Contracting
Land Design Planning Construction Refurb End of life
The contracting stage of the construction process refers to the appointment of a contractor and procurement of suppliers in preparation for physical construction activities. The construction phase of any project represents the most resource- and time-intensive stage of the construction process, and therefore can have significant impacts on sustainability. Therefore, tendering of contractors and programme managers, and procurement of material, labour and service suppliers represent an opportunity to embed sustainable actions into construction work and procurement of materials and services. In fact, nominating the entire construction team prior to the design being completed can save time and involve the contractor in the solution.
Contracting and procurement will involve the following.
- Assessing which sustainability risks should be managed by the client, and which should be managed by contractor.
- Detailed specification development and release.
- Assignment of responsibilities.
- Clear articulation of key performance indicators to assess sustainability and penalties for under-delivery of sustainability should be articulated to encourage sustainable measures are undertaken.
For example, the Carillion case study, ‘Sustainability and Flooring - linoleum vs vinyl’ demonstrates how the company has made a transition to greater use of sustainable flooring materials throughout a series of hospital developments. During the early stages of selecting the greenest floor material Carillion utilised The Natural Step and System Conditions (SC’s) to help ascertain the most sustainable material. Carillion has recently executed an independent Streamlined Lifecycle Assessment (SLCA) exercise, looking at products’ environmental impacts from raw material extraction to end of life, and has integrated these products into the building design specification of its operators, supporting their consistent use in developments.
Key considerations
- What issues should I take account of at the Contracting stage?
- Green specifications
- Key performance indicators (KPI)
- Tendering of Contractors
1. What issues should I take account of at the Contracting stage?
Key decision makers on the client, professional team and contractor side should share a clear vision of sustainable development outcomes for the project, which should result in real and measurable differences in the way the contractor operates. Issues to take account of during contracting may include, but are not limited to the following.
Selection
- Education and encouragement of suppliers, procurement officers, and project managers, through specifications to secure environmentally preferable goods and services at competitive prices, how can they can turn existing government policy into opportunities and education in the use of locally sourced materials and labour?
- How do contractors plan for conservation of resources throughout the design and into construction works, including minimisation of waste, reuse of construction materials and reduction of embodied energy for construction works?
- How do suppliers and contractors include sustainability within their business processes, for example, corporate social responsibility reports and sustainability statements? Such statements must include some form of measurement and targeted performance improvement to be of value, including governance structures that encourage consultative working practices across the project team.
- Has the use of longer planning, budgeting and accounting horizons to capture whole life value and identify savings to ongoing costs been encouraged?
- Where needed, can lead-in periods for construction planning be extended? This may open up opportunities for achieving value for money and sustainable sourcing of labour, materials and site services required to carry out sustainable construction works.
Monitoring
- What are the requirements for routine monitoring of sustainability performance by contractors and are reporting structures to feedback performance to senior client and contractors included e.g. weekly update meetings; highlight reporting?
- Are there measurements of both before and after targets, assessing, for example, if sustainability benefits are realised in practice, and if they will continue to be realised during the operational (‘use’) stage of the project setting? Measurement of targets is important to making sure sustainability is fully embedded throughout the project. Details of possible key performance indicators which could be adopted for a construction project are found on a separate page of this website.
Construction (Achieving Excellence) case studies provided by the Office of Government Commerce (OGC) illustrate how Government departments and public sector organisations have committed to maximising the efficiency, effectiveness and value for money of their procurement of new works, maintenance and refurbishment.
The Government’s Sustainable Procurement Action Plan states that “sustainable procurement is good procurement”. More specifically, it means ensuring that:
- Government supply chains and public services will be increasingly low carbon, low waste, water efficient, respect diversity and deliver wider sustainable development goals;
- the central government estate is sustainably built and managed in a way that minimises carbon emissions, waste and water consumption and increases energy efficiency; and
- properties and roads are sustainably built and managed throughout the public sector.
More details on sustainable procurement can be found on the Procurement, supply chain & logistics module of this website.
Contractor specifications including sustainability criteria can take the form of an additional section within tender documentation that relates to environmental considerations of the project. Sustainability can also be incorporated throughout the detailed description of works. However, separation of products (rather than overall outcomes) can inhibit any innovation that contractors can bring to the table.
Sustainable development requirements might include a required minimum target and a methodology by which the item can be evaluated and measured. It is important that the same methodology is applied to the generation of any cost plan prior to entering the contracting phase.
3. Key performance indicators (KPI)
Key Performance Indicators (KPIs) should be agreed at the contracting stage. Many sustainable construction KPIs exist, for example the Department for Business, Enterprise and Regulatory Reform (BERR) 'Building a Better Quality of Life' report refers to 10 indicators (with more being developed) and 14 ‘headline’ indicators for the economy as a whole, of which 3 are particularly relevant to construction:
There are also National Indicators established to benchmark construction work performance that can be found on the following link to KPI Zone.
The Department for Business, Enterprise and Regulatory Reform (BERR) provides an explanation of KPIs.
In general, tendering for contractors includes several steps.
- Procurement of contractors usually begins with an invitation to tender, where design specifications and schedules for works are released to a controlled number of potential contractors.
- The contractors then submit a priced bid for the work based on their interpretations of development specifications and schedules.
- The developer/contracting agent, acting as client, will review tenders and appoint the contractor based on appropriateness of the bid.
