What next for the Government ConstruCtion strateGy? - Aecom

What next for 

the Government 

Construction Strategy? 

1

What next for the Government Construction Strategy? 

Earlier this year, the Cabinet Office 

published a review of the Government 

Construction Strategy (GCS). John Hicks, 

head of government & public for AECOM, 

analyses what’s in store as the strategy 

moves forward. 

John Hicks 

Davis Langdon, An AECOM Company 

2


Introduction 

The Government Construction Strategy 

(GCS) was formulated in 2011, with 

the aim of reducing the cost of 

government construction projects by 

15 to 20 per cent by 2015. 

In July 2012, the Cabinet Office 

published a ‘One Year On’ review of 

the GCS. The report noted that inyear 

savings of £72 million had been 

achieved since the strategy’s launch. 

In addition, whole-life savings of 

£279 million have been identified 

on contracts awarded and projects 

registered during 2011-12. 

Given the apparent 

success of the GCS, 

it is no surprise 

that the Cabinet 

Office reaffirmed its 

commitment to it 

in the ‘One Year On’ 

review 

Given the apparent success of the 

GCS, it is no surprise that the Cabinet 

Office reaffirmed its commitment 

to it in the ‘One Year On’ review. In 

this whitepaper, I consider what 

the strategy means for the UK 

construction industry, and how the 

construction community can work with 

the government to help it achieve the 

targeted savings. 

3


Market conditions 

The UK construction market remains 

challenged. Despite maintaining 

steady levels of employment, output 

is down, prices are flat, and the 

economy shows few signs of growth. 

Some commentators predict that this 

could become the norm for our country 

beyond 2015, even through to 2020 

– providing a difficult landscape in 

which to trade. 

Put simply, the GCS 

states what the supply 

chain must do to help 

the public sector 

secure cost reductions 

and drive efficiency 

Even so, the public sector continues to 

spend a significant proportion of GDP 

on infrastructure and construction. 

Public spending accounts for around 

a third of total construction output 

and is projected to be in the region of 

£30 billion per year over the next three 

years. 

That makes the government an 

important client to the construction 

industry, especially at a time of 

economic stagnation. Managing 

relationships with this client entity 

is thus a key priority for all those in 

construction – and the GCS guides us 

about how best to do that. Put simply, 

the GCS states what the supply chain 

must do to help the public sector 

secure cost reductions and drive 

efficiency. 

Public sector construction output £m (2005 prices) 2012 2013 2014 

New work 18899 16908 16401 

R&M 13234 12917 12844 

Total 32133 29825 29245 

Source: Experian Construction Forecasts 2014 (2012) 

4


Changing priorities 

The Cabinet Office used the ‘One 

Year On’ report to reinforce a positive 

story about government savings 

on construction spending, and to 

advocate a unified adoption of the GCS 

throughout the public sector. 

In reality, not all public sector bodies 

have yet implemented the GCS. While 

there are many examples of best 

practice, the public sector overall 

tends to be slow in adopting a new 

direction of travel when it comes to 

the procurement and management 

of construction contracts. So the 

GCS principles are by no means used 

uniformly in public sector construction 

projects – although the government 

clearly hopes this will change in the 

next three years. 

Further impetus for the GCS may 

come when Peter Hansford takes up 

his post as the government’s Chief 

Construction Adviser in November 

2012. We can expect it to be a few 

months before Hansford establishes 

his vision for government construction, 

so it is too early at this stage to gain 

a sense of his priorities. How his 

priorities will align with those of 

Paul Deighton (the former CEO of the 

2012 Olympics London Organising 

Committee), who has been appointed 

to a ministerial role in HM Treasury to 

lead the government’s infrastructure 

push, will also be important for the 

industry and government. 

The forthcoming Autumn Statement 

will no doubt have implications 

for the construction industry. It is 

difficult to predict what to expect, but 

there will be a clear tension at play 

between investing in buildings and 

infrastructure as a means of priming 

economic growth, and cutting the 

construction budget to reduce public 

spending. 

In a fluid context, there is little 

certainty about the precise direction of 

travel for the GCS. It seems reasonable 

to suppose that the factors examined 

above will have an impact on the 

strategy, though, and we can expect it 

to be revised over the coming months. 

How his priorities will 

align with those of 

Paul Deighton, who 

has been appointed 

to a ministerial role in 

HM Treasury to lead 

the government’s 

infrastructure push, 

will also be important 

for the industry and 

government 

5


Cost reduction trajectories 

One thing that will remain central to 

the GCS is the use of cost reduction 

trajectories as a key performance 

indicator. They apply across two main 

areas: 

–– 

Buildings: Cost benchmarks for 

the buildings environment were 

published in April 2012, along with 

cost reduction trajectories that 

committed departments to savings 

of between 12 and 20 per cent 

before the next General Election. The 

savings reported in the ‘One Year On’ 

report are encouraging, but may be 

the result of “easy wins”, or “lowhanging 

fruit.” Achieving savings 

of up to 20 per cent over the next 

three years may well prove more of a 

challenge. 

