Wednesday, 17 August 2016

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.