Policy framework for construction procurement

This section gives information on providing best practice guidance which will help ensure that best value for money construction projects are delivered.

Introduction

Since the review of NI Public Procurement Policy in 2002 and the introduction of the ‘Achieving Excellence in Construction’ initiative there have been a wide range of policy developments relating to the procurement of construction works and services.

Typically these policies have been developed by Central Procurement Directorate (CPD) and the Centres of Procurement Expertise (CoPEs) through various task groups. Many have also been endorsed by the Construction Industry Forum for NI (CIFNI) and approved by the Procurement Board. CIFNI is comprised of officials drawn from the Government Construction Clients Group, industry representatives drawn from colleges of the Construction Industry Group for Northern Ireland and Trade Union officials nominated by the Northern Ireland Committee of the Irish Congress of Trade Unions.

The need for the consistent application of procurement policy across the public sector has been highlighted by the CIFNI Procurement Task Group and more recently through the DFP Committee’s Inquiry into Public Procurement.

Further information may be accessed at:

Procurement Guidance Note 06/10

Procurement Guidance Note 06/10 ‘Construction Procurement Policy Framework (as amended) ’ is aimed at providing best practice guidance which will help ensure that best value for money construction projects are delivered. The ‘Policy Structure for Construction Procurement’, which forms the core of this Guidance Note, has been refreshed to provide a reference to the key aspects of procurement policy specifically relating to construction works and services. Procurement Guidance Note 06/10 may be accessed at Procurement Guidance Notes - Central Procurement Directorate (CPD)

The Policy Structure for Construction Procurement within PGN 06/10 sets out six key ‘themes’ of NI Public Procurement Policy that are of particular significance to the procurement of construction works and services, these are:

Theme 1: Northern Ireland Guide to Expenditure Appraisal and Evaluation (NIGEAE)
Theme 2: Procurement through a Construction Centre of Procurement Expertise (CoPE)
Theme 3: Gateway Review process
Theme 4: Achieving Excellence in Construction
Theme 5: Sustainable Procurement in Construction
Theme 6: Policy on Architecture and the Built Environment

Further guidance on the above aspects of the ‘Policy Framework for Construction’ is included in Part B of Guidance Note 06/10.

Northern Ireland Guide to Expenditure, Appraisal and Evaluation (NIGEAE) FD(DFP) 20/09

The Northern Ireland Guide to Expenditure Appraisal and Evaluation (NIGEAE) outlines the basic 10-step approach that must be followed by Associations in the preparation of all economic appraisals. Housing Associations are required to prepare economic appraisals to NIGEAE standard for all schemes seeking grant funding. Guidance on NIGEAE may be accessed at DoF NIGEAE.

The NIGEAE contains a section on the ‘Implementation, Management, Monitoring & Benefits Management’ of proposals. Effective management of programmes and projects is essential. It is vital that Procurement Groups / Associations manage programmes and projects according to this best practice guidance. There are several strands to this guidance, including:

Programme and project management
Construction (or capital works) projects: OGC ‘Achieving Excellence in Construction’ guidance
PRINCE 2: Management of projects in general
The Gateway Process
Performance management, measurement, and monitoring
Benefits management and realisation

In addition, PGs / Associations should note that NIGEAE requires all projects of £500k and above to be subject to proper monitoring and control measures including Post Project Evaluations (see the paragraphs on Achieving Excellence in Construction below).

Some aspects of the above guidance are elaborated on within Procurement Guidance Note 06/10 and other Guidance Notes produced by CPD. Further details can also be obtained from DoF Procurement.

Procurement through a Centre of Procurement Expertise

Whilst it is not a requirement of this Procurement Guide that procurement groups / Associations procure supplies, works and services through NIHE as CoPE, they must, in consultation with the CoPE, satisfy themselves that all procurements are being administered in compliance with relevant legislation and appropriate best practice as set out in this Guide.

Gateway Review Process

The Gateway Review Process is a key assurance mechanism designed to provide an objective view of a programme or project’s ability to deliver on time and to budget. It is not part of the programme or project management process. The Gateway Review Process is managed in NI by CPD via its Centre of Expertise (CoE) for Programme and Project Management.

All programmes and projects with a value in excess of £1m are required to have a Risk Potential Assessment (RPA) completed which enables predetermined areas of risk to be assessed. This categorises programmes and projects as low, medium or high risk.

