SPEECH BY SIR MICHAEL LATHAM, D.L., M.A., F.R.S.A.,
DEPUTY CHAIRMAN, WILLMOTT DIXON LIMITED, CHAIRMAN, PARTNERSHIPSOURCING LIMITED, AND CHAIRMAN, CONSTRUCTION INDUSTRY TRAINING BOARD,
TO THE
ANNUAL CONFERENCE OF THE BRITISH INSTITUTE OF FACILITIES MANAGEMENT,QUEENS COLLEGE, CAMBRIDGE, 27 MARCH 2003
It is a greatpleasure to be with you here today and particularly to be back in Cambridge,the University which I was proud to attend.I was not a student at Queens College, but I was at its next door neighbourat the end of this street, Kings, and my younger son was up the road atEmmanuel College. I come here quitefrequently on business, and it is always a privilege to return to thisbeautiful and historic City and University.
As the programmesays, I want to examine facilities management within the context of partnering,but also of the Private Finance Initiative, or Public Private Partnering as itis frequently called. There are someconceptual differences between PFI and PPP, but they are more theoretical andpolitical than real in construction and delivery terms, so I will henceforthuse the expression PPP to cover both. Imust however first say that my own building company, Willmott Dixon, has notbeen directly involved in PPP work as such, though we do a great deal of publicsector work on a partnering basis, of which I shall say more later. We are, however, very heavily involved inboth planned and reactive maintenance and have recently expanded into M&Emaintenance as well. I am also veryconscious that you have heard several detailed presentations on RethinkingConstruction and the related Egan agenda over the last two days, and I canonly apologise if there is some degree of repetition this morning from me.
I want to sharesome thoughts with you on five related topics.They are these:-
1. IsPPP here to Stay? And, if so, are there aspects of the Egan agenda which areparticularly relevant to PPP?
2. Whatbenefits are available from partnering?
3. Isthere a construction and maintenance skills gap and, if so, how can it befilled?
4. Ispartnering applicable to facilities management at all?
5. Whatabout the ongoing maintenance responsibility and specifically the role offacilities management and its inter-relationship with initial design?
Lets begin,though, with asking briefly if PPP is here to stay. At first, the very question might seem preposterous. In the April 2002 budget Gordon Brown, theChancellor, unveiled plans for 25.5bn worth of PPP work. This is almost twice the amount spent in theGovernments first term of office.Given that Government, both national and local, procures such a largeproportion of construction work by value, it would seen inevitable that PPPmust grow steadily for the foreseeable future.There is nothing new about the principle of PPP. The late Lord Cowdray, head of the formergiant nineteenth and early twentieth century international civil engineeringfirm Pearsons, built Mexicos harbours in the Edwardian era, a century ago, bythis method. He found the finance,undertook the construction work, and was then paid over a period of years outof the stream of oil revenues.
But financialand political concerns about PPP have been strongly raised. There are those who argue that PPP is moreexpensive that traditional procurement.In so doing, they are in practice seeking to compare a payment routewhich gives no return to the Special Purpose Vehicle Consortium until thescheme is up and running, and then involves payments over a 25 or 30 yearperiod, with one which pays the contractor monthly during the constructionprocess but ends any payment once the project is certified as complete. They are also comparing a PPP tender routewhich involves - or certainly should involve massive transfer of risk to theSpecial Purpose Vehicle with a traditional one which involves shared risk undercontracts such as JCT 80 or ICE6, and where the outturn price is unlikely to bethe same as the tender price in any case.And thirdly, they are neglecting the practical reality that all forms ofhire purchase cost more, because full payment is being deferred.
