary. The Office of Government Commerce should monitor what benefits are being achieved by departments against the baseline established in 1999, should spread examples of good practice, and should encourage departments to use this information to improve their performance (paragraph 18).

  (iii)  Much of the effort by the Office of Government Commerce to improve the performance of construction projects is directed at the large spending departments. Smaller departments and agencies individually may spend less but collectively have a substantial construction programme. The Office of Government Commerce have started discussions with smaller departments on how they can better their construction performance. The Office should secure the adoption of the same rigorous project management and controls and principles of achieving long-term value for money (paragraph 19).

On improving industry performance

  (iv)  Given the size of the construction industry, there is likely to be a role for a variety of organisations in promoting good practice. The current range of advice on offer carries the risk that people in the industry may find it difficult to identify the source of assistance most appropriate to their circumstances and where best to devote their efforts to bring about improvements in the industry's performance. The Department of the Environment, Transport and the Regions working with the Construction Industry Board, should develop a clearer marketing plan for the various improvement initiatives with better signposting for potential users so that they can find the most appropriate source of advice (paragraph 28).

  (v)  Demonstration projects which reflect good practice in construction performance are an important means of disseminating lessons. As at May 2000, however, only 31 of the 171 demonstration projects submitted by the industry since November 1998 had been accepted as demonstrating benefits which could be transferred to other projects. The Department of the Environment, Transport and the Regions assured the Committee that the criteria to qualify as a demonstration project are now better defined. The Department should nevertheless work with the Movement for Innovation to develop a more robust method for measuring the performance of these projects and sharing the lessons with the industry (paragraph 29).

  (vi)  The Construction Best Practice Programme was established in February 1998 to raise awareness across the construction industry of the need to improve, to identify good practice, and to disseminate that good practice to companies. It is however, estimated that the programme has reached only 9 per cent of those working in the industry. That figure admittedly represents over 170,000 people; and difficulties also exist in communicating within an industry which has many different characteristics. The Department of Environment Transport and the Regions should nevertheless explore ways in which the programme can be better presented so that it reaches a higher proportion of the industry's workforce (paragraph 30).

  (vii)  The drive to improve the performance of construction projects depends on public and private sector clients improving their performance in their purchasing and management of construction and also on the industry delivering better quality services. The Department of Environment, Transport and the Region's are seeking to work with those in the industry who are committed to these changes. The Department should convince all sectors of the construction industry of the benefits to both suppliers and clients of achieving long-term improvements in the performance of construction projects, and should secure the commitment of all sectors of the industry to achieving that goal (paragraph 31).

On new forms of contracting

  (viii)  There is scope for benefits in terms of quality, faster construction times and financial savings through contractors and their clients working more closely together in longer-term relationships (partnering). Subject to appropriate safeguards, such productive relationships deserve to be promoted in public sector construction. These safeguards include the appointment of partners through competition; periodically re-tendering; agreeing clear, measurable targets for continuous improvements in quality, delivery time and cost reductions; establishing payment arrangements to give contractors incentives to be innovative and cost effective; and securing reasonable access to contractors' financial records and cost information to check that agreed improvements in efficiency and performance are being achieved (paragraph 34).

On the skills of the construction work force

  (ix)  The Committee welcomes the commitment made by the Confederation of Construction Clients and major contractors to work to achieving a fully qualified workforce by the end of 2003. The Department of Environment, Transport and the Regions should work closely with the industry to develop and monitor plans to improve technical and professional skills so that it can recruit, train and retain a skilled workforce (paragraph 39).

1  Comptroller and Auditor General's report — Modernising Construction HC 87 (2000—2001) paragraphs 1, 1.1 Back

2  Committee of Public Accounts Forty-First report 1994—95, Ministry of Defence. Management of Capital Works Programme (HC 454 (94—95)); Fortieth report 1997—98, the Management of Building Projects at English Higher Education Institutions (HC 558 (97—98)); and Second report 1996—97, Progress in Completing the New British Library (HC 38 (96—97))  Back

3  C&AG's report HC 87 (2000—2001) Back

4  The term 'contractor' is used to mean any party within the supply chain who is concerned with delivering the construction to the client.  Back

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