Wednesday, 17 August 2016

Pre-Modern Building Procurement

 A Short History of Building Procurement: Part 1

This short history describes the evolution of procurement in the building and construction industry, from the early modern system of production in the 17th and 18th centuries to the emergence of the general contractor and the professions with modern methods of procurement in the 19th century. Procurement here is the commissioning or purchasing of buildings and structures, and any associated supplies and services required, by a client that pays for the work. A historical overview is useful because there is a surprising, and often not well-recognized, continuity in the methods used and problems found.

The process of designing and delivering buildings is as old as civilization. However, the procurement of projects has not attracted as much attention as the buildings and structures themselves, or the organisation of the work, because in the distant past this was done by imperial edict for essential granaries, armories, pyramids or temples. Procurement itself dates back to a red clay tablet found in Syria, dated from between 2400 and 2800 B.C. This earliest procurement order was for “50 jars of fragrant smooth oil for 600 small weight in grain” (Coe 1989: 87).

The earliest records on construction procurement are from Rome in the middle of the first millennium before the present era (around 500 BC). What is significant about the history of procurement is the continuity they show, in how the basic characteristics of the methods used have been around since then. Straub (1952) quotes Plutarch on construction where ‘artists’ submit estimates and drawings and “they select the one who, at the lowest price, promises the best and quickest execution”. It appears to have been common to divide large projects into work packages, with the Long Walls of Athens broken into 10 and the Roman Coliseum into four separate contracts (Morris 2013: 14, again based on Plutarch).

Along with continuity of procurement methods, issues around client and contractor performance are also familiar. The stereotypes of capricious and poorly informed clients and duplicitous contractors have a long history. For example, Marshall Vauban was a military engineer and builder of fortifications for the French monarchy who insisted suppliers should be selected on quality, not just on price. In a letter from 1685 (cited by Callender 2003) to his Minister he complained of delays due to budget cuts and argued:
Breaking of contracts, failures to honour verbal agreements and new adjudications, only serve to attract those firms which do not know which way to turn, rogues and ignoramuses, and to make those with the knowledge and capability of directing firms, beat hasty retreats.

I would add that they delay and inflate considerably the cost of these works, which are the worst since these cuts and the cheapness sought are imaginary. For the contractor is ruined … He does not pay the merchants who supply the materials, pays badly his employees, cheats on those he can, has only the worst, and since he is cheaper than the others, uses the poorest materials, quibbles about everything and is always crying for mercy … go back to plain dealing; pay the price for the works and do not deny an honest salary to a constructor who fulfils his duties; that will always be the best deal you can find.

This history of procurement is about its development in England, and in particular in London where capital (often made through the expansion of trade) was concentrated and many of the major projects of the time were built. These developments are relevant to many countries today because, more than any other nation, England has shaped our modern language, laws, institutions, and governance over the past half-millennium. While ideas like competitive tendering, enforceable contracts, subcontracting and measurement of costs with a bill of quantities are now widespread and common, this was not the case 200 years ago. In other countries, especially the US and elsewhere in Europe, the details of their history of procurement are different, but the modern system established in England and the UK at the turn of the 18th century is the foundation on which they are built.

Early Procurement Methods

Through the Early Modern period in Europe, until the end of the 17th century, the usual way of getting building work done was to employ craftsmen directly. If the client did not supervise the work himself, an agent would be appointed, and craftsmen were employed at daily wage rates set by medieval craft guilds that guaranteed quality. The trades and guilds were based on the materials used, such as wood and stone, and had an apprentice-journeyman-master structure that set standards of fairness enforced by the courts run by their Companies (Knoop and Jones 1933). This had been the normal way of building for centuries, although even then there were different methods of employment and payment.

While the common system was direct employment at day rates, sometimes work was done under a system known as ‘measure and value’, where work done in the different trades was valued based on an agreed set of prices and wages rates. Master craftsmen would make an agreement (in effect but not in form a contract) for building, and employ other craftsmen and labourers to do the work, called task work. The payment was still usually on a measure and value basis not for an agreed price, although there was some lump sum work. As use of this method of ‘contracting’ increased the direct labour system declined, with wages and prices still regulated by the guilds. Measuring was usually done on completion and had its own issues, mainly with delay, disputed work and associated litigation.

