CAN THE UNITED KINGDOM CONSTRUCTION INDUSTRY (UKCI) IMPLEMENT INNOVATIVE SUSTAINABLE PROCUREMENT STRATEGIES?

D. Iles1, P. Ryall2

1Senior Lecturer, University of South Wales

2Senior Lecturer, University of South Wales

ABSTRACT

The aim of this study was to examine the implementation of innovative sustainable procurement techniques within the United Kingdom Construction Industry (UKCI) to allow the authors to make recommendations for improvement, promoting the adoption of good practice. The research identified not only a range of benefits from the implementation of sustainable procurement strategies but also barriers to the success of such initiatives. The research extended a previous scoping study and employed a cross-sectional study utilising semi-structured interviews to test the initial findings. The findings from this further research suggests that companies should embrace innovative sustainable procurement strategies in their entirety, embedding strategies fully within the organisation to achieve maximum benefits and cost savings. The cost of implementation should be communicated widely to quell the myth that implementation is expensive. The supply chain should work collaboratively to increase the knowledge of less experienced organisations, leading to increased participation from those more resistant to change. The UK Government should continue to encourage the supply chain to act innovatively and sustainably by improving the awareness of such topics. The research also suggested that where a local supply chain is employed, smaller organisations should be fully supported to access to the correct goods and services, allowing the freedom to employ innovative sustainable procurement policies, therefore meeting the requirements of contractors and clients. Although the UKCI would benefit from a more integrated supply chain, the authors question where support may come from to achieve this.

Keywords: innovative, sustainable procurement, supply chain, United Kingdom Construction Industry.

INTRODUCTION

Sustainable procurement is defined by the UK Government in The National Sustainable Procurement Action Plan ‘Procuring the Future’ as “a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy whilst minimising damage to the environment.”(DEFRA, 2005). It is widely considered that sustainable procurement is becoming more significant in a construction industry that is beginning to recover from an economic downturn. CIOB (2010) identify that “Sustainability is now incorporated in construction projects of all size, type and value”, the Government is using its purchasing power to encourage implementation within the UKCI supply chain (RIBA 2012).

MAIN BODY

LITERATURE REVIEW

Sustainable procurement is defined by the British Standards Institute (BSI, 2010) as “purchasing goods & items or services whose production, use and disposal minimize negative impacts & encourage positive outcomes for the environment, economy & society.” Welsh Housing Quarterly (2012) describe how sustainable procurement delivers the main objective of sustainable development through the innovative consideration of social issues, community benefits and Targeted Recruitment & Training (TR&T).

The Department for Environment, Food and Rural Affairs (DEFRA, 2013b) support the notion that “Sustainable procurement helps ensure value for money and lower operational costs whilst protecting the environment and bringing us wider societal benefits”.

The International Standard for sustainable procurement ISO/PC 277 and the British Standard BS8903 are considered the globally recognised standards (Action Sustainability, 2012). They offer guidance for “organisations to consider and implement sustainable practices within their procurement process.” (BSI, 2010)

“The UK Government, as a major construction client, has an important role in driving the sustainability agenda” (OGC, 2004).The UKis currently “the only EU member state which has a broad strategic process for the usage of procurement to foster innovation. There is no doubt that the case of innovative procurement is unconventional and difficult, but it is gradually coming to the foreground” (Edler et al., 2005).

Following the 2012 London Olympics, DEFRA issued a guidance document for those involved with procurement in construction projects. Lord de Mauley (DEFRA, 2013a) boasts how “London 2012 showed how sustainable procurement could be done practically and efficiently ...lessons learned should be captured and taken on board by others”.

The Government and those engaged in public sector contracts are in a strong position to encourage the UKCI supply chain to act sustainably and adopt innovative approaches. Government spending is “approximately 16% of the UK’s GDP (DEFRA, 2013b)”. Small businesses should be engaged in supply chains for major projects, the use of intelligent public procurement can capture their innovation while realising wider benefits for local communities. (Local Government Sustainable Procurement Task Group, 2007)

Beyond legislative requirements, sustainable procurement offers many benefits for an organisation. These are summarised under 5 key business categories within BS8903 and include: Financial drivers, Risk, Organisational policy, Stakeholder expectations and awareness and Marketing.

For sustainable procurement initiatives to be effective within the UKCI, policies should be implemented by the whole supply chain to allow a fully collaborative and integrated approach. Morgan (2013) identified that subcontractors and SMEs have experienced downward pressure from contractors to implement sustainable strategies, often within a “contested, fragmented supply chain” (Cox & Ireland, 2002). Berry and McCarthy (2011) recognise the diverse supply chain that exists within the UKCI and warn that businesses should explore the reasoning behind implementing strategies which may pose a commercial risk.

Barriers to implementation experienced by companies have been highlighted by Constructing Excellence (2008).

