Paper 1902V1-0
Contents
Learning outcomes
1. Introduction
(continued)
Supply chain management Paper 1902 Page 2
6. Implementing SCM
6.1 Prequalification
6.2 Partnering
6.3 Cluster management
6.4 ‘Embedding’
Learning outcomes
After studying this paper you should be able to:
1 Introduction
Supply chain management is not new; it has been around for many years in industries
other than construction. In Section 2 you will learn how a major study was
undertaken in the UK North Sea oil and gas industry in 1998–99 to identify the
benefits which could be derived from improved SCM. The UK construction industry
has learned from these, and SCM is a recognised function of successful business
management the world over.
SCM is the management and co-ordination of the whole supply chain from the supply
of raw materials through their procurement, transport, manufacturing, assembly,
delivery to site and installation to completion, commissioning and handing over to the
customer on time, within budget and to the quality that is expected. The aim,
however, is to exceed expectations.
Following the Latham Report (1994), the construction industry is embracing these
concepts. However, the public still has a misconception that the industry has low
productivity, low profit, and waste from a fragmented arrangement of suppliers,
merchants and subcontractors; poor quality; late delivery of projects; and defective
work that is over budget and out of control. Major projects have been reported in the
media that fuel this misconception, such as the Scottish parliament buildings and the
Wembley arena (both prominent, large, projects in the UK), that were delayed and
exceeded budget.
The construction industry, however, has improved greatly in recent years, and this
paper will explore how the effective management of supply chains can yield benefits
the world over.
Clients with programmes of multiple projects, like supermarket chains, have driven
the agenda for change. They have reduced the number of tendering contractors for
their project work, and by so doing have developed relationships with a small cluster
of firms to reduce the costs of tendering and to gain benefits from familiarisation with
working practices, quality and time standards, and the greater prospect of repeat
work. In return, contractors have been proactive in problem solving and in seeking
long-term relationships with clients.
Steelwork fabrication firms tender for obtaining the steel sections, drawing fabrication
details and compiling cutting lists for each steel piece and detailing the connections, bolts,
etc.
Details are approved by the consulting engineers and steel sections are ordered from the
rolling mills.
Steel members are cleaned and painted or galvanised, sometimes by a specialist and
involving transport to a specialist finishing facility.
Sections are loaded on to transport, typically in the sequential order that they will be
needed in erection, and are then delivered to site.
For large consignments, a police escort may be needed, and low bridges may have to be
avoided. A logistics specialist might have to plan and organise a convoy.
Offloading at the site will involve a crane, either provided by the fabricator or by the main
contractor (a crane may already be on site).
If steel members cannot be stockpiled on the site owing to a shortage of space, the
delivery trailer may have to remain at the site until the sections are lifted into their final
positions. Trailers might need to be at the site all day, and facility for the space taken by
the trailer has to be arranged – as well as the cost of the trailer, even if the tractor unit that
has brought it can leave.
It may be necessary, on very large sites, to have a nearby stockyard for short-term storage.
Often pieces of wasteland such as railway sidings have been known to be rented from
landowners for this temporary purpose.
There will be a requirement for small tools, welding equipment, safety devices such as
harnesses, and consumables. For work at height, safety nets will be needed, and there are
specialist providers and installers of these.
From this example you can see a supply chain with many participants. One weakness
in the chain has the potential to jeopardise a successful outcome: the delivery of the
completed steelwork on site is affected by failure at any part of the chain. A supply
chain is only as good as its weakest link.
The task of the client is to use a main contractor (often now called a prime contractor)
who can manage and control the supply chain under them. They will control the
engineers and fabricators, who in turn will manage the reservation of steel sections at
the rolling mills, the transport logistics, cranage and eventually the erection. The
weather can play its part as well, but supply chains cannot control that – except that
they can plan for it.
You can see now how involved a supply chain can be, and this is just for the steel
frame to a building, and when all the participants are in the one country.
Transnational supply chains can be more challenging for supply chain managers.
Example 2 gives another possible supply chain that would throw down a challenge to
any manager.
(continued)
Supply chain management Paper 1902 Page 5
The design engineers have a working relationship with a CAD drafting agency in Vietnam
and, by the overnight electronic exchange of drawings, the fabrication details are
developed so that the computers in the fabrication facility in Germany can seamlessly use
the data from Vietnam to cut each steel section to length and weld the nodes at the ends of
sections.
The same electronic CAD drawings are simultaneously transmitted to a glass fabricator in
France, where the sealed double-glazed units are assembled on a production line using
techniques developed in collaboration with this particular roofing specialist.
The rubber seals that will hold the glazing in place have been developed in Italy, and the
CAD drawings will go from Vietnam directly to the factory in Italy, where the appropriate
types and lengths of rubber section will be chosen, taken from stock, packed and made
ready for despatch to the site.
The German firm has a framework of trusted steelwork and glazing installers who have
been trained to install the systems, and one of these will be chosen to carry out the site
work. They may be from a country other than the UAE.
Back in Germany, the whole operation will have been planned and tracked so that the
process is seamless and flows in accordance with the expectations built into the supply
chain.
Customer expectation will be high because the German firm will have sold its product on
the strength of its expertise and the supply chain logistics that it is proud to sell. There will
always be room for improvement, however, and there will always be some external factors
that might throw the process into disarray, such as disasters like fires at factories, shipping
mishaps and natural disasters; but these can be considered in risk analysis and mitigated as
far as is economically feasible (disasters are insured in risk mitigation).
You can now see how challenging and potentially interesting (exciting) it is to create
and manage supply chains.
The practice of SCM was pioneered as long ago as the early 1950s by Toyota in
Japan, driven by the demand for faster times to market, quicker fulfilment of orders
and lower costs. Rapid development of IT and globalisation has helped, and other
manufacturing industries have followed the same route. SCM has spread in particular
to the UK oil and gas industry.
Let us look now in some detail at how the UK offshore oil and gas industry
investigated what SCM had to offer their business. Construction has learned a great
deal from this ground-breaking investigation.
SELF-ASSESSMENT TASK 1
Identify supply chains that you have seen operating in construction and in other industries.
Supply chain management Paper 1902 Page 6
The objective was to identify what benefits were possible from improved SCM to
help the UK to increase its share of the global market. The study was pan-industry,
and had these key deliverables:
In 1999 a not-for-profit organisation called LOGIC (Leading Oil and Gas Industry
Competitiveness) was formed by various companies within the UK Continental Shelf
oil and gas sector. A report of the CRINE initiative was compiled by accountants
Ernst and Young, and it is this report that we will now look at.
We will quote some of the key findings from the report’s summary of
recommendations, and below these we will consider what the construction industry
had, at the time, to learn from these.
Optimum SCM benefits can come from involving suppliers in the objectives of a
project. Providers of goods and services might otherwise be remote from the project
and will be unable to realise what benefits they can deliver. There are tiers of
suppliers, and this is an important aspect to be considered.
By ‘tiers’ is meant the number of times that a supply is ‘handed down’ the chain. For
instance, a main building contractor may subcontract the woodwork trades in a
project. The subcontractor may in turn buy finished goods like door sets from
specialist manufacturers, and these manufacturers will buy their raw materials across
their own supply chain. The supplier of ironmongery for the doors will be unaware of
the end use of the product, so cannot relate the performance of the ironmongery with
the end product. The choice of ironmongery will have been made generically from a
catalogue of standard items.
Supply chain management Paper 1902 Page 7
While this choice will probably be satisfactory, the ironmongery specialists have had
no opportunity to contribute their expertise to the project, as they are too remote from
it; possible improvements in the standard product to meet specific project needs are
not possible. Optimisation of these opportunities should be identified lower down the
chain, and linkages in the tiers should be created. This is the role of the supply chain
manager.