A third way of contracting was known as in grosso (by the great), meaning for an agreed, fixed sum. Harvey found examplnes from the 15th century where what today would be called a lump sum contract was used to deliver projects. An important difference was that they involved separate agreements with the various tradesmen, however in this case the price was agreed in advance instead of work getting valued when done. This form of contracting was strongly opposed by many clients and craftsmen, who felt that the in grosso formula would produce poor quality and high prices, and sureties were often demanded to guarantee completion if the contractor did not complete the work as agreed. The method of contracting ‘by the great’ led to the end of regulated prices and undermined guilds.

There are also early examples of fixed-price contracts, typically with the separate tradesmen involved on a particular project. These were quite rare. It was not unknown, however, for a single person to carry out a complete project through subcontracts or direct employment, and this led eventually to the modern contracting system. Harvey (1975) describes the building of the jail in York in 1377 using a fixed price and a contractor with agreed stage payments.

Christopher Wren, in a 1681 letter to the Bishop of Oxford, explained that there were three ways of getting a job done and the problems with each one: working by the day, by measure, and by the great. His preference was to work by measure, although good measurers were hard to find, and he argued that contractors employed by the great who were not familiar with the tasks “doe often injure themselves, and … shuffle and sligh the worke to save themselves” (McKellar 1999: 86). In the building of St Paul’s after the Great Fire of London during the 1670s, responsible for both supervision of the work as well as the design, Wren employed different sets of craftsmen under these three different types of contracts to do the work, but most of the work used the method of separate contracts with different trades, a form of contracting by the great. This spread the risk and became the most common form used in the late 1700s.

By the end of the 17th century some procurement was being done through a building agreement, usually for speculative property developments, between the client or developer and the builder. These were legally binding documents that specified the structure or structures, their size and materials, payments and any financial penalties incurred after the agreed time. McKellar (1999: 83) describes these as “fairly comprehensive and sophisticated”. They contained arbitration clauses, and resort to the courts only happened when arbitration failed. The main problem was quality control, and common phrases like ‘well made’ or ‘good work’ made disputes over quality common.

The role of property developers and speculative builders at this time is an important element in the development of the building industry. Some of these were lords (Bedford, Southampton, St.Albans) but many were not (Babon, Cubitt, Bond). Literate and, essential for estimating, numerate master craftsmen became master builders. Usually bricklayers or carpenters, these men would build for the speculative market and employ or contract with tradesmen. They used surveyors to mark out building sites and measure completed work to settle contracts. There was a wave of house building in the mid-seventeenth century, documented by Summerson, led by ambitious craftsmen and opportunistic developers who were not deterred or prevented from building by royal decrees or church interests, unlike the other European capitals:
London is above all a metropolis of merchandise. The basis of its building industry is the trade cycle rather than the ambitions and policies of rulers and administrators. The land speculator and adventuring builder have contributed more to the character of the Georgian city than the minister of the Crown … or the monarch (Summerson 2003: 9)

At this time the industry was clearly undergoing changes. For many years, even centuries before, building had been done by independent craftsmen belonging to guilds, or Companies, who usually worked directly for a client. The end of the 1700s, however, was the time of transition from these old, established ways to what eventually became known as the ‘modern system’ of contract labour and measuring to determine costs. This was not some linear, steady progress, but an overlapping of the old procurement methods with the new system, as both continued to be widely used. As McKellar observed:
The guild system had broken down well before the late seventeenth century and certainly in London any remaining vestiges of power that the Companies had were annihilated by the legislation following the Fire which allowed ‘foreigners’ from outside the city to work within its boundaries. The building industry might still be organized around separate trades, however the relationships between these different crafts and the methods of contracting were undergoing a profound transformation. (1999: 71).

Importantly, as part of this transition to an industry with more of the characteristics seen today, the different construction professions began to form, as experienced tradesmen started to specialize in various aspects of building and construction and professional architects appeared. Morris (2013: 15) describes the emergence of the roles of architect, engineer, surveyor and contractor during the rebuilding of London after the Great Fire of 1666 under Christopher Wren and Robert Hooke. A hundred years later, toward the end of the 18th century, the general contractor had arrived as a new type of firm, responsible for organising the building process and employing craftsmen to undertake work directly or as subcontractors. 

This is part 1 of a three part series, the following parts are on The Great Transition and The Modern System. A pdf of the full document is here.

