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National Audit Office Press Notice

Modernising Construction

HC 87 2000-2001
11 January 2001
ISBN: 010276901X
Price: £12

• Full Report (1597 Kb) 
• Executive Summary   (393 Kb)

The urgent need for change in how government departments and agencies procure and manage new construction projects, currently worth some £7.5 billion a year, is highlighted today in a National Audit Office report. It concludes that there is now no excuse for government clients and the industry to fail to take advantage of readily available solutions to well-known problems.

Presenting the report to Parliament Sir John Bourn, the head of the NAO, said that:

• four agencies – Defence Estates, NHS Estates, the Highways Agency and the Environment Agency – estimate that they will achieve efficiency gains of over £600 million a year and improved buildings by changing how they buy and manage construction projects; and
• as much as £2 billion in total efficiency gains could be delivered if such good practice were extended cross the whole of central government.

And for the construction industry itself, the potential prize is a level of profitability higher than the current industry average of one per cent of turnover.

There has been a long history of reports into the problems of the construction industry which have failed to result in any real change in the industry or client behaviour. The National Audit Office examined the role of and progress made by the Department of Environment, Transport and the Regions (DETR) and the Office of Government Commerce (OGC) in promoting innovation and good practice; and examples of good practice across Government and in the private sector.

According to the report, the DETR, through vehicles such as the Movement for Innovation and the Construction Best Practice Programme, has worked with other industry bodies in successfully raising awareness of the need for change. And the OGC in its work with departments and agencies has set the climate for change within central Government.

The report recommends that industry and clients should implement good practice and the Department of Environment, Transport and Regions and Office of Government Commerce should continue to encourage this and ensure understanding in the following areas:

• Selection of contractors on the basis of value for money. Too many contracts are still awarded on the basis of lowest price tenders only to see the final price for the work increase significantly through contract variations and claims often resulting in court cases. The services of specialists, contractors, sub-contractors and suppliers should be selected on value for money grounds not lowest price tenders. Value for money means securing a construction which is fit for purpose, fulfils user needs, and achieves a balance between quality and costs throughout its life.
• Better relationships between clients and the supply chain. Clients and all those involved in the design and construction process need to work more closely together with more sharing of information, clear and agreed targets and incentives and a commitment to continuous improvement. This is not incompatible with clients using competition to select those they work with.
• Integration of the supply chain. The entire supply chain including clients, professional advisers, designers, contractors, sub-contractors and suppliers of materials must be integrated to manage risk, to develop designs which improve the "buildability" and value of projects, to encourage innovation and to drive waste out of the process. This process should reduce the overall costs of the construction throughout its whole life, lead to fewer accidents, provide greater certainty of project time and budgeted costs and result in more sustainable construction. More attention also needs to be given to greater use of prefabrication and pre-assembly and standardised components and processes.

The Department of Environment, Transport and Regions and Office of Government Commerce should ensure continue to encourage this and ensure understanding

Sir John Bourn said today:

"With Government plans to increase infrastructure spending to £19 billion over the next three years, the need for widespread implementation of good practice now has a greater degree of urgency.

"This report highlights the urgent need for change in the procurement and management of new construction, refurbishment and repair and maintenance. The problems of the construction industry have been well described in the many reports on the industry, the solutions to many of these problems have been identified – there is now no excuse for not getting it right.

"I hope that my report will provide encouragement to those in the construction industry and their clients who are already changing and motivation to those who are finding the challenge more difficult."

The Office of Government Commerce, the Treasury and the Department of the Environment, Transport and the Regions welcomed the NAO report for providing very real encouragement to those who were already working to change their construction practices.

Notes for Editors

The quality of construction products and the efficiency with which the industry provide them impact on all economic and social activities within the UK including commerce, health, education, housing and transport. Government departments have a major influence on the construction industry as sponsor, regulator and purchaser of construction.

The Department of Environment, Transport and the Regions (DETR) has central responsibility for securing improvements within the construction industry and clients. The Office of Government Commerce (OGC) leads the promotion of improvements in the performance of departments and agencies as purchasers of construction services.

The construction industry is worth some £65 billion a year, 8 per cent of gross domestic product, and employs some 1.9 million people.

Press notices and reports are available from the date of publication on the NAO website at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.

The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office employing some 750 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Press Notice 03/01
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