A way of aligning the objectives of the project over its whole life and across the tiers
of the supply chain is needed, and this in turn requires an understanding of the
project’s goals by collaborating firms. If manufacturers can be linked to the lifetime
maintenance of the product, more economic lifetime costs (in facility management)
can be achieved. The client will benefit from having the best possible door hinges,
and there is an opportunity for the development of a product of optimum total cost
(lifetime cost).
Construction is traditionally project orientated, and contractors and design teams have
focused on the process of developing the project. However, the project has a lifetime,
and the activity of early participants in the design and build process can affect the
total outcome many years ahead.
Contractors and suppliers had been selected primarily for their technical merit, prices,
past performance and lead times offered. The principal drivers were price and
responsiveness with regard to capital works only.
Top management must allocate the resources and establish the strategy,
systems, procedures and organisational structures necessary for Kaizen to
work.
Middle managers are responsible for implementing Kaizen. They must
monitor performance of the continuous improvement programme, and ensure
that employees are trained in the use of the necessary management tools.
Supervisors are responsible for applying Kaizen. They maintain the rate of
suggestions, coach, and improve communications at the workplace.
Operatives must make suggestions, learn new skills, use the management tools,
and generally participate in continuous improvement activities – individually
and in teams.
Incentives are used to encourage the process: awarding team benefits (such as a social
event), individual recognition, financial reward and even promotion.
There was a lack of systematic approach to obtaining customers’ suggestions, and the
report recommended that the oil and gas industry should follow the lead of other
industries (such as the automobile industry) in seeking vendor input into processes. It
was suggested that a simple point of contact in an organisation, that customers could
contact, would be beneficial.
The report highlighted the need for global planning and forecasting to predict the
demand for oil and gas industry services. Eighty per cent of survey respondents rated
working together to predict future demand as a medium-to-high business priority and
83% thought that medium-to-high benefit was possible from public availability of
development plans, which all considered relatively easy to implement.
For the construction industry, the UK government initiated and facilitated a major
study that culminated in the Latham Report, Constructing the Team (Latham 1994).
This led to public agency involvement in a programme called ‘Constructing
Excellence’ as a vehicle for research and facilitation in delivering innovation, best
practice and productivity. SCM has been promoted by the Constructing Excellence
campaign, which will be discussed later in this paper.
The survey report pointed out that design is performed before a provider of services
(a building contractor in the context of the construction industry) is known, which
precludes involvement of the provider in the design and planning processes.
It was recognised that the lead times for providers to respond when they receive the
designs is compressed because of the time required to become familiar with the
design details.
There was acceptance that over-engineering is endemic across the oil and gas industry
and costs both time and money. One supplier cited a minimum of 10% of the cost of
its service being due to customers over-engineering their requirements.
The report called for an awareness of the extent of waste by customer organisations,
as it is they who are paying the price. Non-critical areas of design were obvious
immediate targets for improvement. Designers were tasked with formulating targets
for percentage reductions in existing specifications, and for making their designs ‘fit
for purpose’. You will come across this expression time and time again in the context
of construction.
From a maintenance perspective, there was often difficulty in obtaining spares, non-
interchangeability and more dependence on specialist expertise as a result of the lack
of standardsation.
When design is non-critical, it is most appropriate for contractors to have their own
choice of products. For example, there is no advantage in a designer specifying a type
of common or engineering brick to go underground and be unseen (i.e. non-critical),
when the choice can be left to the contractor after generic specification of the national
standards for the brick. Non-prescriptive specifying allows the contractor to seek out
the best available products that the firm’s supply chain can provide at the time, using
their market intelligence, buying skills and leverage.
However, for repeat projects, there can be benefits in designers creating partnerships
with product manufacturers to obtain product development that will pay dividends
throughout the lifetime of a project in terms of greater durability, less maintenance
and fewer replacement intervals.
Supply chain management Paper 1902 Page 10
The need for a focus on the total costs throughout a project’s life was recognised.
Design should not merely reflect the capital costs of creating the built asset, but must
also be reflective of the revenue costs of running it throughout its entire lifetime.
It was found that, in the oil and gas industry, operators (clients) were usually taking
operating expenditure (Opex) into account when signing off the project design, but
were having difficulty in balancing the capital expenditure (Capex) and Opex. One
operator estimated that wastage due to lack of life cycle costing accounted for 10% of
its operating costs.
2.10 Negotiating
‘By moving away from the reliance on competitive tendering as the basis for
negotiation, and by selecting a reduced number of providers by competence it is
suggested that a firmer base for negotiation is achieved.’ (LOGIC, Summary of
Recommendations, No. 17)
The report emphasised that tendering can be wasteful. While it produces the ‘best
price on the day’, it may not have regard for the true cost. Tenderers who are
desperate for work will deliberately underprice work to win it, and gamble that they
might be able to recover the cost and make a profit. Such firms pursue a policy of
premium rate variation pricing to recover costs during work execution. This
engenders a claims culture from which clients feel at risk. Clients deserve to know a
definite total cost, and not to be under threat of claims.
It was pointed out in the report that other industries – especially those that
manufactured components – had developed purchasing policies based on open book
methods. This overcomes any client perceptions that prices are over-egged and avoids
unnecessary damage to possible long-term relationships between clients and
contractors.
The report suggested that a route for improvement would be the establishment of
trading alliances, and that longer-term relationships would be beneficial.
Longer-term relationships remove the need for frequent retendering (which the report
suggested accounted for up to 10% of cost), and some 80% of survey respondents
thought that this could:
lack of competition
being locked into agreements
a lack of mechanisms to share the benefits.
One client thought that it was paying a premium of up to 5% against the market
conditions at that time.
The report acknowledged that framework agreements are a useful tool in the
implementation of long-term relationships. An outline contractual framework is
established, with these typically agreed terms:
Following the CRINE report, the oil and gas industry adopted standardised contracts,
and these have been seen as a significant step in the right direction.
Supply chain management Paper 1902 Page 12
Companies surveyed for the report, however, felt that they were being asked to
carry an increasing proportion of risk. To offset this, risks and warranty
requirements were being simply cascaded down the supply chain, often to a point
where the ability to carry the risk was not there. The report recommended that ‘an
industry agreed framework for fair risk allocation may be appropriate’ (LOGIC,
Summary of Recommendations, No. 22).
The report recognised that incentive mechanisms had a role in SCM, as a number of
respondents to the survey expressed their belief that benefits would be achieved by
cascading appropriate incentive schemes down the supply chain.
The concept of ‘win-win’ has become the overriding aim of SCM, but objectives
must be aligned from one tier of the supply chain to the next. Different partners will
see different objectives as their winning goal. Clients want to have secured the best
total cost (life cycle cost), while at the same time they are often constrained by budget
allocations that may be split along the life cycle (i.e. Capex and Opex). Contractors
want to sustain their businesses in terms of workload, with minimal peaks and
troughs, and increase their profit margins. This contradicts the typical ‘win’ for a
salesperson, who knows that reward comes from volume of business gained rather
than its profitability. Sales targets and bonuses are short term (month-to-month), and
salespeople are usually not around when the work has been finished to take a share of
the profits from it.
2.13 Payment
‘Greater visibility of on-time payment performance, coupled with wider
acceptance of interest recovery principles, is called for.’ (LOGIC, Summary of
Recommendations, No. 24)
SMEs identified late payment as a significant issue to them, with payments of 30–45
days beyond the agreed terms not uncommon. This causes unnecessary cost of
financing each month from a reduced cash flow.
