Regional main contractors and local supply chains

[edit] Introduction

A regional main contractor is a construction company that delivers projects primarily within a defined geographic area, such as a county, region or group of neighbouring counties, rather than operating across the whole of the UK. Regional contractors occupy a position between large national contractors and smaller local builders and may undertake commercial, industrial, residential, public-sector and other types of construction work across a range of project values.

There is no single definition of a regional main contractor based on geographical area, turnover or project value. The distinction generally relates to the contractor's geographical market, organisational structure, available resources and established relationships with clients, subcontractors and suppliers.

[edit] Characteristics of regional main contractors

Regional main contractors often maintain established relationships with local subcontractors, specialist contractors, suppliers and consultants. These relationships can provide familiarity with the capabilities, availability and working practices of businesses within the contractor's operating area. However, the extent to which a contractor relies on a local supply chain varies according to the type, scale and location of individual projects.

A relatively established local supply chain can have several practical effects on project delivery. Subcontractors may require less time to become familiar with the contractor's procedures, site requirements and administrative arrangements. Local sourcing can also reduce travel distances and associated logistics requirements, although these benefits depend on the availability and capacity of suitable suppliers and subcontractors.

Regional contractors may also have greater knowledge of local planning requirements, labour markets, material availability, site conditions and specialist trades. Conversely, a contractor operating within a relatively concentrated geographical market may be more exposed to changes in local construction demand, labour availability and supply-chain capacity than a contractor with operations distributed across several regions.

The use of local supply chains does not necessarily mean that all work is carried out by local businesses. Specialist subcontractors, manufacturers and suppliers may operate across much wider geographical areas where suitable local capability is unavailable or where a particular product, system or specialist service is required.

[edit] Procurement routes

Regional main contractors may be appointed through a range of procurement routes, including traditional procurement, design and build and two-stage tendering. The appropriate route depends on factors such as the client's requirements, the level of design development, allocation of risk, programme, cost certainty and the complexity of the project.

Under a traditional procurement route, the client normally appoints the design team separately from the contractor. The design is developed sufficiently to allow the works to be tendered, although the precise level of information required will depend on the project and procurement arrangements. The contractor is then appointed to construct the works in accordance with the contract documents. This approach can provide the client with substantial control over the design, while requiring the design and tender information to be sufficiently developed before construction can be priced with greater certainty.

Under a design and build procurement route, the contractor takes responsibility for both design and construction to the extent established by the contract. The client's design team may be novated to the contractor, but novation is not an inherent requirement of design and build procurement. Early involvement of the contractor and its supply chain can allow construction methods, materials, sequencing and buildability to be considered during design development.

Two-stage tendering can involve the early appointment of a contractor before sufficient information is available to establish a final fixed contract price. The contractor is initially appointed under an agreed first-stage arrangement and assists with design development, programming, procurement and pricing. A second stage can then establish the final construction price, often using competitively tendered subcontract packages. Two-stage tendering can provide early contractor involvement and support programme development, but it does not provide the same degree of early price certainty as a single-stage competitive tender.

[edit] Regional variation and supply chains

The composition of regional construction markets varies across the UK according to factors including population, economic activity, industrial structure, infrastructure investment, land availability and the existing building stock.

For example, areas with substantial logistics, manufacturing or agricultural activity may have relatively strong demand for industrial and commercial construction, while urban areas may generate greater demand for residential, mixed-use, regeneration and commercial projects. Coastal, rural and island areas may have different supply-chain constraints because of transport distances and the availability of specialist labour and materials.

These variations can influence the geographical extent of a contractor's supply chain. A contractor working in a densely populated urban area may be able to source many trades and materials within a relatively short distance, whereas projects in rural areas may require subcontractors and suppliers to travel considerably further. Transport requirements, accommodation, programme constraints and delivery costs can therefore become important considerations when assessing supply-chain capacity.

The presence of established local relationships can be an advantage, but clients should not assume that a regional contractor will necessarily provide lower costs or shorter programmes. These outcomes depend on project-specific circumstances, market conditions, competition and the availability of appropriate resources.

[edit] Selecting a regional main contractor

The assessment of a regional main contractor can consider financial, technical, organisational and project-specific criteria. Relevant considerations may include:

• Financial standing: the contractor's financial position, trading history, available resources and ability to meet its contractual obligations.
• Relevant experience: experience of projects of a similar type, complexity, value and procurement route, rather than turnover alone.
• Resources: the availability and experience of project managers, site managers, quantity surveyors and other personnel required for the proposed project.
• Supply-chain capability: the availability, capacity and competence of suitable subcontractors, specialist contractors and suppliers within the contractor's operating area.
• Health and safety: the contractor's health and safety management arrangements, competence and relevant performance information.
• Quality management: procedures for inspection, testing, defect prevention, commissioning and handover.
• Programme capability: evidence that the contractor can resource and manage the proposed programme, including the availability of labour, plant and specialist trades.
• Payment practices: information concerning payment arrangements and the contractor's financial relationships with subcontractors and suppliers.
• Relevant accreditations and certifications: where appropriate to the project, sector and procurement requirements.
• Past performance: evidence from comparable completed projects, including programme performance, quality, cost control and management of the supply chain.

The assessment should be proportionate to the size and complexity of the project. A contractor's geographical coverage and established local relationships may be relevant, but they should be considered alongside technical competence, financial capacity, management resources and the ability to deliver the particular project.

[edit] Managing local supply chains

Effective management of a local supply chain involves more than selecting businesses based on geographical proximity. Contractors need to assess the capacity and competence of subcontractors and suppliers, establish clear contractual requirements and coordinate procurement with the construction programme.

Early engagement can be particularly important where specialist trades or materials have limited availability. Advance procurement can help reduce the risk of programme delays caused by long lead times, while coordination of deliveries and site activities can reduce congestion and disruption.

Payment practices are also important to the stability of construction supply chains. Delayed payment can create cash-flow difficulties for subcontractors and suppliers and may increase the risk of supply-chain disruption. Clear payment provisions, effective valuation procedures and timely resolution of commercial issues can therefore contribute to more stable contractual relationships.

Local supply chains can also contribute to wider economic activity through local employment, expenditure and the use of local businesses. However, any claimed economic or environmental benefits should be assessed against the specific project, including travel distances, availability of suitable businesses, procurement costs and the requirements of the construction programme.

[edit] Related articles on Designing Buildings

• Main contractor
• Principal contractor
• Contractor vs supplier
• Subcontractor vs supplier
• Supplier selection
• Supply in construction
• Procurement route
• Procurement policy in the construction industry
• Construction contract
• Tender processes for construction contracts