Achieving Value for Money in Capital Build Projects

Angela Vodden, Champika Liyanage, Akintola Akintoye

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780815361190
• eBook ISBN: 9781351116923
• Edition: 1
• Topic: Architecture
• Subtopic: Business General

This book is the first to bring together academic and practitioner views of Value for Money (VFM). VFM has been used to assess whether or not an organisation has obtained the maximum benefit within the resources available to it. A concept used by the public sector to assess the benefits of major built environment projects, it has become a major tenet of public private partnerships, capital project infrastructure and civil engineering megaprojects.

This book presents and discusses the various debates surrounding the concept of Value for Money. It provides an international perspective on VFM by drawing upon the existing and fast developing body of principles and practices for Capital Build Projects. Readers will gain a level of understanding of the issues involved, the challenges, opportunities and the support mechanisms and protocols required for implementation of VFM in capital building development.

Ultimately, the book presents a protocol that has been developed to track and monitor the VFM of a capital project from day 1, an Equilibrium Testing Mechanism (ETM) developed by the authors. This testing mechanism allows each of the parties to a project to monitor their VFM position at any given stage of a project from the beginning to the end of the build stage and beyond as necessary.

This book is both a useful reference for researchers and a practical guide for the construction and engineering industry.

1 The historic development of value for money within the UK, China, Australia, South Africa and India

Introduction

This chapter will look at when and why VfM evolved within the UK, China, Australia, South Africa and India as examples of different cultures at different stages of their own socioeconomic and political development, with all competing for a part within a global economy. By investigating the countries and their various stages of political, legal and socioeconomic growth through the ages, it becomes possible to highlight the stage or stages at which the achievement of VfM becomes important.

Value for money as a concept is subjective, its perception different at any given time or era for everyone everywhere irrespective of whether it is tested from a public or private sector viewpoint, which is why there are many facets to it and different incentives driving the need to achieve it. Only by understanding the political, legal and socioeconomic backgrounds of a range of developed and developing nations through the ages can the need for its implementation on a national and commercial level be understood and therefrom mechanisms advised or imposed as a means to test the actual achievement of VfM goals.

United Kingdom

Overview

VfM has, in one guise or another, been debated within the UK for centuries, even, it would appear, as far back as 1266, when Henry III set about fixing prices for bread and ale to correspond with corn prices. In 1349 King Edward III decreed that foodstuffs should be sold at reasonable prices.¹ Moving further along this VfM journey, it can be seen that, by 1857, as the powers of the government are extending and public spending is increasing, there is an acknowledgement that a mechanism by which to scrutinise public accounts is needed. the Public Accounts Committee in 1857 being the first mechanism introduced by parliament to undertake that role.² It is with this background in mind that it is interesting to witness through the ages how VfM, its interpretation and the need to achieve it has grown.

Politics, society and economy: the early years

Prior to 1880, the social and welfare needs of the UK population had been catered for either by the farmers within the rural communities who housed their farmhands or the landed gentry who housed their employees within their estates and homes.³ Tradesmen, industry workers, white- and blue-collar workers and the professions, where they could afford it, lived in private accommodation, boarding houses or other rented accommodation. The only social housing at that time was the workhouse; any other assistance that was available was voluntarily organised and piecemeal with minimum state intervention.⁴

As the 19th-Century industrial society advanced, the UK saw a significant shift in the workforce as the population migrated into towns and cities from the rural farming areas. As the workers moved into the cities to take up the opportunities in the new industries, the increase in demand for urban living space became evident. A housing shortage inevitably gave rise to the creation of slums, the infrastructure was inadequate and not able to cope with the increased demand, therefore poor sanitation resulted, which accounted for increased outbreaks of contagious diseases. The need to urgently address this change in demographic saw the introduction of reactive local government acts. This began the increase in the level of state intervention into people’s lives within the UK.⁵