2.14 Performance
‘There needs to be a realignment of objectives between customer and provider to
a) reduce the reliance and focus on inspection b) increase the responsibility and
accountability of the vendor to ensure the appropriate level of right-first-time
quality and importantly c) ensure that quality objectives and risks are shared up
front.’ (LOGIC, Summary of Recommendations, No. 27)
The survey found that at SME level, cost cutting following pressure on prices had led
to a dependency on the use of unproven suppliers, and this in turn had resulted in the
use of lower quality products. The objectives of the client had become diluted as they
were cascaded down the supply chain.
On-time delivery had only had a 90% success rate, and clients were in the habit of
consciously limiting lead times at the front of programmes, to allow time for overrun
at the end.
Supply chain management Paper 1902 Page 13
‘The need to improve performance should be combined with the need to introduce
an improved performance measurement process against which customer
objectives can be measured.’ (LOGIC, Summary of Recommendations, No. 28)
The report was comprehensive and gave the oil and gas industry much to think about.
SELF-ASSESSMENT TASK 2
Consider the supply chain practices where you work and evaluate how CRINE
recommendations might benefit (or have already benefited) the processes practised.
Supply chain management Paper 1902 Page 14
Egan’s taskforce had similar findings to the CRINE initiative, in that the UK
construction industry suffered because of:
Change was identified as essential, and the major clients in the industry were tasked
with setting an agenda to create the necessary changes.
Targets were set, and the industry has achieved much in the years since the report.
These are some of the notable improvements:
This report identifies key drivers which will help to transform the construction
industry in terms of its efficiency and in improvements in quality.
The UK government suggested the creation of a new body, the Strategic Forum for
Construction, chaired by Sir John Egan and with a membership made up of exisiting
organisations from all areas of the construction industry, including the British
Property Federation, Construction Confederation, the Department of Trade and
Industry and Major Contractors Group.
The guidance was issued after the Chief Secretary to the Treasury of the UK
government wanted to improve the performance of government departments as clients
of the construction industry.
The OGC Gateway™ process examines programmes and projects at key decision
points in their lifecycle. Reviews are undertaken by independent ‘peer’ practitioners
from outside the programme/project, using their expertise to assess the likelihood of
successful delivery based on progress made up to the gateway reached. Gateways are
these:
TABLE 1
Gateway Title of review
0 Strategic assessment
1 Business justification
2 Delivery strategy
3 Investment decision
4 Readiness for service
5 Operations review and benefits realisation
To assist with the reviews, there is an online Successful Delivery Toolkit™. This aids
navigation of the OGC resources on the OGC website (www.ogc.gov.uk).
SELF-ASSESSMENT TASK 3
Draw conclusions from use of modern methods of construction, that you have experienced
in projects, as to the contributions these have made to KPI performance.
Supply chain management Paper 1902 Page 16
simplification in processes
cost savings
efficiencies in project delivery
reductions in exposure to risk
improved predictability of workload
economies of scale.
These benefits were the subject of a seminar on SCM held by the Major Projects
Association (MPA) in London in June 2002. The seminar report stated that ‘a well-
managed supply chain offers a range of benefits, from simplification and risk
reduction to significant cost savings’ (MPA 2002).
It went on:
The following is an extract from the SFC website, which introduces their toolkit
(Chainlink) to supply chain integration in construction:
‘In the few years since Egan put his name to Rethinking Construction the business
world has undergone a revolution. The advent of the internet means that changes
that once took years now take months, while the commercial imperative of
collaborative relationship building has become universally recognised throughout
commerce and industry. If anything, with respect to the latter, construction lags
well behind the pre-eminent sectors in this field. In industries such as
microelectronics, chemicals and motor vehicles, the concepts of leveraged and
incentivised relationships have been the norm for many years.
‘Not that there hasn’t been a lot of attention devoted to collaborative working in
construction. Ever since Latham’s Constructing the Team (1994) there has been a
growing appreciation of the business case for integrating suppliers, customers and
partners into a seamless supply chain. The advantages can be dramatic in terms of
reduced time, costs, defects and conflict and increased quality, client satisfaction
and profit.
Supply chain management Paper 1902 Page 17
‘With the accumulated wisdom of several years, the construction industry has now
reached the stage where it is in a position to take more decisive steps towards
achieving genuine integration throughout the construction supply chain. This is
achievable through the widespread adoption and adaptation of what have now
become established best practice principles, coupled with a cultural readiness to
change and continuously improve through the continual appliance and re-
appliance of operational feedback. Such an informed “ready, fire, aim” strategy
has the potential to generate a real momentum for change at all operational levels.
The Constructing Excellence website has a section ‘Partnering and Supply Chain
Management’ at
www.constructingexcellence.org.uk/resources/themes/external/management.jsp
Resources
The toolkit has a repository of reference documents that can be used.
SELF-ASSESSMENT TASK 4
Evaluate the extent to which the business relationships in projects that you have
experience of are integrated. Assess what more integration might be possible, and what
benefits could result.
Supply chain management Paper 1902 Page 18
One of the recommendations was that: ‘The OGC should research the wider
applicability of Achieving Excellence [the Egan report] principles on the
make-up and management of the supply chain and draw on this and other
experience to articulate and embed best practice guidance in supply chain
management’ (OGC 2003: Recommendation (x)).
This was influential in the National Health Service (NHS) in establishing a national
framework agreement (ProCure21) for publically funded hospital buildings with
principal supply chain partners (PSCPs). This can be used by any local NHS Hospital
Trust without the need for local tendering. It is, therefore, possible for Trusts to
engage with a prime contractor very early in the procurement process. The NHS
administers a centralised build cost model to determine the price for a project, and the
process of continuous improvement is centrally managed.
Supply chain management Paper 1902 Page 19
ProCure21 claims that by working through the framework, PSCPs will benefit from:
a fair profit;
the chance of a long-term relationship with a client based on the delivery of good
work – over 80% of Trusts with more than one scheme have used the same PSCP
for all their schemes;
reduced tendering time and cost;
the chance of consistent workload;
the ability to share knowledge, to continuously improve and to work more
efficiently.
Because ProCure21 supply chain contractors have been selected following procedures
under European Union competition protocols, individual contracts are not required to be
advertised in accordance with the EU rules of procurement. This gives an estimated six
months’ time saving per contract.
Analysis of ProCure21 schemes has shown that shorter than usual construction periods are
possible owing to the contractors’ being familiar with the processes and standards of the
hospital-building programme – seven weeks for schemes between £1m and £5m; 17
weeks between £5m and £15m.
Table 1 shows some of the KPIs, and the range of results over five years since the
programme started in 2004:
TABLE 2
Construction time: % completed on time or early 84–97%
Construction budget: % completed within budget 93–100%
Safety: % achieving zero incident rate 71–86%
Client satisfaction of product: % score of 8/10 or more 84–87%
Client satisfaction of service: % score of 8/10 or more 78–83%
Defects at handover: % score of 8/10 or more 77–84%
Source: www.nhs-procure21.gov.uk/content/performance.asp [Accessed 25 September
2009].
CIPS has created a Construction Clients’ Policy (CIPS undated), which recommends
clients to:
Take time to produce excellent briefs – only then can optimum designs be
developed, resulting in improved fitness for purpose and greatest lifetime
value.
Take care in assembling the client team of design professionals, to include the
necessary skills and experience for the particular project, and promote a non-
adversarial approach among the design team and the supply chain.
Use the more modern and less-adversarial forms of contract such as the NEC
and up-to-date JCT contracts that encourage risk allocation. Benefits will be
fewer contractual disputes, which are costly.
Calculate professional fees on the basis of the value of services provided rather
than simply as a percentage of total construction cost.
Business ethics should be transparent and fair, and suppliers at all levels of the
supply chain should be paid within the agreed periods. Cash flow is the life
blood of supply chains.
