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Procurement MattersDecember 2006

While this year's KPIs show evidence of close working relationships and improved service, this is not reflected in fairer payment terms or better profit margins for M&E contractors, writes Gerry Samuelsson-Brown.

Over the six years of Key Performance Indicators (KPIs), there has been a gradual increase in the percentage of clients working regularly with M&E contractors. This has been matched by a gradual decline in the percentage of contractors being used for the first time. Is this evidence of a greater interest in building working relationships?

In the latest KPI survey, clients were asked to appraise the mechanical and electrical (M&E) contractor that they had worked with on their most recent construction project. While around 38 percent of clients reported working with their preferred M&E contractor, 33 percent had only worked with their contractor occasionally, while 29 percent of clients had no prior experience with the M&E contractor being appraised.

The question is whether this shift has made a difference to the outcome of projects. The answer is a resounding yes.

Overall, the performance rating by clients for satisfaction with service shows that 66 percent of M&E contractors scored eight or more on their completed projects in 2005 (a score of eight out of 10 is considered a good project outcome).

The headline data masks the fact that the scores were 80 percent in those projects where the client and M&E contractor had worked regularly, but were as low as 49 percent where there had been no prior working relationship. Figure 1 illustrates this divergence in performance. It is important to note that this is no one-off anomaly. This variance in client satisfaction scores is typical of all previous KPIs.

There has also been a trend away from procurement on a lowest price basis (31 percent in 2001 to 16 percent in 2006) and greater evidence of negotiated contracts (from 22 percent in 2001 to 36 percent in 2006). In 2006, the remaining 48 percent of clients selected their M&E contractor on a price or quality basis. This suggests that price still remains the dominant selection criterion (64 percent of cases).

At the other end of the scale, the extent of dissatisfaction is clear, with 37 percent of M&E contractors awarding just one out of 10 - the worst possible score for satisfaction with timely release of retention monies (Figure 2). The M&E contractors believe that the practice of assigning retentions is unfair and a financial burden. One M&E contractor wrote: "Retention is very difficult to collect. Clients very rarely voluntarily pay retention money. It has to be continually chased, involving time and phone calls."

Even so, there is clear evidence that levels of client satisfaction with service in projects procured on a price-only basis are far lower (32 percent scoring eight or more) compared with those that are negotiated (70 percent scoring eight or more). It is likely that client expectations are higher in these arrangements, so the improvement is doubly impressive.

At a headline level, the greatest increase in improvement is in design, where the percentage of M&E contractors scoring eight or more for their design services has increased from 37 percent to 63 percent.

Can this improvement in performance be sustained? The latest KPI data reveal that while 82 percent of clients had assigned retentions, the timeliness of release of retention monies is the worst KPI measured by BSRIA. Only seven percent of M&E contractors (those asked to appraise the payment terms on their most recently completed project in 2005) gave satisfaction scores of eight or more.

All aspects of payment demonstrate great dissatisfaction. Although only one percent of respondents gave the worst score of one for accuracy of interim payments, only 26 percent of M&E contractors scored eight or more on their latest completed project.

Constructing Excellence and Accelerating Change challenged the industry to get closer to construction clients, to benchmark performance, and to raise standards. Perhaps it's time for the clients to reciprocate. Improving payment terms would be a great place to start.

For more information contact Business Improvement at BSRIA:

Tel: +44 (0) 1344 465600
or Email Business Improvement

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