Investment takes off

BAA's new 10-year framework agreements - regarded by many contractors as the 'golden egg' contracts in UK construcrution - are currently being retendered.

So what do contractors have to do to win some of this bonanza?

Despite the turbulence affecting BAA's construction plans for the terrorist attacks of September 11th, the airports operator is now soaring to new construction heights thanks to an £8bn investment over the next decade at Gatwick, Heathrow and Stansted airports.

"I think the feeling at BAA and its suppliers is that the effects of September 11th on capital expenditure was not as bad as expected," says Clive Coleman, general manager of BAA's fit-out team. "It is estimated that our capital investment this year will be down 20%, or around £70m less than the expected £450m before the attacks."

So, with reductions in capital expenditure in the mind of the client, what measures do new and incumbent contractors have to take to stay on board with BAA?

Coleman explains: "When we originally invested in framework agreements - a process that began in 1994 - it started with 'components' such as lifts and escalators, then consultants, specialist trade suppliers, and finally general building and fit-out agreements in 1999. We were buying companies that could supply the services construction. What we are trying to do now is achieve a more product-focused approach, with more standardisation delivered through pre-assembly and manufacturing techniques."

The first stage started in 1999 with the creation of the delivery teams, consisting of BAA staff and contractors. These are split into the four areas of baggage, shell and core, fit-out and infrastructure.

By using these teams, BAA claims that repeat work has "done away with the learning curve", as the teams which are structured with production, support, commercial and performance improvement continuously work on similar projects and similar types of construction work.

In one example, Coleman says that a team working on a fixed link - a bridge that allows passengers to walk between piers - produced a cost saving of between 20% to 25% and has reduced the construction programme time by 60% and overall project costs by 30%.

In the fit-out team alone, BAA has invested £252m in 230 projects over the last two years.

"Doing the work week in, week out, and producing standard components means that designers don't start with a blank page and that eliminates waste," explains Coleman. "It is the successes of the delivery team and how they work together that will determine who we want to work with."

An example of how companies should meet BAA standards was the recent decision to drop long-standing partner Amec from the £200m building services framework in favour of NG Bailey during the renewal process.

It is understood that one of the reasons that NG Bailey pipped Amec to the post was that they are believed to be more advanced in the field of product and manufacturing as well as having their own manufacturing centres.

Coleman adds that such advances met with BAA's last and most important tendering condition that the objectives of the bidding company fit in with BAA's long-term outlook.

"In the end it came down from 31 to five bidders, " says Coleman. "Each went through detailed interviews, desktop studies and visits to sites and manufacturing facilities. What contractors have to understand is that if we are to reach our prefabrication and product targets of 65% by 2004, we need some manufacturing processes in place that are already raising eyebrows among contractors. The problem is that there is a reluctance by some to change," he adds.

BAA has currently reached 10% on repeat products and 27% on off-site pre-assembly towards meeting the 2004 deadline. The process is being driven by five key concerns: operational disruption; safety; quality; value; and programme compression.

Coleman also points out that BAA learnt from its mistakes in the 1990s of appointing too many contractors. Its specialist joinery agreements, retendered in 2001 saw the existing three companies, Deane & Amos, Barlow Retail and Edmont, reduced to two - Deane & Amos and new player PEL Project Management.

According to Coleman: "With hindsight we wouldn't have awarded the agreement to so many suppliers."

He fends off criticisms that the prequalification process is too long and arduous.

"In the past, I agree there was a large amount of data. That has changed and there is now a smaller amount of standard documents. However, I make no excuses for the process," he adds. "We are talking about a major programme of major projects here, and maybe contractors should be thinking about the gains and the amount of work they will be getting without ever having to tender."

However, he points out that the 1999 award of the general builder framework was completed in just three months.

"The average now is about six months," he says.

Returning to the recent building services framework, Coleman explains that a key reason for selecting NG Bailey was the simple fact that it had adopted Toyota manufacturing methods that included techniques such as the '5 S' method (Sort, Set in order, Shine, Standardise and Sustain).

The idea is that everything in the workplace is organised, and that the whole process becomes a 'bread and butter' method that produces continuous annual improvements through repeating the techniques, rather than traditional one-off bespoke construction solutions.

"We have seen one of our other second tier contractors, Waterloo Air Management, use the methods very successfully in its business. Since then we have piloted the '5 S' method on the later fit-out work for Stansted's 'Sat3' project and we are now using it on the £40m pier extension for Terminal 3 at Heathrow's Pier 5. We like to trial things on several projects, validate the results, and then roll them out across the programme of work."