Suppliers should be selected through a competitive process, not on a ‘lowest
price is best’ basis, but on the basis of value for money (VfM). Quality, service
levels and other factors should be used along with price. Clients should look
for supply chain partners who can deliver ‘right first time’.
Risks should be allocated to those parties best able to manage them and to the
extent that they are able to carry the risk. Reduced exposure to commercial risk
will provide for greater certainty of cost, time and quality.
Clients and their professional team should audit the construction supply chain
from a social responsibility perspective. This includes: human rights; health,
safety and welfare; working conditions; equal opportunities; training and
personal development; and global issues such as the use of child labour
(possibly in certain product manufacturing factories). Better work
environments produce happy workers who in turn produce better work.
Defects cost money and lost time.
The use of sustainable materials and the reduction of waste (in raw materials
and in processes) leading to both a better environment and VfM.
The document explains Building Down Barriers as a process ‘based around the idea
of a single player, the Prime Contractor, taking full responsibility for delivery of a
building or facility that meets a client’s needs’ (Holti et al. 1999: 8).
Supply chain management Paper 1902 Page 21
The benefits are described as ‘buildings that are cheaper in both initial capital and
long-term running costs, that provide a reasonably accurate forecast of the annual
maintenance and energy costs, and that facilitate maximum effectiveness for the
activities housed within them. For the construction industry, the benefits are a radical
reduction in waste and inefficiency, improved profitability, non-adversarial supply
chain relationships, greater certainty of repeat orders and delighted Clients’ (Holti et
al. 1999: 4).
SELF-ASSESSMENT TASK 5
Critically analyse various aspects of performance you have experienced in projects, and
list improvements that would delight clients if they were to be implemented.
6 Implementing SCM
Businesses, whether they are client organisations or contractors/suppliers, will have
supply chain managers/facilitators, and a construction professional is likely to be the
key person at the head of the SCM process. This construction professional will have a
vital role to play in the promotion and success of SCM.
Organisations will have a database of contractors, consultants and suppliers; these are
their preferred partners in business. They will have been used many times and will
have proven themselves worthy of being in the supply chain of that organisation’s
successful business. But, how are firms selected in the first place?
6.1 Prequalification
The Strategic Forum for Construction has a generic prequalification questionnaire, to
be used by organisations to give a ‘rational, structured and auditable process for the
selection of long-term collaborative supply chain partners’.
The questionnaire is drafted with the intention that it is used for selecting
subcontractors to a contracting organisation, but it can be amended to suit the
selection of consultants, suppliers and others.
The first part of the questionnaire asks for details of company status, ownership and
company registrations.
Client compatibility – Clients and prime contractors have policies that they
expect their supply chain partners to share in with them. One example is the
French-based contractor, VINCI, which has the following priority
commitments as part of its sustainability programme, and which it builds into
its supply chain:
to achieve zero accidents;
to fulfil its commitments to social responsibility, civic engagement,
customer relations, supplier relations, environmental responsibility,
research and development and innovation policies;
to quantify greenhouse gas emissions;
to implement its eco-efficiency programme;
to strive for technological excellence.
(VINCI 2007)
The prime contractor will expect members of the supply chain to integrate their
systems with those of the prime organisation. The linking of computer applications in
an integrated form will, for instance, enable immediate transfer of project information
such as CAD drawings, and online invoicing and payment certification. The
construction professional will benefit from integrated and streamlined applications for
payment and computerised payment systems that are integral with the supply chain
protocols.
SOLVE is an online prequalification tool that eliminates the need to provide paper
evidence – although random audits are undertaken, when these are requested. Once
registered online, a supplier can update information at any time. Vetting is carried out
online, and there is an audit trail of all amendments.
Reminders are issued when certain critical information becomes out of date, such as
insurances at renewal.
6.2 Partnering
Once a supply chain has been created, the integration of the various members is
formally dealt with in a framework/partnering agreement. The Strategic Forum for
Construction’s sample agreement is reproduced in Appendix B.
By entering into an agreement, the supply chain partners are agreeing to seek mutual
benefits from collaboration, innovation, continuous improvement, waste reduction,
improvements in quality and timely delivery, efficient resourcing, and all the other
management benefits that joint working can produce.
Supply chain management Paper 1902 Page 24
Measurement of the benefits is carried out with KPIs. Cost reduction targets might be
agreed and then measured by KPIs, and the construction professional will be involved
in the management of cost reduction exercises with supply chain partners. Techniques
such as turnover-related discounting with suppliers might be targeted as a way of
reducing costs, and the construction professional will agree the terms and basis of
calculating these with suppliers. An example would be the scope for discount on
annualised quantities of products/work packages placed with a partner. Manufacturers
of commodities such as bricks, plasterboard and ironmongery are accustomed to
negotiating discounts on volume buying, and the construction professional will be
involved in these negotiations.
The supply chain partners will want to manage and reduce risk. The construction
professional will become engaged in pricing the mitigation strategies that are
discussed and entered into risk registers. Commercial options for risk mitigation will
inevitably have cost consequences, and the construction professional will be called
upon to value risk and to contribute to the decisions made to best deal with the
options.
Risk that cannot be mitigated (known as residual risk) will be shared or insured.
Parties that take risk must be rewarded for their willingness to do so, and the
construction professional will negotiate the gains resulting from such allocation of
risk. Risk that is too great to be taken by a party must be insured, of course, and the
construction professional may well become involved in seeking quotations from
insurers. Duplication of risk-taking will need to be identified, as this will become a
waste if not detected. Again, the construction professional is the person best qualified
to do this.
Parties will engage in team building, review and value management workshops, and
the construction professional may act as facilitator for these, especially when the
targets for improvement are largely value related.
The parties are termed the ‘employer’ and the ‘service provider’.
The agreement is intended to be used when the employer has a substantial volume of work
over a period of time. Work is ‘called off’ from the framework, which has these key
objectives:
(Continued)
Supply chain management Paper 1902 Page 25
The JCT anticipates frameworks to be between two and five years long, although the
Regulations limit this to four years.
Subsidiary supply chains will have cluster members reporting to a cluster leader that
is a main supply chain partner. The task of a cluster is to design and deliver an
integrated part or element of a building.
A prime contractor will create clusters for different types of project that the business
specialises in. Clusters for school buildings will be different from those for bridge
building, for example, although some of the cluster – but not all – might also be
suitable for hospitals.
Clusters will focus on their own aspects of continuous improvement, and present
these to the prime contractor’s supply team management. In respect of services
engineering, members of a cluster might be involved in, for example, new methods
such as modularisation, assembly off site, standardisation in design and greater use of
IT.
Clusters must also be geographically grouped. The members of a cluster must have
the same geographic capability in order to be compatible with each other. A
mechanical engineering firm that works throughout all regions of a country could not
be joined in a cluster that had an electrical engineering firm that merely worked in
just one region of the country. They need to be ‘territorially compatible’.
Similarly, clusters must have the same capability for size of project. Participants must
be ‘capability compatible’. The marrying of cluster members is vitally important.
6.4 ‘Embedding’
When prime contractors first have an opportunity to express an interest in quoting for
a project, they will call upon their supply chain framework partners to participate in
the early processes.
Supply chain partners will become ‘embedded’ into the processes at the earliest
opportunity.
By putting together a project team at an early stage, the appropriate skills are
harnessed to investigate and deliver solutions that give cost effectiveness, quality and
sustainability. Integration aids communication, transfer, and use of resources with the
most relevant knowledge to influence the decision making that will result in success.
SELF-ASSESSMENT TASK 6
Critically comment on the aspects of packaging and embedding that you have been
involved with. What would improve the outcomes?
Supply chain management Paper 1902 Page 27
Risk will be identified as part of the processes used, and mitigated by management.
The risk of disputes within teams will be reduced, and costly dispute resolution saved.
