Improvements in the way Northern Ireland government departments manage their building projects could deliver savings of £300 million over a three year period.
In a report published today, the Comptroller and Auditor General for Northern Ireland, John Dowdall CB, welcomed the action being taken to modernise the procurement of construction services but emphasised the need for continued innovation and implementation of good practice to deliver these very significant potential savings.
Government in Northern Ireland spends around £1 billion a year on construction. This is set to rise considerably over the next ten years with forecast investment of some £16 billion to provide new schools, houses, hospitals, roads and water services. It is more important than ever, therefore, that departments adopt best practice in their dealings with the construction industry to ensure that taxpayers get the best possible value for money for this investment.
In recent years there has been widespread recognition that many construction projects are delivered over budget and behind schedule. Successive reviews have attributed this to the failure of traditional contracting arrangements and Government in Northern Ireland has recognised the need for departments to improve their performance as construction clients. This report examines the progress of key initiatives such as Achieving Excellence and the Gateway Process which are being taken forward by the Department of Finance and Personnel to achieve this goal.
Achieving Excellence was launched in May 2002. It provides a framework for the implementation of best practice which is intended to bring tangible benefits including a ten per cent reduction in capital costs each year. This would give savings of £300 million over a
three year period.
The Gateway Process was introduced in February 2004 to provide a more formal approach to project management by carrying out reviews at five key decision points or “gateways”. Savings of five per cent of project cost have been estimated in Great Britain and based on current levels of construction spend in Northern Ireland, this would deliver value for money gains of some £50 million a year.
The report expresses concern about the progress of these initiatives and makes recommendations to improve their effectiveness, including:
- extending the life of Achieving Excellence beyond its current end date of March 2005;
- improving performance and progress monitoring within Achieving Excellence ;
- ensuring full participation by departments in the Gateway Process; and
- a review of the effect of excluding low risk projects from the process.
The report outlines the key principles of good practice:
- Contractors should be selected on the basis of value for money, not just the lowest price
- Design should not be a separate process but should be integrated with the whole construction process
- Good planning involving risk and value management should be carried out.
- Reliable project management should be in place.
- Contractors should be remunerated in a way which incentivises them to deliver good quality construction on time and to budget.
- The performance of construction projects should be measured to assess whether cost, time and quality requirements are being met and to learn and disseminate lessons for future projects;
It also gives examples of projects where some or all of these principles have been applied to good effect:
Roads Service’s Toomebridge Bypass was an £18.5 million project involving the construction of a 3.5 kilometre bypass and a new bridge over the River Bann. The project demonstrated a number of best practice approaches including the selection and remuneration of contractors and was delivered five weeks early and slightly below target cost.
Phase 1 of the new Royal Victoria Hospital, managed by Health Estates, was a £50 million project for a seven story hospital which exemplified best practice approaches in design and project management, resulting in delivery four months ahead of schedule and within its approved budget.
Water Service’s Aquarius project to replace the Mourne Conduit bringing drinking water to Belfast, was one of the first projects to adopt a “partnering” approach to working with contractors and value engineering exercises at various stages of the project resulted in savings in excess of £500,000.
These projects provide a practical demonstration that innovative approaches to construction procurement can deliver genuine improvements in performance and value for money savings. It is essential therefore that best practice of this kind is adopted enthusiastically by all departments responsible for the procurement of construction services.