–– 

Infrastructure: Davis Langdon, an 

AECOM company, is part of the 

working party that is currently 

establishing cost reduction 

trajectories for infrastructure. Other 

members come from HM Treasury, 

the Royal Institution of Chartered 

Surveyors (RICS) and other private 

sector suppliers. These trajectories 

provide a helpful way of predicting 

future expenditure on infrastructure, 

but they are harder to benchmark 

than buildings costs, because of the 

impact of method-related costs in 

this sector. 

In addition to the cost reduction 

trajectories outlined above, the 

RICS is calling for benchmarks to be 

established for professional fees and 

other owner costs. As yet, however, 

no such trajectories have been 

established. 

The RICS has contributed to the 

management of cost through its 

New Rules of Measurement (NRM). 

The first part of NRM was launched 

in 2009, with an update and launch 

of the second part coming in April 

2012. NRM will replace the Standard 

Methods of Measurement used for 

costing construction jobs, and has 

been embraced by HM Treasury. NRM 

is not referenced in the GCS, but could 

help public sector bodies adhere to 

the targets set, by providing common 

standards against which to judge 

costs. 

The savings reported 

in the ‘One Year 

On’ report are 

encouraging, but may 

be the result of “easy 

wins”, or “low-hanging 

fruit.” Achieving 

savings of up to 20 

per cent over the 

next three years may 

well prove more of a 

challenge 

6


Procurement models 

In a previous whitepaper by Davis 

Langdon (Procurement in Focus, 

February 2012), we set out some of 

the innovations in procurement that 

could help the government achieve its 

cost reduction targets in construction 

projects. The adoption of new models 

of procurement is still largely to come, 

but there are some useful areas of 

learning as departments pursue the 

GCS: 

–– 

MoD infrastructure procurement: 

The Ministry of Defence is piloting 

a GoCo (Government-Owned 

Contractor-Operated) procurement 

model for infrastructure, whereby 

a private contractor is paid to run 

its procurement operation. The 

MoD procurement GoCo contract 

is expected to be awarded in mid- 

2013, and operational from 2014. 

It will initially take the form of the 

contractor holding a few key posts in 

the GoCo entity, but will eventually 

move to a more developed model, 

where the contractor operates 

the procurement function on 

behalf of the MoD. The MoD has 

not committed to adopting such 

an approach beyond the initial 

procurement, and it could well be 

challenged if its effectiveness is 

contested by the government as the 

procurement phase concludes. By 

way of comparison, questions have 

started to be raised about the value 

secured by the delivery partner 

model used for the London 2012 

Olympic Games, despite the success 

of the programme overall. 

–– 

Water industry: the water industry 

is highly regulated, and frequently 

held out as a model of best practice 

in procurement. It uses framework 

agreements to secure best value 

through aggregated buying. In 

addition, these framework contracts 

establish long-term relationships 

with the supplier community, 

encouraging contractors to innovate, 

and deliver the highest levels of 

service. 

–– 

Professional Services: The 

Government Procurement Service 

has begun operating “lean” 

procurement models through 

regional professional services 

frameworks. These models reduce 

procurement periods, with the Pre- 

Qualification Questionnaire (PQQ) 

and Invitation to Negotiate (ITN)/ 

Request For Proposal (RFP) stages 

operating simultaneously. Although 

this puts unsuccessful bidders in 

the position of incurring a higher 

cost to tender, it encourages all 

applicants to think seriously about 

their chances of being successful. 

This reduces time spent on weak 

tenders, as well as tightening the 

procurement process. Once such 

frameworks are awarded, expect to 

see more commercial management 

of awarded frameworks than has 

been customary in the past – as the 

likes of the government’s new chief 

procurement officer Bill Crothers 

drive commercial and contract 

issues together in the GPS. 

–– 

NEC Option C: This cost-led 

procurement method has been 

widely adopted across the public 

sector, and enables the client to 

predict and manage costs from the 

outset of a project. 

A common element of the 

procurement strategies described 

above is that bidders are involved at 

an early stage in the process. This 

partnership working is seen in other 

areas of government procurement 

– for example, in the design and 

development of the Public Services 

Network (PSN). It enables the 

government, as customer, and the 

supplier community to establish a 

realistic cost base for projects, as well 

as agreeing the key measures of value 

against which a project will be judged. 

