Measuring Efficiencies In Construction John Ioannou – Head of Commercial Delivery, Construction National Highways & Transport Network, Spring Conference 13th May 2010

Public Sector expenditure: the big picture Total Public Sector expenditure is £641bn[1], of this Pay makes up £158bn Grants make up £227bn Procurement is £221bn Central Government Total expenditure £290bn (45% of ps) Of this, 22% or £63bn is procurement Wider Public Sector Total expenditure £350bn (55% of ps) Of this, 45% or £158bn is procurement [1] OGC analysis (providing figures gross of income) of data underlying HM Treasury, Public Expenditure Statistical Analyses 2009, Cm 7630

The big picture: construction Industry output of £122bn: 9% of GVA - bulk of assets is infrastructure Public sector procures c.30% of all construction output (approx. £20bn). Government spend impacts on UK economy A fragmented industry: it employs 2-3m in c.250,000 firms A vehicle for service improvement Sustainability issues are key: the built environment accounts for 45% of UK energy use; up to 50% CO2 emissions Total procurement is £221bn out of £641bn total public sector spend.

OGC’s role Delivering VfM from third party spend Delivering projects to time, quality and cost, realising benefits Getting best from government estate: manage staff relocation, provide expertise on regeneration and asset management through E-Pims Delivering sustainable procurement and sustainability: develop and implement plans to reduce public sector generated carbon emissions, waste, energy consumption and monitors delivery Supporting the delivery of Government policy goals e.g. SMEs, regeneration, low carbon emissions, diversity…… Improving central Government capability in procurement, project and programme management and estates

Collaborative Procurement Deliver VfM from third party spend through working together to buy common goods and services and embed best practice By improving understanding of public sector category expenditure Sharing best practice tools and methodologies across the public sector such as Contracts Database, category management and Supplier Relationship Management (SRM) Developing an SRM programme across all the key strategic suppliers within collaborative categories Optimising effective use of buying organisations Ensuring collaborative solutions work with and help shape broader policy and CSR agendas Driving public sector category strategies

Facilitating engagement & efficiency Central Government: liaison with key Departments, cascading information through to Non-Departmental Public Bodies Wider public sector: close working relationships dialogue with the National Improvement & Efficiency Partnership for Construction, RIEPs, local authorities, trade bodies, contracting authorities Supplier Relationship Management programme: Created supplier forum Held supplier seminar with top 30 firms Run 3 pilots concerning Common Assessment Frameworks with roll out across industry and development of Strategic Alignment Agreements

Efficiency, efficiency, efficiency In 2009 a major efficiency report outlined key drivers to improve delivery and VfM by: Improving MI to establish areas of spend Making better use of buying organisations Increasing proportion of spend through buying organisations and collaborative strategies Savings of £459m achieved over 2008/9 This year’s target is £770m Procurement in construction is expected to contribute £1.4bn savings over next 3 years

Initiatives: Achieving Excellence in Construction The partnering and integrated team approach: avoiding fragmentation and adversarialism Development of long-term relationships: one off lowest cost is OUT Improved skills development and empowerment: effective Project Sponsorship, collaboration, tools and ‘Infrastructure’ Adoption of performance measurement indicators: if you are not counting you are only practicing; Public Sector Construction Database Use of tools for value and risk management and whole-life costing: Gateway, AE4, Green Book and Green Book Supplement, Fair Payment in Construction, Demand Management and Market Analysis NAO confirmed AEC assisted public sector to save c.£800m but expects this initiative to save £2.6bn pa

PCSD (Project Performance): Key Input Data Contract Sum / Outturn Cost Forecast completion date / Actual completion/readiness for service date Defects at completion Supplier details Fair payment charter Environmental assessment type (i.e. BREEAM, DREAM, CEEQUAL, LEED) “Many organisations will already be collecting this data”

Performance reports produced from PSCD ORGANISATION X AEC Specific Project Performance and resulting Benefits Your contribution to the overall savings of £197m is £2.0m, which is calculated using the Org X average project performance figure of 6.7%. Please consult your spending team or the HMT VfM team if you intend to include this as part of your Departments VfM savings and have any queries about its qualification.

PSCD (Forward View): Spend Trends This data provides a valuable insight into public sector spend trends

PSCD (Forward View): DfT spend 2010/11

The way forward: working together Collaboration with you to: Understand high level construction project performance trends Aggregate demand and facilitate development of frameworks Embed best practice and capability Use key channels to generate and strengthen dialogue between clients and suppliers We’re all under increasing pressure to do more with less. By working together we can ensure that savings continue to be released for use in front line services.

Thank you John Ioannou – Head of Commercial Delivery, Construction Building better, together Helping Government deliver best value from its spending Contact OGC: Service Desk: 0845 000 4999 E: ServiceDesk@ogc.gsi.gov.uk W: www.ogc.gov.uk The Pan Government Collaborative Procurement programme is an initiative led by key organisations and policy groups across the public sector, and enabled by the OGC. The Programme is designed to improve the value for money the Government is able to achieve from its collective spend through a joined up approach to the procurement of common goods and services and forms a core strand of the Government’s Operational Efficiency Programme.