Central and local government administrations began to grow in conjunction with other large scale bureaucratic organisations and state powers were given to local administrations in relation to education, housing, public health, work and child welfare. These interventions and the cost of administering them grew rapidly and, by 1899, local councils’ powers were extended to provide, manage and maintain education, transport (including highways), housing, public health, gas, water, lighting, food inspections, libraries and parks, among other social functions, and “as a more complex society grew, it was believed that there was a need for the administration of public spending to be more centrally controlled”, this era being hailed as the “beginning of the golden age of local government”.⁶ It appears that from here on, the bureaucratic industry and the government machine began to grow and became increasingly complicated. In order to deal with this growth of administrative function wider scale legislative provisions were required and therefrom a self-perpetuating government industry arose.

It was recognised in early 1857, as the demands on the public purse were increasing to accommodate the needs of society, that “inquiry was needed into the receipt, issue and audit of public monies in the Exchequer, the Pay Office and the Audit Department”.⁷ It was not until 1862 that the Chancellor of the Exchequer, William Gladstone, established the Public Accounts Committee, expressing “that there shall be a standing Committee to examine the Accounts showing the appropriation of sums granted by Parliament to meet Public Expenditure.”⁸ This committee was borne from the need to strengthen parliamentary scrutiny over public finances as a mechanism to combat fraud and corruption as spending on equipment for the war effort was brought into question. In order to give impetus to this committee the Exchequer and Audit Act was passed, which was held by the Public Accounts Committee as a significant mark in the development of parliamentary control.

It is recorded that in 1887, the Public Account’s Committee (PAC) stated that its remit was such that “if in the course of its Audit, the Comptroller and Auditor General becomes aware of facts which appear to him to indicate an improper expenditure or the waste of public money, it his is duty to call it to the attention of Parliament.”⁹ It was not, however, until 1904, when a full inquiry took place into the massive mismanagement of the South African war that questions were raised into the discrepancies of prices of purchasing horses, by the war office and from there on the PAC placed a new emphasis on “the importance of looking beyond the formality of the expenditure, but also, to its wisdom, faithfulness and economy”. This perhaps can be held to be the first definition to be given to VfM, albeit unbeknown to the speaker of those words.¹⁰

It was also in the early 1900’s that the UK was just starting to see the introduction of a properly functioning system of devolved administration and local government control of the towns and cities. This extension of public sector intervention in people’s lives meant that there was an increase in the level of public spending, which in 1900, in the UK, equated to 12% of GDP.¹¹ This increased to 15% just prior to WWI to address growing demand, as the need for further state intervention became significantly apparent to address rising unemployment and socioeconomic unrest.¹²

Politics, society and economy: WWI (1914–1918) and its aftermath

In order for the UK to respond to the declaration of war and to ensure that the military forces had the equipment that they needed quickly the Public Accounts Committee relaxed its financial controls, recognising that there was a need to act urgently. The recommendation given was simply to “ensure they curbed excessive profits to their suppliers”.¹³ Whether it was as a result of the lack of scrutiny or simply the state of the nation is a moot point, but the biggest leap in public spending was just after WWI, when it almost doubled to 27%.¹⁴ This was explained as being largely due to returning soldiers requiring increased healthcare, a rise in the unemployed needing welfare as women had taken up many of the jobs left behind by the men. Women’s emancipation and job shortages being factors to be considered as an impact on the economy and just as importantly was the need to advance infrastructure to allow the country to develop economically to compete within the world markets.

The UK suffered economically because of the cost of the war, not simply in fiscal terms but in terms of lives lost, damage to infrastructure and an inevitable stagnation of entrepreneurialism outside the development of railway links across the British Empire.¹⁵ The result was a lack of significant investment in the new industrial mass production technology in the UK both during the war because of the war effort and post-war as the country tried to rebuild itself. This meant that the UK had to import many industrial materials that, historically, it would have been able to obtain from its own industries. The imports the UK needed to make included the new fashionable goods that had been developed during the war period such as washing machines and refrigerators from its USA competitor.¹⁶