The Modern System

 A Short History of Building Procurement: Part 3

By the beginning of the 1800s builders were becoming recognised as an occupation, and as their firms developed they often specialised in certain types construction, such as civil engineering during the boom in railway building later in the century. Others, such as William Cubitt, became developers, building housing to meet demand from the rapid growth of cities. By the middle of the 19th century large contracting businesses had taken on the form that in many ways we still see today, and procurement and contracting was using the same, or a recognizably similar, system.

There were two key characteristics of this new procurement system. First was the use of detailed drawings and design, completed before the work began. The second was the preparation of cost estimates for the project, on the basis of the design drawings. The two significant outcomes of these characteristics, that became the foundations of the modern system, were the shift to competitive tendering and the growth of the professions.

The construction of Westminster in the 1830s was one of the first buildings to be done with detailed drawings from the architect and a bill of quantities (BQ) with full estimates based on them. Under the system of measure and value costs had been determined on completion by a measurer, originally a tradesman, and over time this became a specialised task. As the new method of procurement and contracting appeared measurers became more important, as prices had to be agreed between the architect, client and builder before work began. Measurers became quantity surveyors.

A series of government commissions on building procurement produced reports that sometimes, but not always, favoured competitive tendering. Nevertheless, as the system became more widespread government departments came round to the idea that it was the best way of obtaining value for money. By the middle of the 19th century competitive tendering on the basis of design and price specification had become the usual practice.

The new profession of quantity surveying was therefore an essential element in the new system. The procurement method where clients invite tenders on the basis of completed designs made it necessary for the client to know whether the tender prices were reasonable, so every element of the design had to be quantified in terms of materials and labour, and priced. While bills of quantities date back to the middle of the 18th century, by the close of the century something close to a modern BQ was coming into use. An 1828 parliamentary committee investigating the Office of Works and Public Buildings found the practice had become well-established. So bills of quantities become fundamental to the contracting system in Britain, and later became part of the required contractual documentation. It is worth noting that other European countries did not find the detailed bill as essential.

Not all of the projects using the new system were won through competitive tendering, often contracts were negotiated with firms familiar to the client or architect. In these early days of fixed-price contracting, the idea of competition was controversial. Much of the opposition to the contracting system was really opposition to competitive tendering, rather than to the idea of a single contract with an agreed sum. Competition was believed to lead to lower standards as contractors would bid low to win work and could not possibly match those prices without reducing standards.

It was also feared the contractors would abuse the system through collusion on bid prices or corrupt practices. Fears that have been justified more than once, as too bid rigging, cover pricing, unsuccessful tender fees and market sharing, which were all reported to occur then are sometimes found today. The protection against such practices was initially based on the idea of only employing ‘respectable’ builders, and the idea of respectability was seen as protection against the consequences of competition. Rather than reliance on builders’ respectability the best protection against abuse came to be seen as careful pricing of specifications and close supervision of the work by the architect, or other agent.

One key element of the builder’s respectability was possession of sufficient capital and employees to carry out a job without subcontracting, which was regarded as a dubious practice. Clients wished to avoid subcontracting, so it was often done secretly. The original large contractors employed craftsmen in every trade and were expected to complete most of a project under their own management. However, the advantages of subcontracting led to its widespread adoption by the middle of the 19th century. The advantages then still exist today, such as flexibility of employment, managing risk and liability, and specialisation, which was important as the development of new materials and new components required new skills (for example patent glazing, iron and steel frames, gas, and later electrical and lighting).

This was also a time a rapid technological innovation and development, both by and for contractors. Satoh has six chapters on 19th century technical advances in his Building in Britain, covering: stone, wood, bricks, components, pumps and lifting machinery. Like other industries the widespread availability of steam power was transformational in the application of new machinery in the contractors’ workshops, and the use of mechanization on building sites slowly increased. There was also an ongoing transfer of site work into the workshops. For the largest firms these were huge, William Cubitt (contractor brother of property developer Thomas Cubitt) had 25 acres on the Isle of Dogs in 1845, complete with wharves, sawmills, cement kilns, an iron foundry, brickfields, a pottery and so on, linked by an internal railway and employing about 800 men.

