In January 2020, Tom Jarman gave a talk at the National Housing Maintenance Forum conference on Emerging Issues in Construction. He focussed on several trends that he saw as significant over the coming several years – carbon, Modern Methods of Construction, digital construction, millennials, and productivity. But there is one that that he wanted to draw attention to in particular because of its transformative potential: Procuring for Value and this is the subject of the second in his series of guest blogs for us.
So what is Procuring for Value, and why does it matter?
I want to raise the profile of Procuring for Value (PFV) as widely as I can. With this in mind, let’s start with some background. It’s origins lie in Construction 2025 (published 2013) and the four headline outcomes that C2025 drove towards; cost (lower), delivery (quicker), emissions (down) and exports (up). C2025 also mandated the creation of the Construction Leadership Council as the body to galvanise industry and clients to take the steps to achieve these outcomes. The CLC was charged with nothing less than transforming the construction industry. Yes indeed – crikey, and good luck.
Since 2013, the CLC has convened industry and clients, developed the thinking and engaged with Government to turn the intended outcomes from C2025 into practical action. The inclusion of construction in the Industrial Strategy, the subsequent Construction Sector Deal and the £420m Transforming Construction fund are the most obvious outputs from this. Transforming Construction invests in industry-led innovation, one of three transformative platforms that unpin change. The other two are Skills, and Procuring for Value.
So what is PFV? The key word is Value – if you leapt to procurement instead of value, you aren’t the first. The fundamental principle behind PFV is clarity regarding why you are investing; what do you want to achieve? What outcomes are you buying? And there should be a clear line of sight from organisational/corporate objectives, strategic objectives, planning, project inception, through delivery, into operation. There is no reason why a particular stage in the process should fundamentally distort intent.
There should be a clear line of sight from organisational/corporate objectives, strategic objectives, planning, project inception, through delivery, into operation.
PFV is therefore client-led, outcome-focussed, and driven by whole-life (or long term) cost. We think this is a very significant carrier for change, because it obliges clients to really answer the question about what they actually want from their investment, with the implications that flow from this: How are you going to procure it? How do you develop the capability to measure what you’ve bought, and understand it in operation? Are you confident you are maintaining project intent, that distortion isn’t happening? Do you understand where risk emerges, do you have the capability to identify it and whether mitigation measures are appropriate and sophisticated enough? How do you engage with your supply chain, and build resilience? How do you understand innovation, technical competence, skills? So the implications of PFV are quite significant, especially in terms of organisational culture. When I was talking about client-led and a significant carrier for change, I wasn’t kidding.
However, PFV won’t be a complete stranger to some of you, even if the name is new. Katherine Bew from PCSG has written about Outcome-Based Contracting on the MPKH, based on their work at Sellafield. If you are interested in PFV, it is worth familiarising yourself with this work and approach because it asks the same questions as PFV and puts in place operational structures and thinking that are effectively a PFV approach. And frankly, I don’t care what you call it – if you are focussing on value and outcome, and understanding and costing these over the long term, then you undertaking a PFV process. You are part of the solution, not a passenger in the roller coaster ride of a dysfunctional sector Business as Usual.
If you are focussing on value and outcome, and understanding and costing these over the long term, then you … are part of the solution, not a passenger in the roller coaster ride of a dysfunctional sector Business as Usual.
The challenge with PFV is switching client culture from a structure that doesn’t break the law at minimum cost, to one focussed on outcomes. This is a real challenge given how deeply the former is hard-wired into client culture and supply chain practice. But when I say that outcome thinking is critical to the transformation to a new sector culture, what do I mean?
Outcomes are defined by the client. They are holistic, and of benefit to the organisation, and society. They could be focussed around carbon, social value, employability, community resilience, natural capital, or other aims. We’d generally advise clients not to try and boil the ocean but to focus on a few outcomes that are clear and critical, partly because of the discipline involved in narrowing down what these really are, what a project is really intended to a achieve, what the investment intent is and how it links to strategy and values. But outcomes are an active, not passive, choice, and operate in complete contrast to lowest capital cost, minimal compliance, and short term, one-dimensional outcomes.
This takes us into the field of active and sophisticated clienting, where clients make positive, outcome-focussed choices backed by their own capability, culture and willingness to deliver. And this is absolutely critical – because without this construction will remain a transactional sector, with low levels of productivity, innovation and resilience. This is an enormous missed opportunity, both for the construction sector and clients. But why would an organisation invest in outcomes if there is no marketplace for them? All this will do is push up their costs, making their next tender more likely to fail. Clients hold the key to breaking this cycle.