There is alsothe major issue of staff transfer. Thatis not a problem for PPP road building, nor particularly for new prisons, wherestaff are recruited afresh rather than being transferred. But it is certainly a concern in many otherparts of Public Service, where the Trade Unions have made their opposition tostaff transfers, even under TUPE conditions, very clear and have receivedsignificant support from the Government in response. While I hope it will all work out well, it remains to be seen ifthe agreement between the Government and the Trade Unions over staff transfersunder PPP really will provide for effective financial and staff management,especially over maintenance issues. Nodoubt the funders and market experts will find ways to overcome these problems,but perhaps at a cost which will then add to the scepticism of those who regardthe PPP route as too expensive anyway.This must reinforce the requirement that PPP really does deliver valuefor money. It will also demand that theamount of real risk transfer outweighs the apparent disparity in costs betweenPPP and practical procurement routes.It will also require that the risk neither can nor will be re-assumed bythe public sector if the consortium is failing to make its expected marginbecause of performance failures during the delivery of the project. The jury is still out on these issues. Private finance evokes powerful, wellorganised and well briefed concerns, ready to criticise it on a wide variety offronts, including design and reliability, as well as cost and staffingquestions. There is also the nastypolitical fear which lurks in the back of the mind, which I can best sum up inthe words of the ancient Hebrew poet who wrote Psalm 146 Put not your trust inprinces, nor in any child of man, for there is no help in them. Some businesses may worry that a futureGovernment of an unknown political complexion, faced with a currency crisis orother financial pressures, might say in the year 2020, Im not paying you anymore. You have had enough over the last15 years. Anyway, the country cannotafford it. Impossible? Unthinkable? Well, ask people who held Post War Credits for decades and sawtheir value turn to virtually nothing, despite endless protests to MPsthroughout the 1940s, 1950s, and 1960s.
But in generalPPP must be here to stay. If the choiceis between a new PPP hospital or no new hospital, most local people will choosethe PPP hospital. If it is between aPPP road or no road, there will be plenty of objectors wanting no road, butthat is also true of traditional procurement.Increasingly, there will be pressure for PPP to change, and the marketwill react accordingly. The crucialtest will come when the cost/value equation begins to look very problematical,because of political constraints on transfer of management control to theprivate sector. But then, nothing iscertain in a highly political environment.That is what democracy means listening to people and adjustingaccordingly.
Whatever theoutcome, we will still need best practice.That brings me to Egan, and the Egan Strategy. You all know the 7 targets of the Egan report. They are to reduce capital costs by 10% peryear, construction time by 10% per year, defects on handover by 20% per year,reportable accidents by 20% per year, and to improve by 20% per yearpredictability (on time and within budget), and improve productivity andturnover and profits by 10% per year.These have not been achieved yet, though progress has been made, exceptin safety and welfare, where fatal accidents on site actually deteriorated in2000 and early 2001, to the great shame of the UK industry, but have shown someimprovement in the last 12 months. TheGovernment has published detailed Key Performance Indicators which are publicbenchmarks for individual companies, and it has created delivery mechanismssuch as the Construction Best Practice Programme, which has benchmarking clubs,and the Movement for Innovation, which sets up and analyses demonstrationprojects submitted to it by individual firms, now both under the auspices ofRethinking Construction, and overseen by the Strategic Forum for theConstruction Industry.
In some ways Iregard the most important Egan target as that which seeks to reduce defects onhandover by 20% per year, leading to a defects free environment over a fiveyear period. The immediate response ofmany in the industry to this target was that it was impossible. Some even thought it undesirable, believe itor not. One architect said to me that adefects free culture would lead to a safety-first environment and be fatal fornew, innovative and risk taking design.I can understand that argument, though I do not agree with it. The industry regards defects as normal. There are clauses in the standard forms ofcontract for both building and civil engineering which prescribe defectsliability and rectification periods.Snagging lists are expected, and with them goes the system ofretention, itself a source of significant cash withholding and potential abusefor both main and specialist contractors.
To those who saywe must expect defects, I have one simple response. I understand your scepticism.We all know the structure of the industry makes it very likely thatdefects will occur. But there is abasic question. Hands up who wants tofly in an aeroplane which does not have zero defects? Who wants to go to a hospital operating theatre or a dentistschair without a zero defects culture?