Better quality will result in fewer defects and reduce the risk of having to rectify these
at a higher cost than if the work had been ‘right first time’.
Client satisfaction will result in repeat orders, and businesses will spend less on their
sales teams ‘fishing’ for work. Management time can focus on improving the work,
rather than on marketing (although growth of the business will always be necessary to
satisfy shareholders). Businesses that take best practice procurement seriously will
have a chief innovation officer on their main board of directors.
There is more certainty of payment under fair practices, and the risks attached to cash
flow for running the business are lessened as a result.
The German firm that designs the specialist system of atria roofs has a cluster of
CAD drafting specialists to which it outsources its work. There are four firms in this
cluster, in Vietnam and India, where these services are becoming a speciality service
the world over. Each cluster firm has a service level agreement (SLA) that sets out the
performance criteria to be maintained. Typically, SLAs detail the response times for
carrying out work, the turnaround times for drawings to be prepared, the outputs in
terms of the standards of work, and a procedure for rectification of problems.
Importantly, the cluster firms will have worked together to develop the exact outputs
required by the client in the manufacturing processes following on from the
preparation of drawings.
CAD digitisation will be to a common format and in the number of layers required.
Meetings will have been held to agree the exact requirements and a system of
monitoring and review, to achieve continuous improvement, will be in place within
the cluster firms. A basis of charging is agreed across the cluster, and a mechanism
for uplifts in line with local inflation is agreed.
Agreed customised materials lists will be possible from the drawings; these will be
accessible by electronic transfer into the fabrication factories in Italy and Germany.
The manufacturer of rubber seals in Italy will be the only manufacturer for the
system, following an exclusivity partnering agreement based on research and
development into the product. The rubber seals cannot be sold to any other system
producer, in return for which there is an agreement on business volumes, and a
pricing mechanism that reflects the minimum amount of stock that must be held at
any time so that orders can be met without manufacturing delay. Because this is the
only supply chain partner for this commodity, an understanding is reached on dates
when the factory closes for holidays and maintenance, so that project delivery is not
affected.
The steelwork fabrication facility in Germany is owned by the system designer, so the
processes here are under direct quality control. However, outsourced labour may be
called upon at peak times to supplement the permanent workforce, and there will be a
framework agreement with a cluster of personnel recruitment agencies to provide
temporary fabrication engineers on an as-needs basis.
Site assembly and erection includes the glazing, and there is a cluster of firms around
the world that carry this out as subcontractors. They are chosen for their proximity to
the site, their availability at the time and their past performance KPIs. A guaranteed
maximum price is agreed with the successful firm, and a performance-related share of
profits is made if delivery is within target time and cost. The contractor must pay for
any delay it causes to the host main contractor on the site.
Materials are supplied, on time, free of charge to the fabricator, and the German
system manufacturer takes responsibility for the logistics and management of delivery
integration. The erector provides cranage and all site facilities not supplied by the
main contractor on the site; this will include welfare and health and safety facilities.
On completion, any defects will be the responsibility of the erector, and will be
measured as a KPI in the partnering agreement that governs the cluster.
Supply chain management Paper 1902 Page 29
All supply chain subcontractors and suppliers will have access to a project-specific
integrated intranet from which the drawings, programmes and schedules can be
accessed and used. A process map will be in operation to assist management, and
essential staged gateways will be monitored so that project delivery is always on
target for satisfactory completion.
Payments to partners will flow automatically from the online completion of gateways,
with automatic BACS money transfer into designated local company bank accounts.
‘I am looking for the building services industry to take that leap of faith into
modularisation, into standardisation of their plant and equipment into making an
industry into a profession. Consultants know that most hospitals are similar. It’s very
rare to have a unique set of circumstances in a hospital environment, it doesn’t work
that way. So why do they design things over and over again? Why do architects design
toilets over and over again?’
‘We have to recognise that the real innovation comes from the specialist suppliers not
the designers. The designers are becoming more conceptual, leaving the precise detail
to those that make the products to fit the bill. If it were possible (which it isn’t, but
may be one day) to standardise a range of products required in hospital buildings,
manufacturers would have confidence to produce them. These products would
absolutely meet the needs of the service rather than being the compromise that we
often have now. That would be a real step forward.’
Peter Woolliscroft’s ideas for the output of the NHS ProCure21 partnering approach
include lean thinking:
‘We are looking for lean construction and modularised solutions which require plant
and equipment to be assembled off-site defect free, fully guaranteed. We want this
delivered to site with quick fix connections onto the minimum amount of
infrastructure to make it up. Couple with that some easy and rapid withdrawal of that
plant as and when replacement is required or increased capacity. This would involve
the planners, architects and the building services consultants.
‘Lean thinking on every aspect of what we do is the key. If there was a great big chunk
we could take out, someone would have seen it by now. Small cost savings may not
add up to a hill of beans, but if you have a lot of hills, that adds up to a mountain.’
The article was entitled ‘Healthy criticism’, and it certainly sums up the role that SCM has
to play.
SELF-ASSESSMENT TASK 7
Summarise the healthy criticism that you have to contribute to the cause of SCM.
Supply chain management Paper 1902 Page 30
REFERENCES
Better Regulation Task Force (BRTF) and Small Business Council (SBC) (2003)
Government: Supporter and Customer? Available to download at
www.ogc.gov.uk/documents/smeprocurement.pdf [Accessed 25 September 2009].
Leading Oil and Gas Industry Competitiveness (LOGIC): Supply Chain Management.
Available at www.logic-oil.com/supply/book4/findings.html [Accessed 27 August
2009].
National Audit Office (2005) Improving Public Services through Better Construction,
London: The Stationery Office. Available to download at www.nao.org.uk [Accessed
2 September 2009].
FURTHER READING
International Organization for Standardization (2009) ‘ISO 9001:2000 – What does it
mean in the supply chain?’ Available at www.iso.org. [Accessed 3 September 2009].
Joint Contracts Tribunal (JCT) (2007) Framework Agreement, Andover: Sweet &
Maxwell. ISBN-13: 978-0418851609.
APPENDIX A
[Statement of Intent]
Mission
Vision
Page 1 Jun 03
Supply Chain Pre-Qualification Questionnaire
The principles underlying this Agreement are the Parties {insert Partner one
name and [insert Partner two name]) desire to work together in an integrated
and collaborative manner through a supply chain.
Page 2 Jun 03
Supply Chain Pre-Qualification Questionnaire
REFERENCES
In support of your declaration that you company has a satisfactory track record, please
indicate below details of three references in respect of recent contracts of a similar nature to
the project currently under consideration. Include any that resulted in a conviction for a
violation of Health and Safety or Environmental Legislation.
Postcode
Tel No.
Fax No.
Contract Details
Client Name
Type / Value
Address
Page 3 Jun 03
Supply Chain Pre-Qualification Questionnaire
Address: …………………………………………………………………………………
Managing Director:………………………………………………………………………
Address ………………………………………………………………………………….
Address ………………………………………………………………………………….
Page 4 Jun 03
Supply Chain Pre-Qualification Questionnaire
d) Do you have any tax liability due and outstanding to Customs &
Excise or Inland Revenue Yes No
If your answer to any of the above questions is yes, please attach full details including the
date of any of the events referred to above.
PROFIT/ £ £ £ £ £ £
LOSS
ACHIEVED ACHIEVED ACHIEVED FORECAST FORECAST FORECAST
WORK £ £ £
SECURED
ACHIEVED ACHIEVED ACHIEVED
UNSECURED £ £ £
CAPACITY
FORECAST FORECAST FORECAST
PARENT CO. £ £ £ £ £ £
TURNOVER
DETAILS ACHIEVED ACHIEVED ACHIEVED FORECAST FORECAST FORECAST
PROFIT/ £ £ £ £ £ £
LOSS
ACHIEVED ACHIEVED ACHIEVED FORECAST FORECAST FORECAST
ULTIMATE £ £ £ £ £ £
HOLDING CO.
