Early supply chain involvement ('ESI') is a feature of collaborative procurement through which, by early conditional appointments in advance of start on site, the Principal Contractor and other contractors and supply chain members have the opportunity to contribute their skills, knowledge and experience in order to ensure agreement with the Client, the Principal Designer and other consultants of the optimum approaches to safety and quality.
The Construction Playbook explains that ESI 'extends the principle of early contractor involvement by formally engaging the tier 1 contractor alongside tier 2 and 3 sub-contractors and suppliers in the pre-construction phase to input into the design (including the use of standards for products and interfaces), costing, risk management and structuring of a project or programme'.
The role of ESI in joint risk management is considered in Section 7.4. It is essential to enable the early assessment of safety risks and other project risks by the Client, the Principal Designer, the Principal Contractor and all other consultants, contractors and supply chain members who can recommend and agree actions to eliminate or reduce these risks before committing to commence the construction phase of the project.
ESI provides the team with thinking time and clear procedures through which to examine and agree the scope for improved value and reduced risks in designs, sources of supply and methods of construction. It also enables team members to ensure that costs add up to fair and accurately calculated prices, and that deadlines, interfaces and change management procedures are based on a clear mutual understanding. A procurement and contracting system that uses ESI supports successful preparation for Gateway two and Gateway three applications.
The ability of the parties to influence project outcomes, including safety and quality, cost and time certainty, improved value, improved performance and the flexibility to incorporate changes, is much greater in the earlier conceptual and design stages of the project. By the time that manufacturing, delivery and construction operations are underway, the opportunities to agree safety and quality improvements, and to manage safety and quality risks, have reduced significantly.
ESI ensures that main contract and subcontract appointments are made early enough to secure the maximum contributions from each team member, not by way of speculative optional extras but as important contributions to optimise project designs, sources of supply, methods of construction and other working practices. For example, ESI can enable the systematic joint analysis and validation of the designs and specifications that each design consultant, contractor, subcontractor or supplier is being asked to warrant. Without this joint analysis and validation, a design warranty is not reliable.
The government recommends the following procurement models that have been proven through a series of 'Trial Projects' to achieve improved efficiencies by using collaborative approaches that include ESI and in some cases building information modelling ('BIM'):
■ 'Two Stage Open Book', comprising the use of pre-construction phase conditional appointments of the team members as a means to encourage proposals for cost savings and improved value, within a stated budget, prior to confirming construction phase appointments
■ 'Cost Led Procurement', comprising the use of a framework mini-competition as a means to encourage speculative proposals for savings and improved value, within stated cost ceiling, prior to team appointments
■ 'Integrated Project Insurance' ('IPI') comprising appointment at outset of an alliance team to develop a delivery solution within a target budget and its commitment prior to construction to achieve the required outcomes, with the approved approach supported by a new latent defects and cost overrun insurance policy (as summarised in Section 9.5).
The 2016 Government Construction Strategy reported that:
■ The new models of construction procurement were trialled to explore the potential to drive better value and affordability in the procurement process
■ The new models include the principles of early supplier engagement, transparency of cost and collaborative working to deliver a value for money outcome
■ Alongside the potential for efficiencies, the models can support improved relationships across Clients and the supply chain, increased supply chain innovation and reduced risk.
ESI should not be confused with a two- stage tendering system by which bidding contractors are expected to offer speculative design contributions as part of a short-listing or negotiation process, with no clarity as to whether their efforts will lead to appointments or other rewards. By contrast, ESI is governed by a conditional appointment setting out the joint processes through which additional information is completed to a level of detail sufficient for the parties then to agree that the project should proceed to construction. ESI should also describe the processes by which the team move from the preconstruction phase to the construction phase with minimum negotiation.
ESI does not impose any specific allocation of design and construction responsibilities among the consultants, main contractor, specialist subcontractors, manufacturers and operators. Instead, it ensures that main contract and subcontract appointments are made early enough to secure the maximum contributions from each team member, not as an optional extra but as an important component of mainstream design management and risk management.
A collaborative contract governing ESI should set out in detail the steps by which it aligns the differing commercial interests of team members, including for example:
■ The extent to which an early invitation to tender enables contractor bidders to assimilate project information and to propose their own improvements, with guidance as to how these proposals are included in the criteria for evaluation of bidders
■ Whether cost transparency can be achieved through agreement of contractor profit, overheads and preconstruction phase costs in a way that enables a more accurate build-up, analysis and agreement of other costs
■ Whether the appointments of subcontractors, manufacturers and suppliers can be finalised prior to start on site in order to improve cost certainty, while also attracting their commitment to improved value
■ How preconstruction phase activities undertaken by the client, consultants and contractors, such as joint design reviews and supply chain tenders, can be programmed in a way that does not delay start on site
■ Whether risk assessments by the client and consultants can be aligned with those of contractors, subcontractors and suppliers, and how joint risk management actions can be agreed and implemented without delaying start on site.