As part of the move, contractors are now being asked by BAA to price work differently.

"We are taking a lot of information from the manufacturing sector and its 'price point' mentality, which works on how much purchasers are willing to pay rather than the traditional construction approach of contractors telling us how much things will cost without proper knowledge of their costs.

"We are now giving teams volume estimates of components and products that will be needed and how much we will be prepared to spend," he says. "We will also be setting out what year-in year-out improvements we will be looking at, which will become more competitive each year."

BAA is keen for new names to come forward and help produce 'baskets' of fit-out goods for components within areas such as passenger terminals. These methods have contributed to a 10% reduction in costs in the first two-and-a-half-years of its five-year programme to cut overall construction costs by 30%.

That figure is now expected to get even tougher.

An example of such a successful move is when BAA worked closely with one of its suppliers, Edmonts, to develop its own door product that challenged costs from traditional door suppliers.

"We set about creating our own standard version which could be produced in large volumes," adds Coleman. "We suddenly saw a 33% reduction in price as a new supplier challenged techniques traditionally adopted and understood the value chain through his process."

So what if contractors fail to live up to expectations?

"I think contractors can expect us to be very fair and understanding. However, they are expected to deliver their targets," says Coleman firmly.

BAA's Supplier Evaluation Process sets out 10 annual targets for contractors to achieve. Each is reviewed on a quarterly basis and in more depth annually.

The targets are in the areas of: cash saving; value improvement; time compression; safety; environmental sustainability; interchange of learning; customer service; product development; production efficiency; and supplier specific - this is where each individual team works together to produce a specific target in its area, for example, linking time to costs.

"They are not the only ones with targets," adds Coleman. "What happens is that contractors are given copies of targets given to us, which have been customised to their field of expertise."

The system for contractor failure works on a green, amber, red basis.

Green means it is okay to keep working, amber indicates that there have been problems, but a plan is in place to rectify them, and red means that work has to be stopped. Failing contractors are then given a determined period of time to improve before contract termination.

"I am glad to say we haven't had a red situation yet," explains Coleman. "We have had a few ambers, but we find that claims and disputes are rare inside BAA compared with outside in the industry, which is full of litigation. In fact, we don't even send letters to each other any more, it is all done by talking. Of course we need written contracts and we need to administer the contracts, but that's just being professional."

So just how much support do contractors get through just 'talking'?

"We have set up virtual companies within the teams," explains Coleman. "These are made up of 10 stakeholders, one from BAA and the other nine from the tier one contractors. This executive group discusses problems arising, which are then passed on to the cluster teams and the delivery teams to sort out through their monthly meetings. It's like a real family here."

While the requirements might seem daunting and, according to many suppliers, require 'just too many meetings sometimes', Coleman says that working for BAA provides great opportunities for contractors.

"We are not asking contractors to depend upon and fully commit themselves to BAA. If they did that they could over extend themselves if the relationship changed," says Coleman. "However, we are providing a great opportunity for companies to try out new ideas. Yes, we might tell them what we want, but more and more we are asking bidders for their own inputs, especially while we tender the new frameworks."

In one example, framework contractor Mace produced its own 'last planner system', which looked at production efficiency. The initiative was tested during work with BAA and is now being used throughout the programme of work.

"See, it can work and often does," says Coleman.

So what of the future?

"I think contractors need to change their views," says Coleman. "Once they are in and working for BAA they really appreciate it. They feel it when they lose out on work and go back into the nitty-gritty of construction," he adds. "Many contractors find that it takes them a year to acclimatise to what we are trying to do here. One supplier told me that his team felt like schizophrenics when they first started working here, as they had to adjust between traditional construction and BAA methods. However, when it clicks, it works a treat."

He adds: "Contractors and their suppliers need to look over their shoulder as we are looking to invest in suppliers that can come up with the standard goods to the quality and prices we expect, which could well include suppliers from outside the traditional construction base."

According to Coleman, construction focuses "too much on turnover", which usually only produces a 1% to 1.5% margin. However, he adds that if they thought "radically" they could get "better profitability with less turnover".

"This problem with focus might mean we look away from construction to mature manufacturers such as ship or car component industries. This would result in a huge chunk of work being taken away if it proves a better option," he says.

"Construction has to understand that we are really finding it difficult to locate suppliers which fit the bill and think the same way. If they are not careful they might miss the flight."