Civil Engineering Reference
In-Depth Information
payment provisions and how they fl ow down the supply chain. During
tier 1 procurement the tier 1 contractors are questioned about their
procurement and management policies, especially regarding their treat-
ment of suppliers at tier 2.
According to PricewaterhouseCoopers LLP (2009), insolvencies in the
UK across all industries in 2009 were higher than they had been in the
previous 15 years. In construction, insolvencies continued at their peak
rate of almost 700 per quarter. This poses a risk to programmes and
projects, with the consequential effects of the insolvency of one fi rm on
a programme being compounded in terms of cost and time. It is for these
reasons that PSE is concerned with monitoring closely the sub-tiers of
projects within a programme environment. Even a relatively small sup-
plier can seriously affect the wider programme of which they form a
part, if the fi rm is critical to delivery.
Case study
According to Lythaby and Mead (2012), 'Over £640 million of supplier risk
was either removed or mitigated from the [London 2012] construction
programme. Forty-three supplier insolvencies were avoided with zero
impact, and while 11 were realised, their impact was minimised and
managed through decisive early actions of the integrated ODA, delivery
partner and main contractors.'
Identifying critical suppliers
To understand issues and risks lower down the supply chain, the pro-
gramme supply chain team require detailed information from the tier 1
contractor, including their procurement schedule and budget values for
each of their tier 2 package procurements. The programme supply chain
manager can then work with the tier 1 contractor to agree which of the
supply chain packages at tier 2 are critical to the delivery of the project.
The initial list of critical packages is drawn up using a simple Pareto
(80: 20) analysis of the packages. This is completed by ordering the pack-
ages from the highest to the lowest value, accumulating the values and
drawing a line at the cumulative 80% mark. The top 80 per cent of
packages by value are then automatically deemed critical to the project,
owing to the fi nancial contribution they make to the overall contract.