In 1834 the Builders’ Society was formed in London, partly in response to the rise of the labour movement as the influence of the guilds declined with competitive tendering, and by coincidence the same year as the founding of the Royal Institute of British Architects (RIBA). Its main purpose however, according to Satoh (1995: 96), was to hold together builders “who being asked to tender on a specification that did not contain an arbitration clause had all declined. The arbitration clause seems to have indicated what was to be done in the case of controversy between owner and builder.” These arbitration clauses were the source of many disputes and conflicts between contractors and architects, and led eventually to the Conditions of Contract agreement, much later.

Architects strongly favoured traditional contracts for price over contracting in gross, at a fixed sum for the whole project. The reason given by Satoh is “the tedium of preparing the correct drawings and specifications beforehand” (1995: 292) rather than preparing designs and giving directions as the work progressed, as they used to do. However, as conflicts between owners and contractors became more common, and intense, under the new competitive system, architects realized the importance of the role of the project superintendent. With the central role of the architect as client representative becoming established, the RIBA wanted to ensure architects were seen as acting on behalf of their clients. Concerned about potential conflict of interests and protecting clients the RIBA, in 1887, prohibited members from getting involved and profiting from the organisation of building work.

The idea of the contract is to make clear what the obligations of each party has, but no one has ever devised a contract that eliminates all possibility of disputes over interpretation and performance. As the contracting system developed it was the architect who came to determine the conditions under which work was let, and was responsible for resolving disputes. Under the modern system these contracts gave architects a unilateral power to determine payment to contractors, which was sometimes abused to benefit clients, and was the source of bitter complaints from contractors.

In 1870 the terms of a document called the Heads of Conditions of Builders Contracts was agreed between architects (RIBA) and the Builders’ Society This established the basic outline and principles of the standard building contract which could then be varied to particular circumstances, and addressed the concern of builders who felt that previous contracts made no provision for variations in materials prices or the cost of extra work. Bills of quantities were introduced as part of the contract in 1902, after many revisions in the meantime, and this remained the basic form until 1931 when the Joint Contract Tribunal was set up and the standard forms of contract came into use. These are still the basis of the majority of building contracts in the UK today.

As well as the conflicts between architects and builders, there was considerable rivalry between architects and engineers. This began in the early 19th century as the pace of technological innovation increased and new materials arrived – iron, then steel, followed by reinforced concrete at the end of the century - and mechanical engineering emerged (a British specialization) with the new machines. Architects knew little about these innovations and left them to engineers. By 1800 architecture and engineering were separate professions with separate training. Architects studied with older architects and in schools of architecture, while engineers went to engineering faculties. The antagonism found in the UK between architects and engineers in the early 19th century was also present in America. Fitch (1973: 126) describes a ‘great schism’ that developed as architects struggled to master the requirements of new forms of building and new materials and the mutual contempt between them and the new profession of engineers.

The disengagement of architects and design from building and construction occurred at a time when engineers were also focusing on design rather than delivery, due to increasing specialisation and differentiation between different types of engineers (such as mechanical, structural, civil, electrical and sewerage). Both architects and engineers neglected estimating, which was left to the new profession of quantity surveyors. Thus each of the construction professions developed their own language, skill sets, and cultures, nevertheless sharing a mutual sense of superiority over builders and contractors.

Moving On

By the end of the 19th century in the UK there was a fully developed procurement and contracting system with practices well understood by all the parties concerned, and this system continued, with its essential characteristics unchanged, into the 20th century. Nevertheless, it also continued to generate controversy and conflict, and an increasingly litigious industry.

In the first half of the 20th century the modern system was refined and further developed. Bowley (1966) outlined four new ways of contracting as characteristic of the period between 1944 and 1960s. First was selective tendering, where only contractors known to be capable are invited to tender. Second were negotiated contracts, often used by local housing authorities to bring the contractor in at an earlier stage. Third was serial contracts, with contractors having successfully completed one project were re-engaged on later ones. Fourth were package deals as they were called then, now more commonly referred to as design and build, used particularly for the mass housing programs with high-rise buildings in the 1960s.

None of these were really new. All of them had been used before in various forms and they have all reappeared, sometimes renamed, at various times, to the present. A proliferation of contract forms continued, as attempts to overcome inadequacies of the traditional system, into an ever expanding variety of contracts and procurement systems to choose from. How effective this has been is a topic in its own right. 

