WE’RE WINNING THE RACE TO THE BOTTOM

from Horticulture Connected Spring Volume 6 Issue 2

EUROPEAN STUDY TOUR

Independent landscape estimating specialist, Colm Kenny explains why a failure to address weaknesses in landscape procurement is stimulating a detrimental race to the bottom

The principles of horticulture have changed little in the last century, while the business or profession of landscaping has; and radically so. Old process and practices are becoming unsustainable for the modern business world. Ridiculously low profit margins, a race towards cheaper and cheaper tenders, adversarial contracts and subcontract agreements compounded by an overarching fundament lack of business knowledge are really taking their toll. The landscape industry is at a crossroads and drastic changes need to be made. One of the most significant business practices in need of change is the challenging area of procurement.

The buying of goods and services is a fundamental function of all business no matter the sector. While it is a process the sector is involved with on a daily basis, it has been stubbornly slow to respond to the changing need of the market. Poor procurement processes and a lack of understanding as to

what value means, continue to undermine the sector and if not tackled will seriously undermine its future. The race to the bottom is irrevocable and treacherous and it runs through the whole sector: from clients, designers, contractors, nursery owners and suppliers, we are all complicit in cutting our own throats. Our small sector is following a blueprint that seems to have pervaded all areas of construction: equating a fair price with the cheapest, which is definitely not always the case.

On public works contracts and capital projects, one of the central issues that contractors complain about is the how complicated the whole procurement process is and how onerous it can be with mountains of paperwork to fill out. They also bemoan the high level of information required to submit a valid tender, which might only be for a small value scheme. On the flip side of this, is the client who is left wondering why there was only one or two tenders returned, leading them to question if the tender process is competitive.

Strict regulations around public procurement often dictates the use of eTenders as a portal for the tender process. The word eTender is only seven letters long, but it is enough to deter most contractors. It implies to most that it’s a complicated route to obtain work, not worth the effort. It does take a high level of resources from the client’s side to get the tenders into an acceptable standard to ensure they do not attract claims and variations post-tender. This cost of producing such documents can be resources wasted if contractors don’t engage in the tender process. It makes sense from both a contractor and client’s perspective that the creation of frameworks for works of a similar nature are formed in order to eliminate the need to go through the whole process each time a project is procured. One comprehensive suite of documents is compiled by the client and in turn submitted by the contractor. These are assessed on the basis of technical ability and also cost with a weighted marking system applied to the evaluation process. Contractors are then given a mark and based on this given a place on the framework if they make the cut and meet the requirements. While not without its drawbacks, it reduces the need of starting the cycle of paperwork each time a tender is submitted, meaning procurement can be undertaken on a more efficient basis. The main component to creating a successful framework is early contractor engagement so firstly they are aware the process is being undertaken and secondly that both sides fully understand the requirements.

CHIEF SUSPECTS

While frameworks might be a solution in public procurement, private procurement is a law unto itself. Suspect sub-contract agreements are without a doubt the biggest source of conflict and risk for contractors, and typically it’s the payment terms associated with them. Even before you get to the stage of talking about payment, you have to submit a cost for it. You can have any amount of contractors pricing this against you which only means one thing, standards often drop in order to win turnover. Abnormally low tenders more often than not go under the radar. For example, a scheme involving the construction of an apartment complex could cost €20 million but might only have a soft landscape works package valued at €100,000/€200,000. This package will not be scrutinised by anyone due to its low value comparative to the building cost but be potentially substantially under-priced. By the time it’s brought to the Landscape Architects attention it is often too late. Typically, this goes two ways. Firstly, the landscape contractor who submitted the original costs realised his mistake and turns his phone off for a few weeks while on holidays in Australia. This can result in the delay as the main contractor has to appoint a new contractor who cannot compete with the original price. The new contractor gets the nod, carries out the works as per the original specification, but when it comes to payment there is invariably an issue and the replacement contractor is often left short.

REALISING MISTAKES

The second scenario is the contractor realises his mistake and is not willing to carry out the works as per the tendered rates. The main contractor goes back to the client looking for additional monies, but when the client is unwilling to approve the new additional cost, savings have to be made within the landscape scheme. Unfortunately, savings translate into lower standards and specifications: much to the annoyance of the Landscape Architect or designer. Nobody wins from this approach as the landscape scheme does not realise it full potential. Often on large construction projects elements of the build such as the electrical and mechanical works are sent out as individual packages outside of the main contract. They are then nominated into the main contract who is allowed to apply mark-up’s and the cost of attendances onto such packages. The nominated sub-contractors benefit from such an approach, as they have a direct link back to the client and therefore will be paid even if the main contractor defaults. In theory, the same thing could happen for the landscape package, but this would require a lot of lobbying by the industry for clients to consider such a move. If such a procedure was to become the norm it would eliminate a lot of uncertainty and risk for landscape contractors and assure designers that the works will be undertaken to the highest possible standards.

THE PERILS OF DESIGN AND BUILD

Design and build procurement is another risk to landscape contractors. Using the same example of the apartment block, under this arrangement the main contractor undertakes both the design and the construction in return for a lump sum price. The issue with this is the design of the landscape is often only at planning stage standard and not for construction purposes. Invariability items of work throughout each element of the building, siteworks and so on are under-priced and therefore savings must be found. Value engineering process kicks off and the first item up for scrutiny is often the easy target of the landscaping. Firstly, every cent is squeezed from the landscape subcontractor. The cream from the job turns to butter, profit margins come within a replacement cost of a tree and then the job is not commercially viable. If this crucifixion of the contractor doesn’t produce enough savings, tree sizes are dropped, plant numbers are cut in half and natural stone paving is respecified as concrete paviours. Do such changes required planning permission? I am sure they do, but this bending

of the planning regulations often goes unnoticed. From a Landscape Architects’ perspective, the design is not constructed as intended and it’s never given the opportunity to realise its full potential.

FOSTERING CHANGE

The improvement of landscape procurement needs to be an industry wide effort. Having never worked in public procurement, I might have a simplistic view of the whole situation, but I think it’s an issue that could be resolved for our industry in the short term. There is a number of ways it could be resolved. Education of both clients and contractors and an understanding of each other’s requirements would go a long way to get both sides working in tandem for the benefit of the industry and the business. Constructive round table talks attended by a representative from the Parks Department (where there is one, but that’s another story) of each local authority and other state bodies who engage landscape professionals, a delegation of contractors from the ALCI, designers from the GLDA and Landscape Architects from the ILI could plant the seed for the resolution of issues of procurement to be addressed to the benefit of all parties.

Never before has there been a better time to be a landscape professional. The opportunities the industry currently offers is immense and the marketplace instability of a few years ago has diminished to a large extent. How we take our industry forward rests in our own hands. While the challenges inherent with all landscape businesses still remain, fair and honest procurement processes can help us all ensure that the necessary modernisations achieved, and skilled individuals are attached to our industry, in turn ensuring its sustainability. As an industry we must also speak as one with all sectors realising we all play an important part by adding value to the industry and for that we all need fair payment. A good starting point would be for all of us to agree that reasonable profit is not a bad concept and is indeed the foundation of most industries. ✽