Francis Maude's speech to the Government Construction Summit

Minister for the Cabinet Office Francis Maude delivered a speech about government and the construction industry.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon Lord Maude of Horsham

It’s a great pleasure to be here once again - talking directly to your sector.

Our construction industry is quite simply critical to this country’s growth - both in sustaining thousands of businesses, many of them SMEs, and in providing the crucial infrastructure this country needs to compete globally.

And of course you are essential to creating the successful public services - our schools, our hospitals, our prisons, our roads - that this country depends on.

Today is one year on from when I published the government’s Construction Strategy. Which set out how, in times of austerity, we would work with you to build the services this country deserves - and make the construction industry itself more efficient, more innovative and more competitive.

I am of course still speaking to you against a backdrop of economic and financial uncertainty across Europe.

This can never be resolved without governments confronting that great overriding obstacle - debt.

This government inherited the largest budget deficit in the UK’s post-war history - we had no time to waste in bringing public finances back under control. 

It was also imperative to grow our economy by supporting entrepreneurial business. Governments don’t power the economy and create work by spending borrowed money - its enterprise, businesses large and small, that can create the jobs and growth we need.

Dealing with deficits and getting growth are not alternatives, they go together. You need to do one in order to get the other.

Our Construction Strategy therefore set out a clear plan to promote efficiency and reform in government construction, alongside innovation and growth in the construction sector.

It set an ambitious target to make public sector construction 15 to 20 per cent more efficient by 2015. By successfully delivering this ambition the public sector would be freeing up £1.2 billion a year, which can be spent on other government projects. That’s the equivalent to 60 new secondary schools.

And the way to achieve this was by government improving our skills as a client.

By putting a relentless focus on waste; greater transparency on costs; making smarter use of technology - and introducing new models of procurement designed to foster collaboration and innovation.

We needed a much greater understanding of how much we should pay for the buildings and infrastructure we needed - yet at the same time we needed to be less prescriptive in what we asked for.

So that your industry could mobilise and grow its own potential for innovation - effectively coming up with new answers to our questions rather than just pricing a single answer that has been developed without your input.

In short we wanted to build a new relationship with you - characterised by openness and collaboration.
This was never going to happen overnight but momentum is clearly building. Today we are publishing our “One Year On” progress report and updated action plan which outline how together we are rising to this challenge - and how we can go further to achieve our objectives.

When we started this process the first priority was to gain a real understanding of where the money was going and establish how we could do better.

Today I’m happy to say that all of those departments that have major construction programmes have now published their benchmark data.

These already show just how much scope there is for cost reduction - in some programmes we are already delivering buildings at way below the average. We need to build on these successes and learn from them.

These departments have also published trajectories that show how, over the life of this Parliament, they will respond to my challenge to reduce their costs by 15 to 20% - and I am asking for annual reports to track progress on this. 

This is a transparent exercise - and if you look at our benchmarking and trajectories and think you can do better - I want to hear from you.

They say the key to a good relationship is communication. But the truth is in the past government and their suppliers haven’t talked enough. We’ve been constrained by fears about picking winners, cosiness with incumbents and breaching theories of efficient markets.

You were left in the dark about what was coming up, and government was also blind to what you could offer. Now at last we are being far more open about what’s out there.

For over a year now in response to your industry identifying it as a major priority we have been publishing a pipeline of upcoming opportunities - setting a precedent that is now being followed by other sectors. 

The latest iteration includes over 600 projects and programmes, around £40 billion of investment over four years.

By giving you sight of what is coming this pipeline means you can have the confidence to make investments in new skills, services and products. 

And we are also looking to make this pipeline even more user friendly - including for lower levels of the supply chain - by working with a private sector partner in the publication of future iterations.

Another key concern was reforming our procurement practices. When we came into office, businesses from every industry were queuing up to tell us what a nightmare it was to bid for government work.

Our procurement processes were notoriously bureaucratic, time-consuming and at times eye wateringly expensive. Many innovative suppliers were shut out from the outset - particularly SMEs.
To date we have had real success in making procurement faster, cheaper and less complex. When at all possible, we are no longer using PQQs; but when absolutely necessary, the standardised and PQQ PAS-91 is now the required choice across central government - we are fast en-route to a situation where no one is asked to qualify on any other basis.

We know SMEs in particular still want faster progress on this - any contractor or consultant who is asked to qualify on any other basis should let us know via our ‘Mystery Shopper’ service - we are listening.

We are also trialling many new procurement models which call for the early involvement of the supply chain, and more integration around the design, the construction and the manufacture of products. 

