WG3 – Procuring Innovation

Tim RudinCollan Murray

Greater London Authority Group

Agenda

• Introduction• Early Market Engagement• Supplier Relationship Management• Feedback from Contractors• Next Steps

EARLY MARKET ENGAGEMENT

Early Market Engagement• EME comprises all of the activities undertaken by public authorities

to engagement the market before commencing a procurement process.

• It is a method of capturing intelligence on innovations, new processes, project feasibility and market capacity/capability which can then be factored into the specification and procurement of a construction project.

• EME is not regulated by the EU procurement Directives, however needs to be undertaken in accordance with the principles of transparency and non-discrimination.

• EME is distinct from ‘Early Contractor Involvement’ in construction.

Guidance on Early Market Engagement

• Research suggests that there is a lack of formal guidance – focus on projects– Pre-Commercial Procurement– Small Business Research Initiative– SMART SPP– Forward Commitment

• Informal approach adopted by many authorities within EU principles– A number of member states focus on what is not permitted in

EME, rather than what can be done

EME Case Study – RAKLI Procurement Clinic

• RAKLI, the Finnish Association of Building Owners and Construction Clients, has set up a procurement clinic which uses open, interactive workshops to facilitate market dialog between potential service providers, consultants, contractors and investors.

• Workshops analyse the procurement problems and give their recommendation for solving them, which are documented. Workshop results are then available to the public and accessible to construction sector operators.

• Procurement cases may be related to any form of man-made environment. They may concern maintenance, new investments or service delivery. Clinics may deal with new types of partnerships for the development of project implementation or service concepts.

RAKLI Procurement Clinic• Objectives of the Procurement Clinic:

– Development of procurement procedures in the real estate and construction sector

– Finding and promoting the best procurement solutions– Developing procurement innovations– Applying the EU public procurement regulations– Exploiting and developing the market– Open exchange of experiences between customers and service

providers – Finding case-specific solutions constructively and interactively

RAKLI Procurement ClinicCase specific working groups Selection of 

procurement cases Workshop 

activitiesUsing the results

Leaders from RAKLI

Case initiators will provide one or two participants

Other customers are free to participate

Consultants, contractor and other expert representatives

Potential inclusion of paid legal or specialised expert services

Suggestions from customers

The steering group will agree on the cases

Four to five sessions per case

Depending on the case, the process duration will range from three to six months

The Procurement Clinic's website

Case‐specific public reportsRecommendations for solutions will be accessible to the public 

RAKLI Procurement ClinicOutsourcing of municipal engineering in the City of Varkaus

• The city of Varkaus decided to outsource its municipal engineering in 2008. The city established a project to develop and test the process for implementing the outsourcing of engineering service production. The objective of the process was to engage in market dialog, use competitive bidding and prepare agreements for the outsourcing process as well as to ensure that service level targets set by the municipality will be reached.

• The challenge for the procurement unit was to specify the criteria for competitive bidding, to define conditions and model for contract with suppliers.

• RAKLI took part in the project by arranging a procurement clinic with potential service providers, consultants, contractors and investors. The result of the project was a new operating model and a large amount of valuable knowledge gained in implementing outsourcing, applicable to other cities in the region.

EME Example –Prospectus (UK)

• A number of authorities are publishing project prospectuses as part of a structured EME process.

• The prospectus provides information on the project to the market in a structured and consistent way.– This can be used to both generate input to the procurement process, and help

the market to determine whether to participate and if so gear up accordingly. • Prospectus used in conjunction with an advertisement to

simulate interest.• Responses to the prospectus are used to identify

potential solutions and test viability– Follow up workshops and 1:1 discussions held to capture further information

EME Prospectuses

• Content of prospectuses:– Project overview and key challenges– Explicit call for innovation in responses, highlighting any

needs that are not yet met– Open invite to the industry, not just prime contractors

• In both cases information gathered from the EME process directly informed the specification, contract and approach to market.

SUPPLIER RELATIONSHIP MANAGEMENT

SRM - IntroductionContract Management:• The activities of a buyer before, during and after a contract period to 

ensure that all parties to the contract fulfil their contractual obligations. An important aspect of this is managing the relationships between all parties in the most effective way so as to ensure the contract meets the optimum combination of cost, time and quality

Supplier Relationship Management:• The process for managing the interaction between two entities – one of 

which is supplying goods, works or services to the other entity. SRM is a two‐way process in that it should improve the performance of the buying organisation as well as the supplying organisation and hence be mutually beneficial

SRM is above individual contract level – it is looking at the overall relationship between the suppliers and public authority(s).