TURNOVER ACHIEVED ACHIEVED ACHIEVED FORECAST FORECAST FORECAST
DETAILS
PROFIT/ £ £ £ £ £ £
LOSS
ACHIEVED ACHIEVED ACHIEVED FORECAST FORECAST FORECAST
Page 5 Jun 03
Supply Chain Pre-Qualification Questionnaire
Address……………………………………………………………….…………………
3.5.1 Please provide the required information within the table hereunder:-
Number of Contracts
currently in progress
Percentage of Contract
works normally:
(b) Sub-let
Number of directly
employed operatives
Maximum £……………….….
Page 6 Jun 03
Supply Chain Pre-Qualification Questionnaire
4.1 Please provide details of three contracts completed by you during the past 5 years. They
should involve projects relevant in experience and expertise and demonstrate the quality of
and level of service that you would provide. If possible include projects where Supply Chain
Management techniques have been successfully implemented.
PROJECTS
1 2 3
Project Name
Location
Completion Date
Contact Name
4.1.2 Provide names of projects undertaken for [Insert company name] in the past five years
stating contact names:
……………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………
Please confirm that you have no objection to us seeking references from the above
Objection: Yes/No.
4.1.3 For any of the above projects detail any delays that arose to your contract works and the
action you took to minimise these.
4.1.4 Please provide brief details of how you co-ordinated any design work you undertook with that
of the other parties involved.
4.1.5 Indicate how you liased with [Insert company name] to establish the optimum design solution
for the client.
Page 7 Jun 03
Supply Chain Pre-Qualification Questionnaire
5.0 INSURANCES
5.1 Please confirm which of the following insurances you currently hold and any limits that apply.
6.3 Please provide details of Health & Safety training given to your Managers, Supervisors and
Operatives:
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
Page 8 Jun 03
Supply Chain Pre-Qualification Questionnaire
DECLARATION OF COMPETENCE
Page 9 Jun 03
Supply Chain Pre-Qualification Questionnaire
Page 10 Jun 03
Supply Chain Pre-Qualification Questionnaire
The following Questions in this section must be answered before we can approve your company’s competence to work within our supply chain :
SCORING MATRIX
Points Quality Threshold Score
Available Threshold Reached Award
ed
Q1 Type of work employed to carry out: A1
Management =
Operatives =
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Score
Available Threshold Reached Awarded
Q7 How many Reportable accidents (As per RIDDOR) have your company had in the Related to
last three years? National
Average
A7
Page 12 Jun 03
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Score
Available Threshold Reached Awarded
Q9 How many Prosecutions, Prohibition or Improvement Notices has your company
received in the last three years?
A9.
Date (State Number of Number of Number of Number of
year only) Health & Safety Prohibition Improvement Environmental
Prosecutions Notices Notices Prosecutions
Year > Av = 0
Year Av = 5
Year < Av = 10
(Please give brief description of offences if any)
Q10 Please attach the latest Health & Safety A10 (Please indicate if the Health & None = 0
Policy for your company. Safety Policy is attached). Av = 5
Good = 10
Q11 Please attach a recent Method A11 (Please indicate if a Method None = 0
Statement prepared by your company. statement is attached) Av = 5
Good = 10
Q12 Please attach a recent Risk Assessment A12 (Please indicate if an Risk None = 0
prepared by your company. (Please note Assessment is attached) Av = 5
contractor with design responsibility to Good = 10
provide a Design Risk Assessment).
Q13 Has your company received any Health A13 (Please give details) None = 0
and Safety awards during the last three <5=0
years. > 5 = 10
Y/N
8.1 Please give details of how you foster good relationships with your supply chain in a
collaborative working environment. What benefits has this provided?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
…………………………………………………………………
8.2 What is your company’s policy/philosophy with regards to integrated Supply Chain
Management?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
………………………………………………………………….
8.4 Please provide evidence of your experience and use of the following supply chain
techniques:
a) Open book transparent tendering and costing
b) Benchmarking
c) KPI’s
d) Continuous improvement
e) Any other SCM techniques
8.5 Do you carry out any training in SCM principles and techniques? Yes No
8.6 How do you manage risk? Give details of any formal procedures that you have in place or
propose to implement……………………………………………………………………………..
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………
8.7 Are you prepared to enter into a collaborative relationship based upon the principles set out in
our Partnering Agreement? Yes No
Page 14 Jun 03
Supply Chain Pre-Qualification Questionnaire
…………………………………………………………………………………………………………….
8.10 Can your company demonstrate an operating participation in a reform organisation that actively
promotes supply chain integration eg COMPASS
Yes No
8.11. (manufacturers only) Have you achieved Chartered Member Status of COMPASS?
Yes No
To proceed to Section (B) the Supplier must have passed all Gateway criteria
9.1 On which basis are you prepared to become a member of our supply chain:
Page 15 Jun 03
Supply Chain Pre-Qualification Questionnaire
a) Please list the trades, services and products that you are interested in providing to us (only
list your core competencies):
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
b) Please list the geographical areas that you consider you are able to serve
effectively:………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
SCORING MATRIX
Points Quality Threshold Criteria Score Weighted
Available Threshold Reached Weighting Awarded Score
(A) (B) (A) x (B)
10.0 INFORMATION TECHNOLOGY
10.5 Have you experience of using an extranet based [Supply Chain] management system 20
Yes No
Page 16 Jun 03
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Criteria Score Weighted
Available Threshold Reached Weighting Awarded Score
(A) (B) (A) x (B)
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
11.0 RESOURCES
a) % management ……..
b) % supervisory ……..
c) % technical ……..
d) % manual ……..
e) % administrative ……..
Page 17 Jun 03
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Criteria Score Weighted
Available Threshold Reached Weighting Awarded Score
(A) (B) (A) x (B)
e) How do you deal with variations that may lead to a client overspend: 20
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
Page 18 Jun 03
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Criteria Score Weighted
Available Threshold Reached Weighting Awarded Score
(A) (B) (A) x (B)
b) How do you encourage innovation through out the supply chain: 10
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
c) Have you been involved in any formal dispute resolution tribunal in the last 5yrs
Yes No 50
Page 19 Jun 03
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Criteria Score Weighted
Available Threshold Reached Weighting Awarded Score
(A) (B) (A) x (B)
TOTAL 12.4 100 80 Y/N 10% 87 8.7
Page 20 Jun 03
Supply Chain Pre-Qualification Questionnaire
SCORING MATRIX
Points Quality Threshold Criteria Score Weighted
Available Threshold Reached Weighting Awarded Score
(A) (B) (A) x (B)
TOTAL 800 Y/N 100%
Page 21 Jun 03
Supply Chain Pre-Qualification Questionnaire
DATE: ………………………………………………
APPRAISERS:
……………………………………………………………………………………………………………
NAME: ……………………………………………………………………………………………………………
Signed: ……………………………………………………………………………………………………………
NAME: ……………………………………………………………………………………………………………
Signed: ……………………………………………………………………………………………………………
NAME:
………………………………………………………………………………………………….
Signed:
…………………………………………………………………………………………………
5.0 DECLARATION
15.1 We confirm that the above is a true record and are willing and prepared to provide a Bone
Fide Tender should we be selected for the final Tender List.
Name: Signature:
Position:
Date:
Page 22 Jun 03
Supply Chain Partnering Agreement
APPENDIX B
Partnering Agreement
with
1 of 24
Supply Chain Partnering Agreement
[Statement of Intent]
Mission
Vision
2 of 24
Supply Chain Partnering Agreement
The principles underlying this Agreement are that the Parties {insert Partner one name and [insert
Partner two name]) desire to work together in an integrated and collaborative manner through a
supply chain.
