The Client's role in Lean Construction

This blog has been adapted from a piece of coursework set in the "Construction Planning, Tendering and Finance" module I'm studying in my undergraduate degree in Quantity Surveying. The original question was framed around the complete refurbishment of a pharmaceutical manufacturing premises within a programme of no more than 42 days. The question asked you to provide advice as if you were the Commercial Manager within a construction firm that was preparing a tender for submission as part of a framework agreement.

Pfizer, East Kent

In answering this question we had to devise various iterations of a project network analysis detailing the shortest time, optimum time and associated costs, before recommending to our Managing Director which would be the best to base our bid on. I couldn't decide which way to go at first because there was insufficient information provided about the Client's requirements, so I went with the systems thinking view - and recommended further discussions with the Client first before deciding. *D'oh!* Well, it got me thinking more about what clients (note the small "c" now) need to do if they really want to implement lean into their construction projects. I will draw on my own experience here too, as an "intelligent client" in the development department of a housing association.






Since the days of Latham (1994) and Egan (2002), the construction industry has - to varying degrees and levels of success - drawn lessons from lean in manufacturing and implemented them. One of the key things recommended from both government-commissioned reviews was how partnering can improve the construction process by reducing costs and time and improving quality.


Partnering comes in two forms: project partnering and strategic partnering. The first is more transient as it exists solely for the life of the project, but with repeat business over several projects can lead to the latter. Framework agreements have been set up by many public-sector organisations, in part to counter the OJEU requirements, but also to build relationships with a select number of contractors/suppliers with a view to forming a strategic partnership. However, what clients have mostly failed to realise is how simply forming a framework and working with the same contractor(s) over a series of projects does not constitute "partnering" let alone the lean construction approach advocated by Latham et al, if they still follow the old entrenched adversarial practices.


By old entrenched adversarial practices I mean the following:




1) Providing little real information up front about their (clients) expectations. Many questions arise as a contractor prepares a tender: How soon do they want the building(s) completed? What is their budget for construction costs? What standard of quality do they want/need to achieve? Most importantly, which takes precedence if there has to be a compromise?

2) Following on from above, clients send out invitations to tender with incomplete design information, usually because of time pressures (in housing circles, the usual cause is HCA grant-funding deadlines), sometimes through lack of expertise or detail in the Employer's Requirements. This inevitably leads to variations once work has commenced.

3) Clients prefer using adversarial standard forms of contract. Two-party agreements mean that any risk passed to the contractor will be forced down every link in the supply chain until it finally falls on somebody at the bottom, who may not be best placed to accept that risk. This is irresponsible, and likely to cause problems when it goes wrong (if anything, just by delaying the project's completion).

4) The supply chain bears the cost of the contractor going bust. The client may come out a little burnt, but by and large can depend on bonds, Parent Company Guarantees or warranties to protect their interests. The contractor might go bust for a number of reasons but the most common is poor cash flow. If the contractor goes under then the subbies don't get paid.

5) Risks are handed off so far as possible onto the contractor, even those it would be fair for the client to retain. Liquidated and Ascertained Damages (LADs) are written into contracts as a calculation to protect clients from the loss of revenue through delayed project completion. They do not represent a penalty - such clauses are outlawed in the UK - but they are there as an almighty stick if the programme gets a little shaky.

So what should clients be doing if they want to follow lean principles?

1) Clients should provide as much information as possible about their expectations from the project, including what they consider their "Key Success Indicators" are (I've avoided using the term "Key Performance Indicators" here because it's so annoyingly linked to targets in people's minds - see my previous entry on the absurdity of targets!) During construction they should be continuously measuring output performance against the KSI's.
Also, it's o.k. for contractors to ask questions if something isn't clear during the tender stage, so long as the client is fair in their answers and provides the additional information to all contractors involved in the exercise. So contractors, don't assume what the client wants (because you make an ass out of you and me...)


2) The problems with variations fall into two camps: those instigated by the clients and those instigated by the contractors. The first is due to a lack of the client's understanding of just how disruptive variations can be. They think "wouldn't it be nice if we had gold taps instead of chrome, I wonder how much that will cost?", so they ask the contractor and he tells them and they agree to the additional price. For clients it's as simple as asking a question and getting a response, but in order to provide that response the contractor has to source a suitable product, maybe price it from different vendors, throw in a bit of negotiation to weedle the price down, omit the original sum from their contract calculations and add in the new one, work out the difference and then inform the client. And all that work for an answer that might be "no, that's just too much money - what about silver ones?" And all the while the clock is ticking on the programme..... The way to overcome this variation problem is to freeze the design before construction commences (locking in the standardisation chock).
Usually the latter is caused by Employer's Requirements that are drafted as product-based specifications. In the current downturn there have been many suppliers/manufacturers that have gone out of business and so their products no longer exist. This leaves contractors having to establish what it was performance wise that the client wanted from that particular product by using a substitute, and that throws up questions of comparable quality. I would therefore advocate the use of performance-based specifications instead of product-based ones.


3) Clients could opt to use a multi-party contract, such as PPC2000 (the first of its kind and developed by Trowers & Hamlin), which supports various forms of risk allocation. Unfortunately its use (certainly in my experience) has been next to non-existent, because clients like the safety of tried-and-tested methods. They feel protected hiding behind a contract bound to litigious forms of dispute resolution, much like children run to their mother expecting her to wave a magic wand to make it better, rather than resolving contractual issues themselves ultra-atriis (as adults.....)


4) The supply chain needs to be fully integrated and this is where the multi-party contract comes into its own. Not only is there a direct contractual link (very usefully!) between subcontractors, suppliers, main contractors and client, risk can also be distributed to those who are best able to take it. So no warranties, no heavy risk loading.
A progression from this would be the establishment of a project trust, into which the client places the contract sum, and the (sub)contractors draw down from as work is completed and agreed. This means if one party is removed from the equation the others can be reassured they will still be paid.


5) As mentioned above already, risk should be evenly distributed between the client and the winning contractor and its allocation decided early on in the tender process. All contractors tendering will include a premium for accepting risk, as an element of their profit make up. As a client, if you pass more risk onto the contractor you may think you are getting a better deal but really you're just pushing up the tenders. Of course, a contractor that is desperate to win work may reduce their profit, even running the project at cost, but that will only backfire on the client when they go belly up due to cash flow issues (a MAJOR risk).
As a rule of thumb, time risks are best allocated to the contractor whilst cost risks should stay with the client. Quality risks belong to both parties ("quality is everyone's responsibility" - W.E. Deming, the great systems thinking master).
To that end, I don't believe that clients will want to drop LADs from contracts (unless they are very trusting of their partnering contractor - or stupid, you decide!) but they should be very realistic. There is a fall back formula the courts or adjudicators will use if one is not explicitly written into the contract, so it would be wise to take the opportunity to calculate the actual business loss a late completion would cause and insert that in the contract.




A final point about strategic partnering is that it offers a real opportunity to implement continuous improvement, by sharing the learning from project to project. Reviews of what went well and what could be done better next time are a valuable tool, particularly if all the project team are involved in those discussions. Mistakes will happen, specification items will become outdated and things will change in the external economy, but through strategic partnering we can learn, we can grow and we can get better. Together.