On procurement Bowley (1966: 352) said “It is difficult to see how any system more wasteful of technical knowledge, intellectual ability and practical and organising experience could have been invented.” While it is hard to disagree with the sentiment, this rather seems to overlook the evolution of procurement methods as new versions, and contracts, developed as a response to problems and issues found in existing procedures.


This history of building procurement has focused on England and its development in London, because that is where many of the major projects were built. These developments are widely relevant today because England shaped much of modern language, laws, institutions, and governance. Competitive tendering, enforceable contracts, subcontracting, surveying and measurement of costs with a BQ are now widespread, but these all came with the modern system that was developed in the UK. Other countries have different histories, especially the US and elsewhere in Europe, but the modern system of procurement and English common law is the foundation on which they are built.

What this short history shows is how, over a period of 200 years, a system of procurement and contracting based on measurement and specification, replaced the older systems of direct employment of craftsmen at day rates and measure and value. As this new system was developed and maintained it had great continuity, and is an important element in understanding how difficult innovation in procurement actually is. The surprisingly few fundamental changes seen since the modern system of procurement came into widespread use in the early 19th century does not mean there have been no changes. What the history shows is that procurement methods evolve slowly, in response to problems and issues with the methods in use and to changes in both the organization of work and the structure of society.

Despite being constantly criticised and modified around the edges, procurement at the end of the 20th century is still found have serious issues and be in need of radical change. Inquiries in many countries (such as the UK, Australia, Singapore, Hong Kong, Japan, Holland) came to the conclusion that deficiencies in procurement should be remedied, often by government intervention and/or contractual reform. In one view:
It is like a game. There are rewards and penalties, rules and roles. Some cheat, or at least take advantage, where others wouldn’t. Some play the game straight and true, others are always looking for an angle to make another dollar or two. Or three. Contracts describe what is to be provided under what conditions. Some people put the contract in a desk drawer and forget about it, others use it as a means of extracting increased payments. The contract sets the rules but it is the individual who decides how play will be conducted. (Morris 2013: 176).

These comments echo those made in the mid-nineteenth century. Satoh closes his book with a series of quotes from opponents of the modern system (1995: 297-99). These include: poor quality work due to low price bidding, or subcontracting; builders undercutting each other to win work; the lack of provision for variations in fixed price contracts; unjustified claims by contractors; arbitrary decisions by superintendents and architects; non-payment by clients; and collusion between contractors. To address these issues the contracting system incorporated increasingly detailed drawings and specifications, and a schedule of prices was often attached for claims and variations. The unilateral nature of the contract led to the drafting of the Conditions of Contract, which were revised over time.

In many ways, in procurement and contracting in the building and construction industry, the more things change the more they appear to stay the same. This may, however, not be true of the 21st century.

This is part 3 of a three part series, the preceding parts are on Pre-Modern Building Procurement and The Great Transition. A pdf of the full document is here.

The Great Transition

 A Short History of Building Procurement: Part 2

Until the 17th century building had typically been done by craftsmen working directly for a client. Well into the 18th century clients would sometimes buy the materials and pay for labour only, in other cases the craftsmen would supply their own material and agree to a price for the whole job beforehand or work on a value and measure basis. However, by the end of the 1700s the measure and value method was being replaced by contracting with one person to undertake a project for an agreed price, although still disliked by both tradesmen and employers. In the 19th century procurement through contracting became the norm, and it has remained with us since.

From the late 1780s there were regulations requiring British government departments to use the contract in gross, but this was generally ignored. Administrators in the Office of Works and Public Buildings were typically against contracting for a fixed sum as well as contracting for the whole project, and they carried on in the old way of employing separate trades until a reorganization in 1832 forced a transition from separate contracting with unit prices to general contracting for a lump sum (Satoh 1995:37).

Satoh (1995, citing Cooney 1955) describes four types of building firms found during the 18th and 19th centuries. The first were master craftsmen, employing journeymen and apprentices and working with their own trade (the traditional medieval system). The second were master craftsmen who contracted for a whole building but then contracted with other master craftsmen for work outside his own trade. This was largely a barter system known as ‘blood for blood’, however this form of co-operative contracting had largely disappeared by the middle of the 1800s.

