The Value Toolkit enables decision-making focused on driving better social, environmental and economic outcomes, improving the industry’s impact on current and future generations. The toolkit helps users define their value drivers and their desired outcomes, then uses this information to prioritise and inform decision-making based on wider value, not just cost. 

The toolkit’s two integrated streams – Value Definition and Measurement, and Client Approach – consider a client’s approach to both value and risk as a project or programme develops. To define value, the toolkit uses the four capitals model, where natural capital, social capital, human capital and produced capital are viewed as part of an interrelated system.

The four capitals approach may be new to construction industry audiences, but it’s familiar to the corporate audience making many construction-related decisions, and it aligns with HM Treasury’s Green Book. The methodology used in the toolkit has been published as a BSI Flex Standard and a new suite of tools to support the Toolkit’s launch is being rolled out. 

The Value Toolkit can work in harmony with the NEC Engineering and Construction Contract, which – following best practice – most public sector infrastructure procurements now adopt. The Value Toolkit can offer clear outcomes and measure value, while the widely used NEC form of contract can act as a framework to promote the structured delivery of those outcomes.

An outcome-based procurement model needs to incentivise and reward the supply chain for innovating and achieving those outcomes. The process of defining what value is, together with developing clear outcome statements to measure delivery, provides an opportunity to drive the right behaviours in contracting environments.

A transformational shift from outputs to outcomes will not be easy, but other sectors have already begun this journey. In healthcare, for example, the NHS is using outcomes-based commissioning so that financial flows and the commissioning process support quality and efficiency improvements across the healthcare system. Its experience indicates that while there will be challenges, an outcome-based model can refocus energy on what is most important and valuable.

So how could the construction industry embed, fairly and equitably, a new outcome-based payment mechanism within the existing conditions of a contract? Existing NEC conditions – through optional secondary clauses – already provide the necessary mechanisms to target the delivery of outcomes.  However, using the Value Toolkit helps define and measure the delivery of these KPIs across a range of outcomes and the NEC secondary options provide a way to commercialise the delivery of those outcomes.

The contractor delivers the scheme and is measured regularly throughout delivery against the outcomes set within the contract. Their profit is linked to their performance using existing contracting options. NEC contracted options incentivising performance include those for multi-party collaboration, key performance indicators, whole-life cost and strategic delivery. 

Through the deployment of a reward model, the contractor is incentivised to deliver more challenging carbon and diversity targets. In meeting these targets they are rewarded, enabling the promoter can demonstrate project delivery against target outcomes.

A transformational change

For the industry to embrace outcome-based delivery, the level of reward for achieving individual outcomes must be better than traditional fee elements on current contracts. And, to avoid unexpected and perverse incentivisation of the supply chain, careful consideration should be given to how models are devised and implemented. But, done well, it would be a transformational change for the construction industry – one that delivers great benefits to society as a whole.

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Want to know more about outcome-based delivery under NEC contracts? Read our white paper or contact Conor McCarthy today. Download Outcome-based delivery under NEC Engineering and construction contracts.