Alarmingly, the UK needed to import coal, its own reserves having been significantly depleted as a direct consequence of the war.¹⁷ At this point (1918 onwards), more coal was being imported than was being mined nationally. The mining communities were feeling the strain: not only were the miners being exploited by the private enterprises that owned the companies, but they were being asked to work longer hours at reduced pay by the government. The mining industry was predominantly privately owned and control of production and output was undertaken by a coal controller, who dictated where the coal was mined from and how and where it was distributed, thus corruption was common. The cost of production of coal had escalated and disputes between the miners and the mine owners were a predominant feature, as a seven-hour day had been imposed by legislative provision within the mines, but the final straw came when the threat of a 49% wage cut was made.¹⁸ The miners were fighting for better conditions, better wages and the nationalisation of the industry, rather than the private ownership position that they currently experienced across the different coalfield districts.¹⁹

Trade unions became increasingly active: the Miners Federation, National Union of Railwaymen and the National Transport Workers’ Federation collaborated to form the triple alliance, giving rise to unrest and, ultimately, all-out action in the form of industrial strikes by each of the represented workforces.²⁰ In dealing with the pressure of the strikes, the UK economy fluctuated significantly presenting an uncertain market.

As the 1920s progressed, the UK still found it difficult to advance competitively having failed to meet both global and national changing demands for development in technology and industrialised processes. It was still the case that the commodities within which the UK usually traded such as cotton, steel, coal and iron were now globally oversupplied. Opportunities for the UK to export its manufactured and industrial goods became increasingly costly and difficult because of the protectionist import tariffs imposed by other countries, such as Germany and the USA, thus making it even more expensive for the UK to export those goods that it could. These actions meant that, in the UK, unemployment continued on a downward spiral as economic uncertainty continued.²¹

By 1925, Winston Churchill, UK Prime Minister at the time, determined that it was appropriate for the UK to return to the gold standard (being the measurement and value of the UK currency). While the UK had its currency measured against the gold standard, historically, there had been economic stability; however, far from achieving that outcome this decision resulted in a strong pound driving up interest rates harming businesses, combined with the underinvestment in the UK during the war period and other external factors such as the USA Wall Street Crash in October 1929, thereby increasing the economic strain on the UK, plummeting it into depression.²²

As the problems grew, there was a shift in economic approach within the UK, from the laissez-faire principles of old to increasing state intervention within industry and nationalisation. The UK economy then, as it is now, was based on free trade but was focused on industrial and manufacturing opportunities predominantly in the north of the country, while the south prospered from trade, journalism and the finance industry.²³

While economic division has always had an impact on the social classes, the class divide was becoming more apparent. The upper middle classes consisting of aristocracy, merchant traders, industrialists and financiers, were able to enjoy the fashionable goods, cars, telephones and the benefit of reduced working hours. Indeed, this was the era in which “holidays” became a popular pursuit, as reduced working hours paved the way for more leisure time. Yet, the ordinary working-class citizens experienced very little of this benefit.²⁴

Unemployment had risen to just over 2 million people out of 45million of the total country’s population and the poverty gap between the lower and working classes set against the middle and upper classes was significant at almost 20% (Joseph Rowntree Foundation). Welfare reform had not yet been implemented fully and welfare benefits at that time were not automatically available, thus the unemployed received little assistance; welfare was both insurance based and means tested and was still administered in the main by the parish councils under the Poor Laws.

As the UK worked through the 1930s, it witnessed the ongoing developments brought about by the continued industrial revolution, the impact of which caused furthering of the unemployment levels among farmers and the working classes who traditionally used manual methods of workin...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Preface
• 1. The historic development of value for money within the UK, China, Australia, South Africa and India
• 2. Tracking VfM: concept, definition, benchmark, tracking and testing
• 3. Stakeholder roles, responsibilities, expectations, aims, incentives and drivers
• 4. Identification of the value for money stages
• 5. The need for the VfM tracking mechanism
• 6. Value for money protocol, bid document and contract drafting: Final word
• Index