We certainlyexpect a zero defects culture there.There are now some major clients who are writing into their contractsthat the project is to have zero defects, and, as a result, they are removingany requirement for retentions throughout the supply chain. This is an Egan target which will not goaway. Just think of cars or TV sets 30years ago, how often they used to break down, sometimes within days of comingout of the factory. Then think of themnow. Next, think of construction. We have to have the same consumer focussedapproach. And it will not do to saythat manufacturing, with its repetitive processes, is totally different fromconstruction, where every site is different, it may be raining, there is nostandard design, the work is mostly subcontracted, manufacture and installationof components are undertaken by different companies and a dozen otherexcuses. Think instead of thesimilarities, and it does not matter whether we talk about the pop star with aFerrari or you and me with our small family hatchback car. At the end of the day, the process forassembling the Ferrari and the family car is the same a series of outsourcedcomponents manufactured by subcontractors and assembled together in one or moresites to complete the product.Construction is not dissimilar.When both my report and Sir John Egans talked about effective processwhich needed to be introduced into the construction sector, there was criticismfrom some distinguished engineers and architects. They said that there was too much talk about process. What mattered was the product, the project,and that the key to that was design. Ifthe design was strong, the rest should follow.I cannot agree. Of course theend product, as formulated by the design, is important. But one needs an efficient process todeliver that design. Egan isright. We need clear targets. We need specific benchmarks. As more than one management guru has rightlysaid in the past, if you are not measuring performance, you are onlypractising. And that goes equally forP.P.P. consortia as for traditional contracting relationships. Accelerating change has produced further targetsas well, and here they are:
(SHOW SLIDES)
I turn now topartnering - what it can achieve. Idont want to talk now about why we should do it, because that is well known,though we can pursue this further at questions if you wish. I want instead to share with you somespecific case studies, which I believe make the role of partnering veryclear. I have deliberately chosenpublic sector schemes in which my company has been involved because some publicauthorities are still doubting if partnering is possible for them at all. These will hopefully show what other publicsector clients are doing.
(SHOW SLIDES)
Barnsley
Tower Hamlets
Watergate
Bleak Hill
City Learning Centres
Cheshire Schemes
Monmouth
Whatever theprocurement route followed, whether partnering and co-operative or traditionaland adversarial, one essential requirement for efficient management of theprocess is a skilled workforce, much of which will in practice besub-contracted, both for new construction and maintenance. CITB, which it is my privilege to chair, hasbeen helping to deliver skills training for nearly 40 years. Of course, its approaches and outreach arenow very different to what they were in 1964, 1974, 1984, or indeed 1994, theyear of the publication of my report Constructing the Team. The reality of modern construction is thatmost of the main contractors are very large firms, but they are not largedirect employers of site labour. Manyof their sub-contractors may well be using agency labour themselves. The challenge to ensure that labour isavailable at all and, if so, is properly trained, has faced the industry fordecades. So the CITB has to engage theissue on a number of fronts simultaneously.The first is to identify the necessary skills and where the gaps exist,and CITB researches these extensively.The second is to outreach to young people to help them to enter theindustry at all, rather than choosing some indoor job away from theconstruction industry which may initially require few if any basic skills. The CITB spends large amounts of time, moneyand effort in such recruitment techniques, with reasonable success andcertainly with heightened public awareness.The third is to help firms to take on young new entrants and see themthrough their training, and for that there is a detailed grant structure whichrecognises those who train. The fourthis to widen the potential choice of entrants through a diversity agenda,because this is an industry which employs few women or visible ethnicminorities, and effectively excludes half the country in its recruitmenttechniques. The CITB has a strongdiversity programme, which is making progress, and for which specific andchallenging targets have been set. Andthe fifth is to raise skills of those already in the industry, including safetyawareness, through the Construction Skills Certification Scheme, which CITBmanages on behalf of the CSCS Board, and its affiliated skills cards from otherindustry sectors. Because of the poorsafety record of the industry, the Government and clients have rightly insistedthat there must be major improvements in the whole Respect for People agenda,and an upskilling of the workforce generally.The commitments made by the Confederation of Construction Clients andthe Major Contractors Group to achieve 100% certification on their sites by theend of this year is a massively challenging target. The outcome in 2002 was 55%, so there is far to go, though goodprogress has been made since the target was set. It is possible for clients to insist upon it as a contractualrequirement. Whether they do so or not,the reality is that the major contractors are already committed or theircompetitors are to deliver full certification, and it is in their bestinterests to do so anyway because that will help to ensure a skilled workforcedelivering a competent job in a safe atmosphere. CITB has a major role in this.There has been a huge demand for certification over the last twelvemonths, which has presented the CITB staff at the Bircham Newton H.Q. with animmense challenge, to which they have responded nobly.
Having outlinedwhat can be achieved by partnering, I want to consider whether partnering isapplicable to facilities management at all.Your discipline obviously has a very large number of different servicesand business activities which are either all outsourced, or partly so with someretained in-house. Many of them arenothing directly to do with Construction.Others, however, are vitally and inherently connected with it, includingroutine or emergency maintenance and perhaps particularly the maintenance andupkeep of essential M&E services.The M&E sector as a whole, and I am heavily involved in it inseveral capacities, is one which is integral to construction but does not seeitself only as part of construction.Electrical work in particular is very widely spread and a great deal ofits detailed expertise is outside construction. However not much of it is outside facilities management. The installation of M&E within abuilding is part of construction, of course.The design and manufacture of electronic control panels are not, andthey may be installed in objects which are not of themselves involved inbuildings such as tower cranes, tractors, or a hundred and one differentuses. But most of them will come withinyour remit as facilities managers in various ways - whether it be as externalplant, your car fleet, your computer provision, your catering facilities oryour security alarms and other devices.