Medium and high risk programmes and projects should be subject to an external Gateway Review whilst those which are low risk should be subject to a peer review conducted in line with Gateway principles. Gateway Reviews are mandatory for projects with a capital value of £20m or more. Reviews are based on well-proven techniques that lead to more effective delivery of benefits, together with more predicable costs and outcomes.

Where a RPA designates a programme or project as medium or high risk Procurement Groups / Housing Associations should consult the CoPE prior to engagement with CoE. If this risk level is confirmed CoE will arrange a Gateway Review.

All completed RPA forms should be retained on file for audit purposes

Further guidance on Gateway Reviews is available from CPD’s website - Northern Ireland Gateway Review Process. The following guidance notes can be found on the Procurement Guidance Notes section of the site

Procurement Guidance Note 01/09 ‘Procedures and Principles of Best Practice in Programme/Project Management ’
Procurement Guidance Note 03/09 ‘Procedures and Principles for Application of Threshold Limits as Part of the Gateway Review Process'

Achieving Excellence in Construction (including NEC3 Forms of Contract)

The Achieving Excellence in Construction initiative commenced in March 2002 and priority was initially given to Northern Ireland Government Departments. The decision to require grant-aided organisations, such as Housing Associations, to formally adopt this strategy for procurement was taken in late 2005.

The objective of the initiative is to make the public sector construction client a best practice client when procuring construction works and services.

The initiative aims to:

improve the management techniques adopted by clients
measure key aspects of performance
develop an integrated culture within project teams
achieve maximum benefits from standardisation and new technologies

Through the initiative, clients commit to maximise through continuous improvement, the efficiency, effectiveness and value for money of their procurement of construction works and services. Key aspects include the use of partnering and the development of long-term relationships, the reduction of financial and decision-making approval chains, improved skills development and empowerment, the adoption of performance measurement indicators and the use of tools such as value and risk management and whole life costing.

The Office of Government Commerce (OGC) ‘Achieving Excellence in Construction’ (AE) guidance sets out the principles for the management of construction projects. Procurement Groups / Associations should have in place procedures to control construction projects which, as a minimum, include these principles.

The current suite of Achieving Excellence documents, published by OGC, comprises:

Manager's Checklist
Construction Projects Pocketbook
AE Guide 1 Initiative Into Action
AE Guide 2 Project Organisation
AE Guide 3 Project Procurement Life Cycle
AE Guide 4 Risk and Value Management
AE Guide 5 The Integrated Project Team
AE Guide 6 Procurement and Contract Strategies
AE Guide 7 Whole Life Costing and Cost Management
AE Guide 8 Improving Performance (see also KPIs below)
AE Guide 9 Design Quality (see also HQIs)
AE Guide 10 Through Health and Safety
AE Guide 11 Sustainability
AE Guide Common minimum standards
AE Guide Guide to Best ‘Fair payment ‘ Practices
AE Guide Making competition work for you

Further information and PDF copies (available to download) of OGC Achieving Excellence Guides are available from the National Archives website.

In addition, Procurement Guidance Note 06/10, Part B gives further high level guidance on Achieving Excellence including roles and responsibilities; project planning and control; project execution plans; risk and value management; cost management; project reports and procurement and contract strategies.

Procurement Groups / Associations with an on-going development and property maintenance programme must adhere to the advice in OGC Procurement Guide 03: “Project procurement lifecycle – the integrated process” and associated processes.

Procurement and Contract Strategies

OGC Procurement Guide 06 – “Procurement and Contract Strategies” explains how to determine appropriate procurement routes that will deliver best value for money. The Guide recommends the use of integrated procurement routes, including the use of Design and Build, which offer benefits to the client through innovation, standardisation and integrated supply chains, based on appropriate output specifications. It also advises that Traditional procurement routes should only be used if they demonstrably add value.

Key Performance Indicators

The ‘Achieving Excellence in Construction’ initiative requires clients to demonstrate year on year improvement in their construction procurement processes by use of Key Performance Indicators (KPIs). Procurement Guidance Notes 06/10 and 01/12 - ‘Contract Management Principles and Procedures’ include requirements for project evaluation, entailing the recording and monitoring of:

Key Performance Indicators KPI: GCCG Headline Key Performance Indicators
Sustainability: CIFNI Sustainability Requirements ‘Promoting Equality and Sustainable Development by Sustainable Procurement in Construction’
Health and Safety: Buildsafe-NI (2011)

An essential part of project evaluation and reporting in relation to construction projects is the collection of project data for the calculation of Key Performance Indicators (KPIs). CoPEs have agreed on a standard set of 10 Headline KPIs.