3 of 24
Supply Chain Partnering Agreement
FORM OF AGREEMENT
Between
And
“Partner One” and “Partner Two” are committed to working together, both individually and
collectively we are committed to the aims and objectives of this Agreement.
SIGNED SIGNED
Print Name Print Name
Position Position
For [insert Partner For [insert Partner
One’s name] Two’s name]
Date Date
4 of 24
Supply Chain Partnering Agreement
CONTENTS
SECTION 1: - DEFINITIONS AND GENERAL PROVISIONS .........................................................................6
1.0 Definitions 6
2.0 Scope 7
3.0 Duration 7
4.0 Project Specific Orders 8
5.0 Confidentiality 8
6.0 Announcements 8
7.0 Copyright and Intellectual Property (“IP”) 9
8.0 Assignment 9
9.0 Costs and expenses 9
10.0 Insurances and Indemnities 9
11.0 Notices 9
SECTION 2: - TENDERING AND ORDERS ..................................................................................................10
12.0 Commissioning of works, services and the like 10
13.0 Integrated Supply Chain 10
14.0 Pricing and Price Variation Procedure 10
15.0 Risk & Reward 10
SECTION 3: - ENVIRONMENT, HEALTH & SAFETY, QUALITY ASSURANCE...........................................10
16.0 Environment 11
17.0 Health & Safety 11
18.0 Quality Assurance 11
SECTION 4: - MONITORING AND REVIEW .................................................................................................12
19.0 Reviews 12
20.0 Key Personnel : Company Structure Chart / Responsibilities 12
21.0 Team Building 12
22.0 Continuous Performance Improvement and KPIs 12
SECTION 5: - DISPUTES AND TERMINATION ............................................................................................13
23.0 Problem Resolution 13
24.0 Termination 13
25.0 Rights of Third Parties Act 13
26.0 Invalidity 13
27.0 Applicable Law 14
SECTION 6: - APPENDICES.........................................................................................................................15
5 of 24
Supply Chain Partnering Agreement
Agreement The framework agreement between [insert Partner One’s name] and
[insert Partner Two’s name]
Agreement Period The period defined in Clause 3.1.1
Employer Companies, organisations and the like with whom [insert Partner One’s
name] have entered/desires to enter into Principal Contracts.
Environmental [Insert Partner One’s name] registered Environmental Management
Management System System current at the date of the Agreement or any revision thereto
Final Payment Shall have the meaning as defined in Project Specific Orders raised under
this Agreement
Principal Contract A contract entered into or to be entered into between [insert Partner
One’s name] and an Employer
Parties [Insert Partner Two’s name] and [insert Partner One’s name]
Partner’s Supply Companies, organisations and the like that supply goods and/or service
Chain and/or execute works for the Partner under this Agreement and/or any
Project Specific Order
Project Specific Order The term Project Specific Order refers to orders and/or contracts placed
for:
The execution of works
Supply of goods
Supply of services
Project Specific Orders are placed by [insert Partner One’s name] in
favour of the [insert Partner Two’s name] and are based upon the
agreed terms and conditions in Appendix 1 attached hereto.
[Insert name, address etc., of “Partner One”, the contracting party]
[Insert Partner
One’s name] .
Works The works and services as described in any project enquiry, tender or
Project Specific Order by [insert Partner One’s name] and any changes
made thereto
In this agreement words in the singular shall include the plural and the plural shall include the
singular except where the context requires otherwise.
6 of 24
Supply Chain Partnering Agreement
2.0 Scope
2.1 To establish an agreement between [insert Partner One’s name] and [insert
Partner Two’s name] for
[Insert Project / Contract description]
2.2 Parties agree to act fairly towards each other in a spirit of trust, co-operation and
transparency in the performance of this Agreement and Project Specific Orders.
2.3 In the spirit of partnering, the Parties will use reasonable endeavours to co-
operate with the intent, if the commercial circumstances are right for both parties,
to work together. Neither Party will be obliged to consider such a possibility
unless at its absolute discretion such an arrangement would be commercially
advantageous to it.
2.4 Nothing in the Agreement shall give rise to or constitute a partnership in law
(whether or not as defined under the Partnership Act 1890 or any amendment or
modification thereto) between the Parties.
2.6 Neither Party shall have the authority to enter into any engagement or make any
representation or give any warranty on behalf of the other Party or otherwise bind
or oblige the other Party.
2.7 The geographical extent of the agreement shall be [example UK] [NB this can be
extended - consideration of Applicable Law - Clause 28 - must be addressed]
3.0 Duration
3.1.1 This Agreement will come into effect on the [insert date] and shall (unless
terminated in accordance with Clause 27 or by operation of law) operate
for bid collaborations and Project Specific Orders placed with the Partner
until [insert date]
3.1.2 The Agreement will finally terminate without further notice on the date on
which the last Final Payment is made under the terms of the Project
Specific Orders placed under this Agreement.
7 of 24
Supply Chain Partnering Agreement
After the expiry of the initial duration period, as referred to in clause 3.1.1, the
parties will in good faith, review whether or not the duration of the Agreement will
be extended. Either party will be entitled, without liability to the other, to decide not
to extend this Agreement. If the parties decide to extend this Agreement they will
confirm in writing the length of any such extension.
The commencement and completion dates for any Project Specific Order shall be
set out in the terms of that order.
4.1 Works services and the like undertaken under this Agreement will be
commissioned by [insert Partner One’s name from [insert Partner Two’s name] by
means of Project Specific Orders. The specific nature of collaborative
arrangements (including pre tender collaborations) will be established on a
“Project by Project” basis.
5.0 Confidentiality
5.1 In this Clause “Information” means any information in any verbal, written or other
tangible form, regardless of carrier medium, disclosed to one party by or on behalf
of the other party under the Agreement or Project Specific Order or otherwise.
5.2 Information, which passes between our two companies shall be treated as
confidential and must not be released or disclosed to any third party save for the
purposes of obtaining legal and/or insurance advice without the express consent
in writing of the other party.
5.3.1 shall not use any of that Information otherwise than for the purpose of the
Agreement and/or Project Specific Orders and
5.3.2 shall not copy any of that Information except to the extent necessary for
the purpose of exercising his rights of use and disclosure under the
Agreement and/or Project Specific Orders and
5.3.3 shall use best endeavours to ensure that information is only disclosed to
his employees suppliers and contractors only to the extent necessary for
the performance of the Agreement and/or Project Specific Orders and
5.3.4 shall ensure that his employees suppliers and contractors are made
aware of the Confidentiality provisions of this Agreement and/or Project
Specific Orders before they receive Information and shall procure their
agreement to be bound by the same.
6.0 Announcements
8 of 24
Supply Chain Partnering Agreement
6.1 Each Party may not issue any press release, make any public announcement or
otherwise publish any information about the Agreement except with the prior
written consent of the other party.
7.1 Save for the provisions of clause 7.2 all IP matters will be dealt with under the
terms and conditions of the Project Specific Orders.
8.0 Assignment
Neither Party may assign, transfer, novate, sub-contract or otherwise dispose of any of its
rights and obligations under the Agreement without the prior written consent of the other
Party.
Each Party shall bear his own costs and expenses incurred in the preparation, execution and
implementation of the Agreement and any Project Specific Order.
Insurance and indemnities in respect of Project Specific Orders will be addressed under the
terms and conditions of the Project Specific Orders.
11.0 Notices
Any notice to a Party under the Agreement shall be in writing signed by or on behalf of the
party giving it. Any notice sent by facsimile or electronic communication shall be confirmed in
identical terms by letter sent by prepaid first class post.