Facilitiesmanagement embraces construction in all its forms, and is a link which binds manycompletely disparate types of construction together. They all have facilities, and they all need to bemaintained. And that requires management. In recent years your discipline andprofession has created the opportunity for a seamless role of ongoingsupervision of facilities of all kinds, but one which should begin at theearliest possible moment. Thetraditional approach to facilities management in the past by the constructionindustry - and indeed by the construction client - has been either totallyignoring it or believing it was someone elses job. Lets look at two different clients, say a Hospital Trust and afamily owned factory. Until a few yearsago, the hospital trust wanting to build a new wing or modernise existingbuildings would have drawn up some general specification, retained an architectand perhaps other professional consultants such as engineers and Q.Ss, goneout to tender to contractors, let the contract (which would involve manysub-contract packages chosen competitively by the main contractor), and, whenthe building was well advanced, begin to plan the details of the catering,security, cleaning, car parking and so on.So far as the M&E work was concerned, that would involve endlessfinessing for position between the architect, the consulting engineer, thespecialist M&E contractor and his sub-contractors, and eventually acommissioning agent to see that it all worked as completion approached. The likelihood of the providers of the otherfacilities being consulted at design stage, let alone seen as members of theteam, was zero or at best very slight.Even the M&E specialist contractor, whose detailed drawings wereactually the key to making it all work, would have been hired on a domesticsub-contract by the main contractor, often at a highly competitive price aftervigorous tendering; and the poor marginhe stood to gain from the construction process made it all the more likely thathis input for value management would be reluctant and late and his mainpriority would be to look for claims opportunities during the job. In the other example, of the family ownedfactory seeking to relocate on an industrial estate, the chances of involvingthe non-construction specialists would probably be zero. The client would know nothing aboutconstruction. He would commission anarchitect whom he knew in the Rotary Club or on the Golf Course and tell him toget on with it - and that would be the be-all-and-end-all of the riskassessment and procurement route strategy.
Key clients are nowincreasingly seeing that that is a potentially unproductive and adversarialprocess. In Willmott Dixon, as the casestudies show, we have found such clients ready to adopt a partnering approach. We regularly hold partnering workshops onmaintenance with Housing Associations and Local Authorities. In such partnering for maintenance, theinvolvement of the residents as end user clients is absolutely crucial to thesuccess of the project. For the client,open book costing on the maintenance operation is also crucial, as is thebenchmarking of performance against other associations and pastexperience. The debate in construction,especially where PPP is involved, is increasingly focussing on aspects such ascost in use and whole life costing.That places a major emphasis on efficient delivery of the originalconstruction or refurbishment plan in such a way as to minimise the maintenanceliability. To ensure that that isachieved, and that best practice is followed, the early involvement of the longterm facilities management team is simple commonsense. No one is better placed that they, or atleast than they should be, to know and estimate the maintenanceconsequences of initial construction decisions. And that may go for some of the services apparently even lessdirectly related to construction such as cleaning, security, or parking orfleet management. If the designs areconsumer unfriendly, the cleaning will be difficult, including the windowcleaning, the car parking arrangements may be inefficient and the securityarrangements unnecessarily expensive because of the configuration of thebuildings themselves.
Maintenance isnow increasingly seen by key clients as something to be planned out at earlydesign stage. It remains a particularresponsibility under PPP, and a direct cost, to the consortium, not to theclient. Literally billions of pounds ofwork is now being done on this basis prisons, roads, schools, hospitals, andthe volume is rising all the time. Thismakes it all the more important to bring the design and construction team andfacilities managers together at the earliest possible stage. If the design ignores future maintenanceresponsibilities, the financial burdens upon the consortium will worsenthroughout the life of the project. PPPdoes not allow the contractor to walk away from the problem after the twelvemonth defects liability period in a normal contract is over. This is not a snagging list scenario. This is real financial responsibility fordecades. So it must set a heavy premiumon effective teamwork throughout the supply chain, real attention to valuemanagement and buildability and designing out non-value adding elements at theearliest possible stage. In PPP aboveall, where risk has been transferred wholesale, the motto of Total QualityManagement really must prevail right first time, every time. To achieve that, the supply side team needsto be well assembled and fully signed up to the whole project, and that must includethe specialist contractors. Their role,particularly for hospitals or high tech research facilities, provides 60% ormore of the value of the job. We cannotallow the nonsense of adversarial contracting to detract from their vitalintegration at the earliest stage.
