International Construction Law Review
VALUE FOR MONEY IN CONSTRUCTION
PETER FENN
Lecturer, Civil and Construction Engineering, University of Manchester Institute of Science and Technology
INTRODUCTION
This paper considers how public and private clients have addressed the issue of providing value for money in construction. In both sectors, the benefits offered by long-term collaborative arrangements such as alliancing and partnering are investigated. In the case of the public sector, the example of the United Kingdom and the drive towards Best Value is considered. In the private sector, the specific benefits produced by alliances between clients and contractors are examined.
The problem in providing Value For Money is avoiding the pitfalls of lowest cost/price competitive tendering. But without such systems how can competition be maintained and assured? One way is the Vickrey Auction used elsewhere; here competition is ensured but the lowest tenderer is paid the second lowest price. The Vickrey system may remove many of the problems of tactical pricing; and increase value for money.
Value for money is the optimum combination of whole-life cost and quality (or fitness for purpose) to meet the user’s requirement.
HISTORY
The concept that value and lowest cost/price do not necessarily go hand in hand is not a new one:
“It is unwise to pay too much, but it is worse to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing what it was bought to do. The common law of business balance prohibits paying a little and getting a lot. It can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that you will have enough money to pay for something better.” (John Ruskin (1819–1900), Prominent English Writer and Intellectual)
However both public and private contracts have for many years been dominated by selection on lowest cost/price via competitive tendering. In construction lowest cost/price competitive tendering became the norm in many countries. Many commentators pointed to the inefficiencies of such
[2001
The International Construction Law Review
628