Wednesday, 17 August 2016

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.

Conclusion

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.