I am publishing an updated list of trial projects today, which look at alternative approaches to procurement, including connecting design and construction to the occupation and use of the building through the “soft landings” approach, and crucially the adoption of Building Information Modelling.

This digital way of working - constructing an asset in virtual reality before trying it for real - not only helps us work out problems in the design stage; it also allows for a more collaborative approach. Product manufacturers and specialist contractors from every trade can input critical information into the model before the design is fixed and building begins.

I am delighted that tenders for their first BIM project, at Cookham Wood Prison in Kent, are now back and that an order has already been placed.

The winning contractor Interserve has committed to fully using BIM to provide a facility that has improved quality and value for the client.

The Ministry of Justice’s positive experience in introducing BIM, and suppliers’ willingness to engage, has resulted in the department already issuing a further three projects out to tender using BIM - an illustration that the challenges laid down in the Construction Strategy are achievable. 

We have mandated 3D collaborative BIM on all appropriate centrally-procured projects by 2016.  This whole sector approach to BIM will see the UK as the world leader in a new digitally built era, offering new ways of working, as well as massive growth potential both at home and abroad.

A final hugely important area of reform is the approach to paying suppliers - the government is highly focused on speeding up payments down the supply line.

Timely access to cash is critical to the survival of all of those working in the industry, whether as principals or within a supply chain - and we are well aware that SMEs account for 99% of the construction industry. Moreover no business can be at its best when it isn’t being paid properly - by which I mean being paid the amount agreed for work properly executed, and being paid in good time. 

There is now a contractual obligation which took effect for all central government contracts placed to pay down to tier three within 30 days. 

We are also moving to the use of Project Bank Accounts, whereby payments due to subcontractors and suppliers are scheduled out, so that payments are tracked by the commissioning Department - and in the meantime money is held secure for those for whom it is intended. 

The Highways Agency has successfully piloted Project Bank Accounts in a number of their major construction projects. These electronic bank accounts pay prime suppliers at the same time as tier 1 and tier 2 subcontractors and have had a great impact in preventing cash from being held up in supply chains.

This year alone £1.1billion worth of projects have been signed up to use Project Bank Accounts - this will rise to £4billlion by 2014.

This government is extremely grateful for the high degree of engagement we’ve enjoyed from your sector. Over 120 industry representatives have been actively engaged as members of the government and Industry Steering Groups and associated Task Groups working with my own team in the Cabinet Office and yet more with Infrastructure UK. 

Some of your important work on issues, including procurement, frameworks and health and safety, is being published in full today and we will make clear in our plans how we are carrying forward the recommendations you’ve made.

You are rightly challenging us - and I also want to make some challenges to the industry today.

Firstly if we want to be more efficient we shouldn’t waste time arguing with each other. I therefore need you to acquire the habits of collaboration: not just between government and its suppliers, but also deep within your supply chain. After all, it is the people who actually make the products and do the work who have the potential to come up with better ways of doing things.

Secondly we need contractors to support their supply chains, working together on matters of shared interest.  It is not encouraging that we’ve had to do so much to make sure that the payments that government makes promptly get passed down through the supply chain equally promptly.

There is a huge benefit to working with suppliers and particularly with SMEs, who account for about half of the UK economy, and where the potential for much of the innovation that we are seeking lies.

Thirdly the government is working hard to make the whole procurement process easier for suppliers. I want to urge contractors to do the same - for example by adopting the standard prequalification process. This way the elimination of waste runs right down through the supply chain.

Finally, to those in the supply chain I would say that, whilst we in government are doing everything we can both to be a good client, and to encourage the same good behaviour in those who contract directly with us, we do expect to see the benefits of that reflected in the prices paid. 

This means that you simply have to start to discriminate, when pricing bids, between those who simplify things for you, reduce your own transaction costs and also ensure timely payment; and those who stick to the bad habits that you have rightly complained about for so long. 

Because while we can make these changes because we believe in them, we do need to keep proving that we are getting a better deal with taxpayer’s cash.

Before I close, I would like to pay tribute to Paul Morrell, who has shown great leadership, energy and drive in motivating both you and us to find new and better ways of working together. We wish him well as he steps down as our first Chief Construction Adviser - and the search is now on to find a worthy successor. 

They will find that, no matter how much progress we may have made, there is still a great deal more to do. Above all, though, we can’t do it without real engagement from the industry. 

Thank you for being here today - it’s great to see so many of you - and thanks also to the many of you who have helped us move forward this radical, reforming strategy. Please do keep working with us to create a better future for construction in the UK.

Published 2 July 2012