A further feature of the current 

procurement landscape, and one that 

I expect to become more common 

as the GCS is pursued, is a move 

towards centralised procurement. This 

facilitates group purchasing, keeping 

prices competitive and making the 

procurement process more efficient. 

A further feature of the 

current procurement 

landscape, and one that 

I expect to become more 

common as the GCS 

is pursued, is a move 

towards centralised 

procurement. This 

facilitates group 

purchasing, keeping 

prices competitive 

and making the 

procurement process 

more efficient 

7


Making GCS work 

Improvements to procurement 

processes are intended to significantly 

help the government achieve at least 

some of its projected savings on 

construction projects. Other important 

enablers of the GCS, which need to be 

borne in mind by the government as an 

“intelligent client”, include: 

–– 

Building Information Modelling 

(BIM): The GCS requires 

collaborative 3D BIM on all centrally 

procured construction projects by 

2016. While take-up is encouraging, 

there is still confusion about BIM 

across the industry, and an overexpectation 

by a number of clients. 

Clarity on the use of BIM is needed, 

in order that its benefits for wholelife 

cost management can be 

realised. 

–– 

Prevention of problems: 

Construction projects need to be 

road-ready and fully planned before 

they get underway – something 

that was exemplified in the success 

of the London 2012 construction 

project. Rather than investing in 

careful planning and preparation for 

projects, some public sector clients 

simply end up reacting to problems 

that could have been avoided, and 

are forced to employ in-house staff 

or outside assistance to resolve 

them. This is inefficient, and not 

cost-effective. 

–– 

Project Bank Accounts (PBAs): The 

Cabinet Office should enact its 

commitment to deliver £4 billionworth 

of construction projects using 

PBAs in the next three years. This 

will reduce the costs associated 

with payment disputes, as well 

as improving cash-flow for subcontractors, 

and enhancing SME 

inclusion in the supply chain. 

–– 

Key skills: Public sector bodies 

need staff with the skills necessary 

to procure and manage contracts 

effectively. The Siad Business 

School at the University of Oxford is 

set to provide some of the training 

needed for top-flight civil servants. 

The effectiveness of such training 

will not be seen for some time and 

the onus will be on public sector 

organisations to demonstrate that 

investment in such training is paying 

off, and to preserve the skills-base 

of its workforce, even amid fiscal 

constraints. 

FM 

CONSULTANTS 

FM 

PROVIDER 

Public sector bodies 

need staff with the 

skills necessary to 

procure and manage 

contracts effectively. 

The Siad Business 

School at the University 

of Oxford is set to 

provide some of the 

training needed for topflight 

civil servants 

CLIENT 

PROJECT 

MANAGER 

ARCHITECT/ 

DESIGNER 

SUB 

CONTRACTORS 

BIM 

STRUCTURAL 

ENGINEER 

CONTRACTOR 

BUILDING 

SEVICES 

ENGINEER 

SUPPLY 

MANUFACTURE 

SPEC 

CONSULTANT 

COST 

CONSULTANT 

CIVIL 

ENGINEER 

8


Concluding remarks 

The government is rightly keen to 

emphasise the savings already 

achieved by the GCS, and to encourage 

its departments to continue striving 

for savings in construction projects. 

Moreover, it is in the construction 

industry’s interest to cooperate with 

public sector bodies in pursuing 

the strategy. The government is an 

important client – particularly in a 

challenging economic climate, where 

private sector investment is sluggish. 

Effective procurement will continue to 

be central to the success of the GCS. 

The government should therefore work 

hard to develop purchasing models 

that involve the private sector at an 

early stage of a contract. Where they 

are already in use, such models deliver 

measurable cost efficiencies and 

enhanced value for money on public 

spending. 

This speaks of a deeper need 

for collaboration between the 

construction community and its public 

sector customers – something the 

outgoing Government Construction 

Advisor, Paul Morrell, has warned may 

be in jeopardy. Without a joined-up 

approach to driving down cost and 

achieving best value on government 

construction projects, the GCS’s 

targets will be impossible to realise. 

That is the challenge facing all of 

us with an interest in public sector 

construction. Whether in the public 

or private sector, we are united by a 

common purpose: to make the public’s 

money go as far as possible, and build 

a secure future for the UK on the world 

stage. 

Effective procurement 

will continue to be 

central to the success 

of the GCS. The 

government should 

therefore work hard 

to develop purchasing 

models that involve 

the private sector at an 

early stage of a contract 

9

Program, Cost, Consultancy 

www.davislangdon.com 

www.aecom.com 

DL30414 (09/12) | Designed in-house by AECOM’s PCC business development team

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