SRM Overview of Findings• SRM has emerged as a discipline over the last five

to ten years based largely on private sector practice

• It is only starting to be used in the public sector

• There is a growing body of academic research

• A level of uncertainty over how far SRM activities would be regulated by the Directives (Green paper consultation).

Guidance on SRM• Our research has indentified very few examples of

guidance material on SRM in public sector construction: – SRM is a relatively new concept for many authorities– It is not regulated (therefore is perceived as ‘low risk’)– It is normally only applied to high spend relationships– Many construction projects are short term and suppliers can vary– There is still an adversarial approach to construction procurement

Guidance on SRM• This presents a missed opportunity for authorities as:

– There increasing use of long term programme led contracts, and framework agreements for construction

– It is difficult to incorporate an innovation identified post contract award into a one-off construction project

– There is a missed opportunity to engage a contractor and supply chain in potential R&D and activities to diffuse innovation across the authority

Example of SRM Activity - TfL• Transport for London (TfL) has operated an SRM programme for the

last four years. This is focused on enhancing the overall relationship between TfL and its suppliers at a strategic level, creating value for both parties.

• Components of TfL’s SRM programme: Mutual Intent

Common Goals

Joint Initiatives (Value Drivers)

Implementation

Measurement

Documented Added Value

SRM

TfL Innovation Events In 2009 and 2010 TfL ran day-long Construction Innovation Events. The aims of the event were:

• To increase the awareness of construction innovation across TfL• Identify opportunities to use the innovations in other parts of the business• To provide a forum for suppliers to present innovation to key stakeholders and

decisions makers• To provide a framework by which technical and procurement stakeholders

could select projects to take forward

Key suppliers were invited to submit innovation proposals through TfL’s SRM team which were then assessed by technical experts and senior Directors. Proposals were assessed against pre-defined criteria on innovation, business benefit and cost savings.

Shortlisted proposals presented to a innovation workshop attended by project managers and procurement officers from across TfL.

Example - The King Sheet Pile system for Retaining Walls

Ground level in front of wall

Conventional sheet pile sections

Primary sheet pile sections or “Kings” typically a pair of Z section piles

Steel saving

Conventional sheet pile system Kind Sheet Pile System

Environmental and cost savings:

• Typical reduction in steel used: 30 ‐ 40% • Sheet piles can be re‐used or re‐cycled • Reduced volume of excavation compared to reinforced concrete or bored pile walls

• Reduced haulage from lower volumes of material removed

TfL Case Study - OutcomesFeedback from the events was very positive, with over 90% of attendees agreeing that they would like to attend future sessions focusing on construction innovation within TfL.

Quotes from attendees:• "A very good idea - hope to see it in use in the near future."• "Excellent Seminar."• "If there was a 'very strongly agree' I'd have ticked that.“

Three innovation projects are now being taken forward by TfL as a result of the seminars, which are to be held annually.

Supplier Perspectives

Supplier PerspectivesA number of pan-European construction suppliers were interviewed to gain their perspectives on how early market engagement and supplier relationship management can be used to identify and drive sustainable solutions for public construction projects.

Identifying Innovation through Early Market Engagement

• Key response: the earlier the engagement, the greater the opportunity for innovation.

o Vital to involve suppliers in the design stage in order for them to offer innovative solutions.

o Once designs are complete, suppliers’ experience is that the emphasis shifts almost entirely to price, and the opportunity for innovation is lost.

• There is a lack of consistency in mode of engagement across public authorities• Industry workshop days are the most common form of early market engagement –

however, innovation is only occasionally featured at these events.

Driving Innovation through Supplier Relationship Management

• Key response: driving innovation through SRM is not possible in individual construction projects. All of the value of innovation is added at the design stage – at SRM stage it is too late to implement.

• In the case of longer-term relationships, such as framework agreements, it is possible to drive innovation through SRM

• Supplier forums with open sharing of innovation and collaboration on non-competitive issues

• Suppliers would like to see innovation promoted through incentivisation – e.g. The possibility of negotiating contract extensions, and gain share approaches.

• Vital to include key sub-contractors in the process as well – at design stage• e.g. a structural steel provider can use expertise to take weight out of a

building at design stage

Suppliers identified the following ways in which public sector bodies can improve:

• Holding lessons learnt workshops to discuss completed projects with suppliers• Allow main contractor greater flexibility in sub-contracting• Greater communication, openness and transparency – clear on what they want from

the outset

Next Steps

• Engage public authorities in findings and further examples

• Broaden contractor engagement and test their views with network participants

• Prepare briefing on SRM• Review CD and responses to Commission

Green Paper consultation