To help slash its annual spend of £1.5billion, London Underground is cutting out main contractors and working directly with specialists in its new approach to procurement.

Faced with a 20% cut in its budget and expecting nearly 20% more passengers by 2018 (bringing the number up to 1,300million or more a year), London Underground has taken a radical look at what it gets for the £250million it spends on capital projects such as station upgrades each year.

What it has concluded is that there are too many layers in construction between the client and the people actually doing the work, so it’s getting rid of some of them and going directly to the specialist contractors who carry out the work in a groundbreaking reappraisal of how to make construction work more efficiently.

Geoff Gilbert is instrumental in designing and implementing the changes. He is Head of Commercial–Infrastructure at London Underground. And he explained the changes taking place when he gave the keynote presentation at Streetwise Subbie’s annual conference in Nottingham last month (June).

These are changes of more than academic interest for companies not involved with London Underground because they could provide a template for more of construction’s big clients. Geoff is part of Infrastructure UK currently working on the development of a Collaborative Project Team model aimed at improving the project delivery of major infrastructure schemes. He is a Chartered Quantity Surveyor with 30 years’ experience in construction and engineering, 21 of them in rail transport.

Faced with a target of taking more than 20% out of the cost base while accommodating up to 4million people a day on the Underground, which will include increasing the number of trains so there are only 20seconds between them, required a radical new approach.

“Conventional wisdom says we beat up our supply chain,” said Geoff. The general thrust of the industry is to do more of the same but to do it better “and I’m not sure you can take the percentages out of the cost base we’re looking at that way”.

He needed a new approach – an approach that reduced waste and conflict. He decided the best way to achieve that was to engage directly with the people carrying out the work. With the right trade and management skills and attitudes, they could deliver the improvements in productivity needed.

Intermediaries do not always know what is needed or how long a job will take. Consequently, when they produce schedules of work and costs there is the potential to introduce errors. Eliminating intermediaries and supporting those at what Geoff called the ‘workface’ could produce right-first-time results if the right incentives were offered.

What he considered was a “significant incentive” for specialists was continuity of work – if they did the job well they would be retained as long as their price remained normal within the market place.

That is not only an incentive for specialists to perform well, it also produces savings in itself because there are inevitably learning curve losses when a company is first getting to grips with a new environment.

Getting it right first time eliminates a lot of inefficiencies. ‘Lean’ starts with quality – getting it right and doing it once, said Geoff.

He thought it nonsense in a lean production world that in construction “we routinely spend 12 months sorting out what we don’t get right first time”. Construction has become inefficient because it has become about managing the financial risks, but at London Underground “we take nearly all the risk, apart from the quality of the work delivered”.

Another incentive is developing a ‘fair payment scheme’, which pays the specialist contractors directly rather than paying a main contractor who holds on to the money for months before passing some of it on.

At London Underground, “production leads; everything else enables” to make it “possible for the people at the workface to work as quickly and efficiently as they can”.

The overall ‘innovative contractor engagement’ approach has already delivered 12.5% of the 20% savings required. And applied to the Bank station congestion relief scheme, costs have been reduced from £625million to £563million.

Geoff said: “It requires a huge amount of letting go, which is difficult for some project managers to accept because they’re used to being in control.”

Improving efficiency has also involved getting eight hours work from people paid for eight hours. It had become the practice to pay contractors for an eight-hour shift when they only work four hours overnight. It had been done that way because it had always been done that way, like so much of construction. But now work starts at 10pm and finishes at 6am, even though the stations are open during some of those hours, albeit with not many people using them.

Asked at the conference if London Underground was doing anything to encourage training, Geoff said it had an academy that was involved in training on some of the programmes.

He said the construction industry’s normal solution to problems was to add more complexity and some people were having difficulty understanding the new approach. He believed there was a lack of site leadership skills and the academy was running behavioural site leadership courses to address that.

It was, said Geoff, early days but he believed there could be place in the academy for basic trade skills training as well.

There were more than 100 people at the conference and some of them wanted to know how they could become involved with London Underground. Geoff invited them to talk to him over lunch – and that, of course, is one of the benefits of events such as this.

In a magazine, Subcontracting Today, produced by Barry Ashmore in conjunction with Streetwise Subbie, he posed the question in a headline to a story about the changes taking place at London Underground: Is this the end of the line for main contractors?

Barry established Streetwise Subbie 31/2 years ago to try to help specialist contractors win work and get a better deal from main contractors, not least in getting paid, with legal advisors to consult if necessary.

The organisation helps with marketing, using both conventional printed material and online opportunities with websites and social media. It costs up to £174 a month for the full ‘Platinum Buddy’ package, although that was on offer for £74 a month for the first three months at the conference.

Two of the companies that have benefited from Streetwise Subbie had speakers at the conference – one was Panthera Group, whose MD Neal James spoke about how marketing had helped his business expand; the other was Prater, whose Commercial Director, David Galavan, spoke about the challenges faced as curtain walling company Prater grew from £10million-a-year turnover to £80million.

Some of the consultants available to Streetwise Subbie’s ‘Buddies’ also spoke about their specialities – Jessica McGowan gave a presentation about autoenrolment pensions that anyone who employs even just one person will soon be legally required to provide, even for some self-employed people; Solicitor Richard Brackenbury spoke about using winding-up petitions as a way of getting paid; Natalie Wilson provided an

over-40s guide to social media; Andrew Foy explained about quality standards and said that obtaining international standards such as ISO 9001 Quality Management and ISO 14001 Environmental Management should not be seen as a cost because they have a direct and positive effect on a company’s bottom line.

Bernard Coleman, who acquired the stone cleaning, repairing and restoring company WGL Stoneclean in 2004, told his audience to add value or watch their businesses slowly decline. He supported his case with a reminder of some of the great companies of the past that had dwindled or fallen prey to predators because they had ceased to innovate and add value.

There was a packed agenda with a lot to take in from one day, but the advice on offer was very practical as well as inspiring.