It also requiresthe earliest possible involvement of the Facilities Manager, by which I mean atconceptual design stage. Let me giveyou one or two simple examples, questions which might or might not be asked ofthe architect.
1. Whyhave you designed that school shower and changing room at that end of thecorridor? It is at the opposite end tothe entrance from the sports field. Thestudents will come in after a game with dirty feet and mud dropping all downthe corridor. It should be as near tothe door to the sports field as possible in order to minimise cleaningrequirements and wear and tear on the floor and corridor.
2. Thatannexe which you are proposing to add to the existing hospital building willjut out into the car park in such a way as to remove a significant number ofparking spaces for patients families and staff. It will also be impossible to cover it effectively withCCTV. If you either design it at theother end of the hospital, or as a new floor on top of an existing one, or elseseek to reconfigure some existing space more effectively, you will avoid theseproblems.
3. Puttingthe new chemistry laboratory next to the students caf and bar is hardly a goodidea. Apart from anything else, therewill be fume cupboard issues which will require heavy additional expenditureand maintenance.
4. Theplant machinery for M and E which you have provisionally placed on top of therefurbished office block will be extremely difficult to service because of theunsatisfactory lift access, which does not reach the top floor and in any casecannot accommodate heavy testing or repair equipment. It will be necessary to use suspended access equipment, which iscostly and can be dangerous.
5. Theexternal window design of this new high-rise building is an exciting conceptand visually challenging. But have youthought how those windows can be cleaned?They cannot easily be approached by suspended access equipment becauseof the external shape of the design and the novel configuration of theroof. They will require abseilingtechniques, which are slow and demanding.How are we to find the skilled staff to do that work on a regularbasis?
Those are just afew ideas, and you can all think of dozens of others. The difference between traditional contracting and the PPP isthat in all those examples the ongoing maintenance cost would be theresponsibility of the consortium, not of the client. Designing out unnecessary costs at the earliest stage byeffective involvement of the facilities management team is a real potentialbonus to the whole project. When Ifirst suggested this in a speech near Newcastle-upon-Tyne about six years ago,my audience in the North Eastern Branch of the British Institute of FacilitiesManagement were stunned, because nobody had previously suggested that theyshould be seen as partners. They wereused to being treated as the caretaker.Yet two years ago, prior to the 2001 BIFM Conference, one architect wrotean excellent article for the conference magazine, over which the magazine editorposed the question as a strap line, Is there anyone out there who stillbelieves that Facilities Managers should not be involved in design? I am afraid that the true answer to theeditors question is Yes, there are lots of such people. Indeed there are plenty who know nothing atall about facilities management, let alone how to involve it at an earlystage. The reality is that the PSV canunwittingly add to its own financial burdens throughout the 25 to 30 years ofits responsibility, by failing to integrate facilities management expertise atthe appropriate time.
So, what messageshould we take away from Queens College, Cambridge, and, in particular, whatshould the BIFM be continually demanding on all public occasions? The first, I believe, is that facilitiesmanagement should be seen as an integral part of the construction process. That means getting fully involved with thedebate in the industry, and with bodies such as the Strategic Forum for the ConstructionIndustry, via the Construction Industry Council. If F.M. does not demand a voice at the table it will not beheard. It also involves challenging theidea that maintenance cannot be minimised by effective design, and that it is anatural consequence of any building work which one just has to put upwith. It involves seeing zero defectsas being the normal requirement for the industry, not the exception. And it involves seeking to attract newskills into the industry in the first place, as well as also upskilling theexisting workforce. In short, itinvolves seeing construction, maintenance and facilities management as aseamless robe, with all having valuable resource to bring to the conception andrealisation of every project. Do notthink we are anywhere near these objectives yet. Indeed, we have barely even started. There is still a very long way to go. And if you do not fight for your profession, do not expect anyoneelse to do it for you. However,inclusiveness is a key concept for the Government. Collaboration and partnering are new drivers for the constructionindustry. This first decade of the 21stcentury must see F.M. firmly established at the core of a modern industrialprocess. Queens College Cambridge - asource of excellence for centuries - is a very good place to start.