- Bid review is a significant opportunity for embedding sustainability in the contracting stage. It is an opportunity to select the most suitable contractor not only on scheme estimates, but also on interpretation of specification of works and understanding of the development vision.
- Incorporation of clear sustainability specification and objectives will support embedding sustainability into project planning and supplier sourcing, for example, use of recycled materials and selection of performance targets to monitor and measure sustainability throughout the construction works.
- Tendering for contractor will include delivery of value for money. This is an area the construction industry has been criticised on for failing to perform to high standard, especially regarding assessment of the long-term costs and benefits of more sustainable approaches to construction.
The Sustainable Construction Group was set up in December 2004 to issue guidance to Project Sponsors and Project Managers in relation to sustainable construction. The Sustainable Construction Group issues advice and guidance on Government policies and targets and provides good practice examples on how to implement sustainability in construction to ensure consistency of practices across the public sector, and to measure performance in respect of the Government’s targets.
However, it is important to note that tendering/construction procurements do vary and that different contracts exist. These may affect the tendering process. Common contracting/procurement arrangements include the following.
- Traditional Procurement – In this instance the contractor agrees to build the design provided by the employer; rendering the contractor responsible only for construction works detailed in the design specification. The price of the contract is usually based on a bill of quantities for every aspect of the works. This is often provided by the employer. Traditional procurement is the most common method and gives some certainty over price, which may be reassuring to both parties. Variances to traditional procurement can include: re-measurement contracts, target cost contracts and even cost plus/prime cost contracts.
- Design and Build – This method gives responsibility to the contractor to develop the design of a building based on requirements provided by the contracting authority, and to execute construction. Design and Build contracts have greater flexibility in regard to programmes, enabling contractors to start on site prior to completion of designs. This can be beneficial for government bodies that may be required to spend project budgets within specified periods of time.
- Private Finance Initiative (PFI) – This method of contracting is used in public sector building, refurbishment and operational service projects that have limited capital expenditure available to sufficiently finance a project. PFI contracts are agreements between public and private sector organisations, with the latter providing the required investment in exchange for facilities management and maintenance operations contracts. The contractor is responsible for the delivery of the project as well as its operations and will usually retain any profits as a repayment for capital expenditure over the contracted period of time.
- Longer Term Finance Trust (LIFT) - LIFT is similar to the PFI in that it involves long term contracts between public and private sector organisations accepting responsibility for the ownership, financing and management of public sector infrastructure construction and service operations. However, LIFT differs in that projects will be built/refurbished and owned by a new organisation, set up of public and private sector partners, with the private sector having the controlling interest. The private sector contractor leases the premises back to the public sector organisation with the public sector partners retaining oversight of how monies are spent. LIFT is generally used on smaller scale projects than PFIs and are the primary contract used by Primary Care Trusts (PCTs), but have also been used in other public sector schemes such as school refurbishments.
Some examples of additional Contracting FAQs are provided, however, the list is not exhaustive and other issues will arise to factor into consideration of sustainability during contracting.
Are there key considerations we haven’t included? If so, please let us know.
Value for money and other barriers.
The Sustainable Procurement Task Force has identified the following value for money barriers to sustainable procurement. Given the significant capital costs and longer-term lifetime of constructed assets, achieving value for money is a particular challenge for sustainable procurement for construction works. The National Audit Office (NAO) has identified a number of barriers to progressing towards more sustainable buildings on the Government estate, including a widespread perception of conflict between sustainability and value for money. Some of these challenges may include:
- understanding long term benefits vs. short term costs, for example, how to analyse the costs and benefits amongst options where a sustainable option requires higher initial costs, but provides lower revenue costs and therefore lower ‘life cycle’ whole costs;
- capturing the hidden benefits that are typically difficult to value, for example, human health benefits, as compared to more transparent costs such as capital outlay; and
- understanding the Government spending policy, for example, seeking direction on what is an acceptable premium to pay for sustainable solutions and encouraging this investment through the tax system.
The UK Government Timber Procurement Policy case study illustrates how the Department for Environment, Food and Rural Affairs (Defra) confronted these and other challenges to develop a procurement plan.
For more information on breaking down barriers to sustainable procurement, see the Challenges to overcome section of the Procurement, supply chain & logistics module.
The following are a set of questions you should be asking yourself at this stage of the construction process.
- How can sustainability be integrated into the contracting process?
How can sustainability be integrated into contractor briefs and invitations to tender and what criteria will be used to evaluate responses?
How will sustainability considerations be prioritised alongside other contracting requirements such as skills, quality, and budget?
Do construction partners have sustainability embedded within their business processes? E.g. methodology for approaching sustainable construction/relationships with sustainable construction delivery partners?
At what stage in the construction process should contractors/suppliers input into construction decision-making? E.g. design or procurement?
How can the risks and rewards of sustainable development be shared with contractors/suppliers?
What sustainability Key Performance Indicators (KPIs) will be used? - How will a multi-contractor programme for sustainable construction be developed?
- How do contractors / suppliers gain competitive advantage through sustainability?
How do contractors quantify the sustainability benefits?
Where sustainability benefits cannot be quantified, how can contractors best articulate the sustainability benefits for the client?
How do contractors ‘educate’ the client on sustainability to gain a competitive advantage?