Table 1: Barriers to implementation

Barrier / Cited By respondents
Cost / 93%
Lack of knowledge / 53%
Availability of products / 33%
Inertia/reluctance to change/tradition/fear of the unknown / 33%
Conflict between legislation/planning and environmental protection / 33%
Poor regulation/accreditation of products / 33%

Edler, J., et al. (2005) identify that one of the most important barriers to innovative procurement is cost. The best value of procurement is realised through calculating life-cycle cost or even through the contribution of innovation to overall economic growth.

Having said this, table 1 identifies that cost remains a major barrier for the implementation of sustainable procurement. This is debated within the industry; CIPS (2011) reinforce the view of Edler et al that cost doesn’t have to be a barrier and go further in suggesting it actually reduces the cost of construction.

Morgan (2013) found that subcontractors in the supply chainwere forcedto absorb the costs of implementation which often resulted in a negative attitude towards sustainability. However, although the perceived cost of implementing sustainable procurement was high, the actual cost incurred was minimal.

Constructing Excellence (2008) surveyed a number of contractors who commented that due to the cost, “sustainability would only be considered if it was a specific requirement from clients or planners and unless cost savings can be achieved, products will not be adopted”.

There has been an increase in media attention surrounding sustainable procurement since the introduction of BS8903 and the construction of large scale public contracts including the 2012 London Olympics. As a result, an increasing number of clients and contractors are striving for sustainable projects with green credentials and have implemented sustainable procurement strategies in order to improve their corporate image.

Despite this commitment, lack of knowledge is still considered as a barrier to implementation. Constructing Excellence (2008) found that “Whilst there is a strong desire to make progress, many organisations don’t have the tools or knowledge to move forward.” This is attributed to “reluctance to change, strong traditions and fear of the unknown… smaller enterprises need stronger guidance and extra assistance in adopting sustainable procurement practices.”

The responsible sourcing of both labour and materials by the supply chain is seen as a burden by both contractors (Constructing Excellence, 2008) and subcontractors (McGoldrick, 2013). Previous procurement policies have caused risk averse behaviour, leading to those being less likely to engage in innovative projects (Rolfstam 2012).

A draft Global framework standard - BES 6001, has been issued by the BRE (2013) for the Responsible Sourcing of Construction Products to provide clarity on the subject.

The responsible sourcing of labour through TR&T schemes can be an additional burden for many. “TR&T represents an additional cost, not only in recruitment but training and development. Although a local, more educated workforce is beneficial, costs can be high and cash flow is restricted”. (McGoldrick, 2013)

RIBA (2012) support the theory of TR&T, however they do not give regardto the logistics of procuring labour or the costs associated with training. Urquhart (2013) raises concerns that as construction output increases, a consequential shortage of local materials and labour will follow, resulting in increased costs.

“Firms are fussier about what materials their buildings use … Private-sector house builders and organisations like the NHS now say they need to use more locally-sourced supplies to reduce their carbon footprint” (Anon, 2013).

Shifting suppliers to one who is able to provide responsibly sourced materials may represent a barrier for those with established relationships elsewhere who rely on agreed fixed rates. Some subcontractors may be forced to “resort to uncertified products to meet deadlines or ‘cut corners’” (Constructing Excellence, 2008).

Having reviewed the existing literature, the authors concluded that although sustainable procurement is being driven by downward pressure from clients such as the Government to increase innovation, many businesses are keen to implement and support sustainable procurement strategies of their own accord.

RESEARCH METHOD

The aim of this research was to further investigate the opportunities and barriers identified in the literature review in regards to the adoption of sustainable procurement in construction. Primary data was required to enable the authors to do so. The chosen methodological approach was a cross-sectional study. The research was concerned with understanding how sustainable procurement could be utilised in the future, including any barriers or limitations in its implementation and operation. The nature of cross-sectional studies is to collect primary data from a purposefully selected range of respondents.

The decision to utilise interviews was validated by initial communications with potential respondents. Interviews offered a subjective and more accurate method of data collection for a topic which is attitudinal based rather than numerical. The interaction within the interview process allows for the collection of detailed qualitative data that explores individuals’ perspective and opinions. Table 2 illustrates the chosen purposive interview sample.

Table 2: Profile of Interview Respondents

Respondent / Sample / Turnover / Number of Employees
A / Client / £5.8 billion / 6,390
B / Contractor (General Construction) / £1.9 million / 200
C / Contractor (Civil Engineer) / £4 billion / 15,300
D / Manufacturer & Supplier (UKCI) / £334.1 million / 2,132
E / Supplier (to UK House Builder) / £1million / 120

Semi-structured interviews were preferred as the authors wished the respondents to answer the questions in as much depth as possible. The interview questions were articulated from the provisional findings of the literature review. The collection of qualitative data through subjective interviews presented the opportunity for the authors to identify trends in both the literature review and the data from the purposive sample of interviewees. A systematic review of both sets of data allowed the authors to identify trends, conclude and make recommendations for future best practice.

