Last edited 23 Feb 2016

Suppliers for design and construction

In the construction industry, ‘supplier’ is a very general term which refers to organisations contracted as part of the delivery of a built asset. Traditionally, suppliers might have been considered to be organisations contracted to provide physical supplies such as goods, materials, plant and so on, however, its use is now much broader and PAS 1192-2 defines a supplier as any, ‘…provider of services or goods either directly to the employer or to another supplier in a supply chain’. The 'supply chain' is the interconnected hierarchy of suppliers.

As construction has become more complex, and suppliers have become more specialist, so the supply chain has extended. On a straight-forward 'traditional' building project, design consultants and the main contractor, sometimes referred to as tier 1 suppliers, work for the employer, and the main contractor may have a limited chain of their own suppliers. However, on PFI or design and build projects, there may be just one first tier, or principal supplier, with wide range of consultants, sub-consultants, and sub-contractors working for them. The situation becomes more complicated on large projects when the employer has several tier 1 suppliers, all with extended supply chains. This may cascade down to a plethora of suppliers sometimes unknown to management at the top of the chain.

One of the difficulties encountered in the construction industry is that the first and second tier of the supply chain often sign-up to fairly onerous contract conditions but as the chain develops, so the contractual liabilities decrease until suppliers at the end of the chain may not be ‘locked in’ at all.

BIS Research paper No. 145, Supply Chain Analysis into the Construction Industry, A Report for the Construction Industrial Strategy, published by the Department for Business Innovation and Skills in October 2013 assessed five projects ranging in value from £1 million to £25 million.

It defined suppliers as:

Tier Description Examples
Tier 1 Designers and constructor that have a direct contract with the ultimate client. NB PAS 1192-2 suggests that ‘A tier 1 supplier can provide services to the project (for example, development of the project brief, architectural services, engineering services, construction management services), or can provide goods to the project (for example, constructed assets).’
Tier 2 Designers, constructors and suppliers with a sub-contract with the tier one contractor. Novated design consultants.

Sub-contractors.

Manufacturers and material distributors.

Suppliers of major plant and equipment such as tower cranes.

Tier 3 Designers, constructors and suppliers with a sub-contract with a tier two sub-contractor. Designers providing working details.

Specialist sub-contractors.

Manufacturers and material distributors.

Plant and equipment supply and hire firms.

Tier n Tier 3 sub-contractors also employ suppliers and sub-contractors, so in many cases there will be a fourth or even fifth tier involved in construction delivery.

The report suggests that, ‘Tier 1 contractors are typically termed main contractors, and many tier 2 contractors are described as specialist contractors. Labour-only sub-contractors typically operate at the third tier.’

It found that it was not uncommon to have 50 to 70 tier 2 suppliers and sub-contractors and suggested that the, ‘…duplication of multiple layers of profit, overhead and risk could represent a source of non-value added cost and waste.’

In recent years larger employers offering continuity in construction have taken an increasing interest in establishing relationships beyond direct, first tier suppliers. Framework contracts and partnering agreements have pioneered this approach, encouraging the involvement of selected suppliers at relatively early stages of projects while offering continuity of work. This has led to greater collaboration between lead designers, contractors, specialist designers and specialist suppliers.

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