PGs / Associations are required, for construction works contracts with a value equal or greater than £1m, to record construction project data for the calculation of these headline KPIs using the Managed Service for the Performance Management of Construction Projects (referred to as the Managed Service). This is to enable benchmarking and reporting to the Procurement Board on such contracts.

Please read the additional guidance in relation to GCCG KPIs

PGs / Associations should note that effective management of contractor performance on planned and longer term response maintenance contracts, using appropriate KPIs, helps ensure effective contract management, delivery of a high level of tenant satisfaction, quality of works and value for money. It is recommended that PGs / Associations’ project manager or contract administrator reviews contractor performance in relation to specified KPIs and other contract compliance issues at monthly contract performance management meetings. PGs / Associations should, as required, consult the CoPE for advice in relation to appropriate KPIs for these contracts.

Additional guidance on effective contract management is included in PGN 01/12 ‘Contract Management Procedures and Principles’.

Managed Service

The ‘Managed Service for the Performance Management of Construction Projects’ (referred to as the Managed Service) is now available to enable user organizations to record and monitor a set of agreed Key Performance Indicators (KPIs), Sustainability and Health & Safety performance as part of the contract management process.

The Managed Service is currently being funded by CPD for the ‘greater good’ and its use is free of charge to user organizations. The system has extensive, and user customizable, online help facilities.

The Managed Service is based on the ‘kpi4construction’ tool and is hosted as an internet based service by Room4 Consulting Ltd (The Managed Service provider).

Each organisation, including Procurement Groups / Associations, has appointed their own internal System Administrators for the Managed Service. User training for these Administrators was provided in January 2012.

Find out about the Managed Service on CPD’s website.

NEC3 Forms of Contract

A key principle of Achieving Excellence is robust proactive contract management. Consistent with this principle the Department, and the CoPE, require Procurement Groups / Associations to adopt the use of the suite of NEC3 forms of contract for the procurement of all construction works and services.

NEC3 is a modern suite of contracts that facilitate the implementation of sound project management principles and practices as well as defining legal relationships. Key to the successful use of NEC3 is users adopting the desired cultural transition. The main aspect of this transition is moving away from a reactive and hindsight-based decision-making and management approach to one that is foresight based, encouraging a creative environment with pro-active and collaborative relationships.

NEC3 is a suite of standard contracts, each of which has the following characteristics:

its use stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract
it can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location
it is a clear and simple document using language and a structure which are straightforward and easily understood

The most frequently used forms of NEC3 are:

NEC3 Engineering and Construction Contract (Options A–C)
NEC3 Engineering and Construction Sub-Contract (ESC)
NEC3 Engineering and Construction Short Contract (ECSC)
NEC3 Engineering and Construction Short Sub-Contract (ECSS)
NEC3 Professional Services Contract (PSC)
NEC3 Term Service Contract (TSC)
NEC3 Term Service Short Contract (TSSC)
NEC3 Framework Contract (FC)
NEC3 Adjudicator’s Contract (AC)

Additional information and guidance in relation to the NEC3 suite of contacts may be accessed at NEC3 Contract.

Sustainability

The EU Procurement Directives, implemented through the Public Contracts Regulations, the European Commission Guide entitled ‘Buying Social: A Guide to taking Account of Social Considerations in Public Procurement’ and judgements by the European Court of Justice provide scope whereby Sustainability can be incorporated into contract performance clauses. Read more about Buying Social.

In addition, the NI Executive’s definition of Best Value for Money in 2011, “the most advantageous combination of cost, quality and sustainability to meet customer requirements,” allows for the inclusion of sustainability requirements within the procurement process.

The three sustainability objectives relating to public sector investment are:

economic – to help grow a dynamic and innovative economy, and help to deliver modern high quality and efficient public services
social – to help promote tolerance, inclusion, equality of opportunity and the desirability of good relations, promote regional balance in future development, and tackle areas of social disadvantage
environmental – to help protect and enhance the environment and natural resources

These objectives are considered to be mutually reinforcing, thus helping to ensure that development is sustainable.

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