DISCUSSION OF RESULTS

Interviewees Profile

All five interviewees had extensive experience working within the UKCI and had knowledge of commercial procurement strategies. At the time of the research, the interviewees were employees of different companies, within different sectors in the industry; contractor, client and supplier/manufacturer. Their roles ranged from site based engineers, cost consultants to head of sustainability and directors. This provided a variety of perspectives and a sample of the UKCI.

Implementation of Sustainable Procurement

Respondents A and E do not have formal policies that need to be adhered to but outlined ways in which the company chooses to implement sustainable procurement strategies, demonstrating a knowledge of the topic. All other respondents were aware of formal policies. Some stated that they are able to pass the burden of sustainability through the supply chain.

“If sustainability targets were missed, exceeded or misreported the responsibility fell with the subcontractors who we had appointed on the project.”

The most common method of sustainable procurement identified was the responsible sourcing of goods and materials in order to improve the corporate image. This was through the use of a local supply chain, purchasing sustainable materials and working within the community. Some respondents demonstrated that they go further than others interviewed with the use of waste management plans and the monitoring and reduction of emissions, Respondent D also referred to his organisation’s dedicated intranet service on sustainability.

A number of respondents referred to cost implications without prompt. Respondent A stated that the implementation of any sustainable procurement strategies were dependant on cost whereas respondent D disagreed and stated that their approach was to buy goods and services based on the best value and not cheapest price.

A difference in approach to implementation was identified dependant on the company; Respondent A’sapproach differed as they switched between client and contractor. As a client they did not place any requirements on others, but as a contractor they passed on the requirements for sustainability to the supply chain as it was a contractual requirement imposed by the Client.

It was felt that there was a requirement to act sustainably driven mainly from public sector employers, such as the NHS. Whereas private sector clients, did not have stringent requirements. Contractors and clients in the UKCI are able to pass the burden through the supply chain and therefore any responsibility and cost of implementation would therefore lie with subcontractors.

A number of the respondents felt that sustainability was embedded into the corporate values of the company and implemented by choice and not necessity.

Formal reporting on sustainable procurement methods are monitored internally by all the respondents and also externally by their clients for some respondents. Companies also recognised the need to appoint a member of staff, solely to manage the process of sustainable procurement. Any costs of monitoring sustainable procurement were found to have been absorbed by the respondents’ companies.

Benefits of implementation

Despite the cost of implementation needing to be absorbed by each company, cost savings were cited as an advantage of implementation by respondent C. The use of a local supply chain resulted in more competitive prices, due to local sourcing, good relationship with a local supply chain and reduced transport costs. Respondent B stated that cost savings were increased further as a result of a reduction in programme time.

Most respondents agreed that sustainable procurement improved the corporate image of a company and led to a competitive advantage when tendering. Respondent D also believed that sustainability was able to provide a good return for the business as it provided clear focus, transparency and a competitive advantage.

Where sustainable procurement was not a direct requirement, there appeared to be an awareness of the issue and a stakeholder expectation to incorporate sustainability within the ethos of the company.

Barriers to implementation

It was felt that where the supply chain failed to meet targets imposed by contractors or employers, there can be detrimental impact on corporate relationships. A local supply chain may not always provide the best option as they may not have the financial capabilities or the correct resources available to them.

Respondents A and B identified that the cost of implementation was a disadvantage, although these were the respondents who had not embraced sustainable procurement as fully as others. Respondents who were not governed by targets in sustainability (respondents C, D and E) estimated the percentage spend to be lower than those who were. Where sustainable procurement is embedded throughout the business, it was not considered as a separate cost centre and the cost was considered reasonable.

The cost of implementation for respondents' organisations was estimated to be in the range of 0-3% of turnover.

Those who had fully embraced the concept of sustainable procurement did not perceive there to be any disadvantages at all.

Attitudes towards approach

All respondents stated that they would continue to work to implement sustainable procurement. Some believed that they do this as it has a positive impact on their reputation, they enjoyed being part of an innovative approach, or because it just makes business sense.

It was also identified that there was a moral driver to be a sustainable company and the disadvantages of implementation were outweighed by its benefits

CONCLUSIONS

In order for sustainable procurement to be successful it should be embedded throughout the entire supply chain. However, the UKCI is often fragmented and those working within the industry are often reluctant to adopt change.

There is an apparent commitment within the UKCI to continue to implement sustainable procurement strategies and encourage innovation. Beyond meeting legislative requirements, sustainable procurement offers benefits for an organisation. These are identified within BS8903 and supported by data obtained in the research.

Conflicting evidence was found regarding the cost of implementing sustainable procurement. Some respondents believe that sustainable procurement will not be implemented unless it can result in cost savings. Whereas others disagree, stating their approach was not solely on lowest price. It is often the case that the actual cost of implementation is lower than the perceived cost and the actual cost is low in relation to turnover.

Organisations who have not fully embraced sustainable procurement policies considered cost to be a barrier to implementation. In contrast, where sustainable procurement policies are embedded throughout the business, it is not considered as a separate cost centre and the actual costs of implementation are minimal in relation to turnover. When implemented successfully, sustainable procurement can provide positive benefits and result in an innovative industry.