Two stage open book procurement in construction

[edit] Introduction

The Government Construction Strategy published in May 2011 stated an intention to reduce the cost of public sector construction by up to 20% by the end of the parliament, and to stimulate growth in construction.

The Government Construction Strategy: Final Report of the Procurement/Lean Client Task Group, published in July 2012, developed three potential new strategies to help achieve this aim:

All three of these strategies propose early contractor involvement, integration and transparency. They are expected to achieve cost reductions, enhanced project programming, improve working relations and reduce project risks.

[edit] Process

In the two-stage, open-book bidding process, an outline bid and benchmark cost are provided to prospective project teams. Following the first stage, the project teams work with the client to develop the proposal and the contract is then awarded at this second stage. This allows the client to work at an early stage with a single, integrated team and allows faster mobilisation.

Two-stage, open-book can be used on single projects or a programme of works.

The flow chart from the Kings College publication (on behalf of the Cabinet Office), summarises the two-stage, open-book process.

[edit] Requirements

There are ten fundamental requirements for the two-stage, open-book process (ref Cabinet Office, 2014):

Client commitment to the early creation of an integrated team.
Demonstrable benefits of the processes to all those involved.
EU compliance.
Agreed activities for the client, contractor, consultants and suppliers.
Governance and continuity from the client and project team.
Collaborative culture.
Conditional contracts based on the agreed budgets, meeting the brief and any other agreed preconditions.
Open book costs which include the agreement of fees, profit and overheads.
Guidance and case studies.

[edit] Benefits

The ten benefits of the two-stage, open-book procurement method are described as (ref Cabinet Office, 2014):

Cost savings of up to 20%.
Cost competition and control.
Improved design.
Risk management.
Time management.
Extended warranties.
Sustainable solutions.
Stakeholder consultation.
Appointment of small and medium sized enterprises (SMEs) and local/regional businesses.
Employment and skills commitments.

[edit] Trial projects

A number of trial projects were established to assess the two-stage, open-book method.

Ministry of Justice, Cookham Wood – achieved a 20% cost saving.
Surrey County Council, Project Horizon – achieved a 17.4% average saving over 5 years.
Hackney Homes and Homes for Haringey – achieved a 14% cost saving.

[edit] Other guidance.

New Models of Construction Procurement, Introduction to the Guidance for Cost Led Procurement, Integrated Project Insurance and Two Stage Open Book, Published by the Cabinet Office in 2014 suggests that:

The Two Stage Open Book (2SOB) model sees the client invite prospective team members for a single project or from a framework to bid for a project based on an outline brief and cost benchmark. A number of contractors and consultant teams compete for the contract in a first stage with bidders being chosen based on their capacity, capability, stability, experience, strength of their supply chain, and fee (profit plus company overhead). As a second stage, the successful contractor and consultant team are appointed to work up a proposal on the basis of an open book cost that meets the client’s stated outcomes and cost benchmark.

The Two Stage Open Book differs from Cost Led Procurement in reducing industry bidding costs, enabling faster mobilisation and in providing the opportunity for clients to work earlier with a single integrated team testing design, cost and risk issues ahead of start on site on award at the end of the second stage.

At the heart of this model is a systematic approach to early contractor/subcontractor engagement. The model includes deadlines for their design and risk contributions during the first stage, and has an agreed fixed price and clear risk profile before the client authorises the construction stage.

Note: There are other forms or variants of two stage open book that are used. The form described is the one defined and recommended by the Procurement/Lean Client Task Group Report and informed by the evidence from the procurement trial projects.

This article contains public sector information licensed under the Open Government Licence v2.0. Ref Government Construction Strategy: Final Report of the Procurement/Lean Client Task Group. July 2012.