The third type of firm were builders, often architects, who completed buildings by contracting with master craftsmen in each trade. During this transition from direct labour to a contracting system in Satoh’s description: “The architect as the agent of the building owner assumed the undifferentiated duties of designer and supervisor on the one hand and construction manager on the other” (1995: 16). These architect-contractors on large projects were a passing phenomenon, although they continued to do minor works throughout the 19th century.

With the establishment of the Royal Institute of British Architects in 1834 the distinction between builders and architects was made clear and became widely accepted by the profession. One consequence of this was the rise of merchant builders, who had access to both materials (their form of business) and capital. Some of these were speculative developers and some became large scale contractors.

Type four firms were the master builders, who permanently employed their workers and were responsible for the whole project, often but not always won through a competitive tender. These firms were the original general contractors, and from the early 1800s contracting for the whole project at a fixed sum became widely adopted, first in the private sector with the public sector following the trend. Some of the London-based firms doing major projects became very large, employing several thousand men each by mid-century.

Clark (1992) describes the disappearance of the craftsmen builder in London over the last two decades of the 18th century, and how, by the early part of the 19th century, the new system of contracting was well-established. This new contracting system, with one firm doing the work for a fixed price, was opposed by many clients, architects, tradesmen, and small contractors. There were also problems of fraud and business failure associated with fixed price contracting. These objections are familiar today, and, many of the comments Clark reports are still found in the succession of UK industry reports from Bamwell to Egan (1998) nearly 200 years later (see Murray and Langford 2011 on all these reports).

The most bitter opposition, which continued throughout the 19th century, came from tradesmen and other building workers. The competitive system was fatal for the guilds and their long-standing traditions and practices. Opposition to general contracting was driven by a combination of increasing use of machinery, both on-site and in the workshop, and the increase in the length of the working day to around 12 hours. Indeed, at the close of the 19th century the early trade unionists were still arguing about craft rights and opposing building work done with contracting by one person or firm.

The smaller contractors, master craftsmen and small builders, also opposed the new system because they often lost money by bidding too low for contracts. Many of these became employees of the large contractors, a significant loss of social status. Despite the opposition, the new procurement system spread rapidly during the early years of the 19th century and became a normal way of doing business. By the 1830s both private and public clients had come to believe the system was the best way to contain costs within estimates and to get value for money. These remain the primary concern of clients to this day.

The story of the building of the New Palace of Westminster (the British Houses of Parliament) in the mid-nineteenth century is instructive. As told by Kingsford (1973), the project used new engineering techniques and machinery, the skills of hundreds of traditional craftsmen and a huge work force managed by some of the largest contractors. The project started in 1837 and was expected to take six years and cost £700,000, but actually took almost 30 years and cost over £2 million, well over £500 million or $1.2 billion in today’s money. (This story was repeated, with variations, in the building of the new Australian Parliament House in the 1980s and the Scottish Parliament (Holyrood) in the 2000s.)

In the building of Westminster there were disputes between the architect who won the design competition, Charles Barry, and pretty much everyone else involved, starting before construction began. There were arguments over the initial design, over the estimates and the architect’s fees, there were disputes over contract prices and supply problems with the materials. The designer of the heating and ventilation system fell out with Barry and the two became enemies. The masons went on strike for 30 weeks after a foreman swore at them.

The project was carried out through a series of contracts awarded through competitive tender or by recommendation by Barry. The first two contracts were let by the government department in charge. The third contract was put out for tender to eight firms recommended by Barry, and was won by a firm (Grissell and Peto) who were then given the following four contracts by negotiation without further competition.

In the third contract the prices were set by the builder and agreed to by the architect, however in the fourth contract prices were determined by the government department and set lower than prices arrived at through competition. The contractor later renegotiated a new set of prices, as these were profitless contracts otherwise. The contracts had detailed specifications on all aspects of the work and were priced in a form recognizably similar to a modern bill of quantities. The work of each trade was specified separately.

During the 19th century general contractors, often winning projects in competitive tenders, became responsible for organising projects and employing workers. While there were recognizable elements of the old system still in use in the 19th century, the building industry was becoming a complex and confusing conglomeration of businesses and individuals. Many of these characteristics of the industry, as the example of the building of Westminster shows, are still part of the building and construction industry today. The same can be said for issues in procurement and contracting.

This is part 2 of a three part series. Part 1 was Pre-Modern Building Procurement and Part 3 is The Modern System. A pdf of the full document is here.