You may be asking – rightly – where the Government are on this. There is actually a lot of PFV-type activity within Government, but most people aren’t aware of this. One example is the five Presumption in Favour departments. They are using similar principles to PFV; focussing on outcome, taking a long-term view of what investment can deliver, engaging with and developing supply chains, giving visibility of pipeline. And the Industrial Strategy (2017) is very clear that Government policy is to procure and build on the basis of whole life value (see p197). Wider client practice is lagging behind policy (including within some parts of Government itself), especially as there is no consequence for not procuring and building on the basis of whole life value. But the fact remains that lowest capital cost procurement isn’t mandated by Government, and does in fact run counter to Treasury policy. It is, frankly, a client choice. Comfortable, familiar, habitual – but a choice.
And there is something in development that is intended to help clients on their PFV journey. The largest single investment within Transforming Construction is the Construction Innovation Hub. The CIH are now developing the software and operating principles behind the ‘PFV Tool’; this is envisioned as an online tool that will allow clients to engage with PFV. It will help them understand and determine value, according to how they see value accruing to a project. The Tool isn’t ready for market yet, but we are hoping for an early stage iteration during 2020.
There are still many potential bumps on the road. I think, given the time of writing, that there will be immense pressure for a post-Covid recovery that looks as close to a ‘V’ as possible, and that’s a danger; to me that implies investing in BAU because that is much easier to mobilise and produce a V. There is also a gap between where we are now in terms of the development of a PFV Tool, and where client capability currently sits. The Tool has to effectively bridge the gap; it needs to be straightforward to use, be clear around what insight it can give, and translate the client’s perception of value into meaningful information that can assist with project scope, design and governance. This is a tall order in a largely cynical industry that stands ready with a rolled-up copy of the Egan Report in one hand and Latham in the other, eager to play a version of ‘good idea whackamole’. Furthermore, the PFV Tool needs a community of practice that are willing to engage with it in a positive and open way, to help prepare it for market. And we need also one key influencer, HM Government, to keep the faith and maintain the direction of travel towards outcome and value. Lot’s to do…
If you’re reading this, I’ll assume that you are impatient for a construction supply chain and client sector that is dynamic, innovative and an attractive place to work. I’m not saying this description of the sector is unrecognisable, but it is much more isolated than is healthy for society, and there have been some truly awful consequences; the collapsing gable end at an Edinburgh school and Grenfell being obvious, let alone the life chances narrowed, damaged or ruined through overheating, damp and mould, fuel poverty and poor indoor air quality.
And what can you do? Spread the word. Engage clients. When it comes to outcome and value over the long term, hold the line (I know, not as easy as it sounds). Push scale clients to operationalise their values. Look me up on Linked In and I’ll connect you into the national PFV Linked In group so that we can develop that community of practice.
Imagine what our sector could look like if clients and the supply chain discussed construction projects on the basis of outcome and value. This will require investment, because better long-term outcomes are often more expensive at the early stage even if they deliver much better economic value over the long term. But this masks the real challenge; changing organisational culture, and the energy, commitment and resources this can take. So buckle up, people; this could be a bumpy ride, but I’m genuinely not sure what the alternative is. Are you?
Imagine what our sector could look like if clients and the supply chain discussed construction projects on the basis of outcome and value.
Read other posts in Tom’s series
New Road Ahead
Tom Jarman is Director of Low Carbon Journey, a consultancy based in North East England that specialises in helping clients and their supply chains understand outcome, value and resilience. He has worked in housing for 15 years, including project development, project and programme management, sustainability, Planning, newbuild, retrofit and Building Information Modelling. This extensive client-side experience has informed his views on client leadership, organisational risk and resilience, and procurement, particularly how organisations can invest in outcomes, performance and quality, and maintain a clear line of sight from project inception to operation.
Tom is a member of the Construction Leadership Council, where he is engaged in the Procuring for Value and Innovation in Buildings workstreams. He is on the Advisory Board for Constructing Excellence in the North East as well as IC3, the International Centre for Connected Construction. He is a Certified Member of the Chartered Institute of Housing, and his professional commitment includes writing, blogging and presenting on key construction and clienting issues. In 2019 he received the CENE Award for Outstanding Achievement.