9 of 24
Supply Chain Partnering Agreement
12.1 The award of any Project Specific Order is within Partner One’s absolute
discretion.
12.2 Partner Two acknowledges that Partner One may award any Project Specific
Order to another framework partner of Partner One or any third party selected by
Partner One
12.3 Project Specific Orders shall in each case be subject to the terms and conditions
agreed as referred to in Appendix 1 unless agreed otherwise provided that it shall
incorporate such terms and conditions that are necessary to comply with the terms
and conditions of any relevant Principal Contract. [Optional clause]
13.1 Partner Two (at his own cost) will provide sufficient quality resources to join the
integrated Supply Chain team bid to take an active role in the preparation and
submission of bids.
13.2 An integrated Supply Chain bid team environment will be used to foster and
encourage all participants to improve value and seek innovative solutions in order
to enhance bid proposals.
14.1 Partner Two agrees to a collaborative and transparent open book approach to the
disclosure of cost information that gives Partner One access to examine the
pricing structure adopted for the execution of this Agreement and Project Specific
Orders and the Partner’s supply chain. Information disclosed may be made
available to Employers and/or their representatives.
14.2 Partner Two agrees to share with Partner One such information or data or both
about Partner Two’s Supply Chain and the award of Partner Two’s Supply Chain
contracts as Partner One may require for the purpose of assessing whether
Partner Two’s Supply Chain arrangements deliver continuous measurable
improvement against agreed Key Performance Indicators as detailed in Appendix
6 or other Key Performance Indicators mutually agreed between the parties.
15.1 The parties shall if appropriate agree on a project specific basis a risk and reward,
pain/gain regime with the purpose of providing a partnering incentive.
15.2 Incentives shall be related to the achievement of agreed targets measured against
Key Performance Indicators as described in Clause 22.
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16.0 Environment
16.1 The Parties will operate Partner One’s Environmental Management Systems in so
far as it applies to their collaborative activities. The Parties will:
17.1 The Parties will work towards the prevention of accidents and creation of a safer
working environment. Performance under the Project Specific Orders is to be
monitored, benchmarked and reviewed on a regular basis.
17.2 Detailed aspects regarding matters of Health & Safety will be implemented under
the terms and conditions in Project Specific Orders.
18.1 Parties will monitor/action Quality Assurance performance under the Project
Specific Orders on a continuing basis at both strategic and operational level.
Performance will be regularly monitored, benchmarked and jointly reviewed.
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19.1 Both Parties will appoint appropriate members to meet regularly to discuss /
review the performance by the Parties of their respective obligations under the
Agreement and any Project Specific Orders.
19.2.1 monitor the effectiveness and efficiency with which the Agreement and
any Project Specific Orders are being implemented.
19.2.5 review whether the Agreement and any Project Specific Orders are being
conducted by the Parties in the spirit of partnering.
19.3 In addition further Operational reviews may be undertaken. Draft heads of terms
for such reviews are set out in Appendix 5
The Organisation charts of Partner One and Partner Two showing their respective
structures/roles is set out in Appendix 3 appended hereto.
Workshops and topical events may to be organised to help develop a team culture that will
encourage the exchange of views, ideas and education of all concerned in the projects to
propagate best practice.
22.1The Parties may agree a series of targets for Key Performance Indicators (KPI’s) and
performance assessed against pre agreed targets. The KPIs listed in Appendix 6 may be
used for this purpose and may be amended as required, on a project specific basis.
22.2 An assessment of the agreed targets will be carried out [state period] on a project-by-project
basis and any necessary actions will be agreed and implemented. These results will form part
of a performance review. Under the review process the Parties may agree to amend the target
levels, number and range of KPIs applied.
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23.1 Each Party shall give warning to the other when he becomes aware of any
matters that could adversely affect the execution of the Agreement by completing
and issue to the other Party or affected Parties, the Problem Resolution Form
contained in Appendix 2 of this Agreement.
23.2 Subject to either Party's right to refer any dispute under a Project Specific Order to
remedy under said terms and conditions the Parties shall work together in a spirit
of good faith mutual trust and co-operation and use all reasonable endeavours to
settle any problem or dispute or difference amicably at the lowest level within the
respective organisations.
23.4 Each staff level has a maximum time limit in which to resolve the problem or
dispute or difference referred to it. In the event that a resolution is not agreed
within the maximum time limit the problem or dispute or difference shall be
referred to each successive level in the hierarchy.
23.5 If the problem or dispute or difference reaches the level of Director and a
resolution has not been agreed there shall be a 14-day (cooling off) period after
which it shall be referred to the Managing Director’s of the Party’s. If an agreed
resolution has not been reached the problem or dispute or difference shall be
subject to the formal dispute resolution procedures of the Project Specific Order.
24.0 Termination
24.1 The grounds for termination of any Project Specific Order shall be set out in that
Order.
25.2 This Agreement may be terminated by either party if the other is in material breach
of the Agreement (not withstanding any other term thereof).[Optional clause]
25.3 If either party fails to achieve the targets agreed in respect of annual Key
Performance Indicators the other may give 3 months notice of its intention to
terminate this Agreement
The Parties agree for the purpose of the Contracts (Rights of Third Parties) Act 1999 that
this Agreement is not intended to and does not give to any person who is not a party to
the Agreement any rights to enforce any provisions contained within it.
26.0 Invalidity
If and to the extent that any provision of the Agreement is found by any court, arbitrator,
adjudicator, mediator, expert or other competent authority to be invalid, unlawful or
unenforceable, that provision shall be deemed, to the extent that it is invalid, unlawful or
unenforceable, not to be a part of the Agreement and it shall not affect the enforceability of
the remainder of the Agreement.
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This Agreement shall be governed and construed in accordance with English Law and the
parties agree to submit to the exclusive jurisdiction of the English courts provided that any
judgement, award or order of the English courts may be enforced in any jurisdiction.
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SECTION 6: - APPENDICES
Partner Two
Partner One
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Appendix 1
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Appendix 2
Date: Time:
Description of Problem/Dispute/Difference
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Date: Time:
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Appendix 3
SUPPLIER CLIENT
STAFF LEVEL REPRESENTATIVE TIME REPRESENTATIVE
Staff Level
Five Managing Director Client Managing
Director
Staff Level
Four Director 5 Days Client
Staff Level
Three Contracts Manager 3 Days Architect Partner
of Director
Staff Level
Two Site Manager 3 Days Project Architect
Staff Level
One Foreman 24 Hours Clerk of Works
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Appendix 4
Partner One
Partner Two
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Appendix 5
Operational Reviews
Operational reviews of projects shall take place to develop action plans to work towards
objectives and deliverables to develop and improve the partnering relationship and if
necessary set up joint teams for the purpose of implementing action plans to secure
objectives in relation to:
supplier relationships/partnering
best practice
performance
costs
sustainability and waste
end-user satisfaction
targets
strategy
training
innovation
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KPI's
Main criteria Sub criteria Category
Sub Contractor Specifier Lead Contractor/ Manufacturer/ Client
Project Leader Supplier (Partnered projects only)
Client Satisfaction
Questionaire
Performance to
programme
Record keeping -Storage and
retrieval
Tenders on time
Information & Instruction on time
Measurement & reporting system
Resource availability
Ability to accommodate change
Manufacture & delivery on time
Payment on time
Quality
of Installation
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of O&M Manual
of Product
Defects Culture
Of literature & documentation
Productivity
Profit per employee
Output per site operative
Downtime
Utilization factor (material & labour)
Design performance
Delivery on time
Right first time
Resource availability
Ability to accommodate change
Communication with team
Profitability
Profit per employee / operative
PBIT
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NOTE: The parties will need to establish and agree the mechanism for recording and reporting the results of any Key Performance Indicator
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