Contractual relationships in Brazilian construction

Transcription

1 Contractual relationships in Brazilian construction FRANCISCO FERREIRA CARDOSO, ADRIANO GAMEIRO VIVANCOS, FRED BORGES DA SILVA and EDSON TOLEDO DE ALBUQUERQUE NETO Department of Civil Construction Engineering, Escola Politécnica - Universidade de São Paulo, Av. Almeida Prado 271, Trav.2 Depto de Construção Civil Cidade Universitária São Paulo SP CEP , Brazil. fcardoso@pcc.usp.br This paper analyzes, through eight study cases, the consequences of a quality program, the QUALIHAB Program, that is being implemented in the state of Sao Paulo, Brazil, to the contractual relationships between general contractors, a common client and their suppliers. The Program is based on the purchasing power of this common client, the lowincoming house office of the state of Sao Paulo, called. After a negotiation period, the contractors have made an agreement with the in order to create a quality assurance system that was included in the procurement processes since July This system is based on the IS Standards and it includes the concept of "level of certification." Since then, this progressive system has been adopted by almost 250 general contractors, and is deeply changing their relationship with their suppliers, with a very important "upstream" effect in the sector. : biding, certification, quality management, procurement, relationship, supply chain. This article aims to present the main features of a quality program in progress in the state of Sao Paulo, Brazil, conducted by the local low-incoming house office, the (Housing and Urban Development Agency of the state of Sao Paulo). It also seeks to analyze its consequences to the contractual relationships between general contractors, a common client, the itself, and their suppliers. The aims with the QUALIHAB Program "." Publicado em : SERPELL, Alfredo (edited by). Information and Communication in Construction Procurement. PUC, Santiago, 2000., Santiago, Chile, April 24 27, 2000, pp

2 2 The contracts, on average, sixty thousand housing units per year. Its resources come from the budget of the state and, especially, of the VAT - Value-Added Tax (up to 70%) once 1% of this tax is destined to the social housing. Its annual total budget is about half a billion American dollars. Before detailing the Program and analyzing its consequences in terms of new contractual relationships between firms, it is necessary to characterize the Brazilian social and economical context. Thus, Brazil has approximately 160 millions inhabitants and a housing deficit of almost five million units, eight hundred thousand of them in the state of Sao Paulo (1991). The construction sector share in the Gross Domestic Product is about 9,8% (it is the second largest sector of the economy in the country), which corresponds to more than 100 billion dollars. The country is in a very particular moment in its recent history, with a low inflation and an important economical growth that has been changing the paradigms and the constraints that regulate the competitiveness in many sectors, including the building construction one. Some of these news features are: the new requirements of the public and private clients (expressed in terms of quality, reduction of delays and demand of new services); the tendency of decreasing the price of the housing units; and the opening of the market to foreign competitors. The lack of financial resources and the deep crisis in the housing s financing system, that have affected the private market as well, are also new important constraints. The changes in the Brazilian Building market have increased the competition between firms. Indeed, two thirds of the general contractors of the building sector, in the state of Sao Paulo, have considered the "competition" their most prominent problem [SindusCon- SP (1997)]. Some new constraints related to the social dimension of the environment can also be observed, such as the increase of workers mobilization, the appreciable reduction of manpower availability, particularly the qualified one, and the salary average increase of about 35 % since 1996 [SindusCon-SP (1999)]. These changes have led to important modifications in labors' right (in favor of workers). The Brazilian policies concerning the role of the sector to generate jobs have also changed: the public owners now condone innovations that imply reductions of the number of jobs, as those related to quality management normally does. Other constraints associated to the legal dimension of the environment have also played an essential role in the definition of the new paradigm: the creation of "The Customer s Code", in 1991; the reduction of the corruption in the public markets; and the new legislation concerning public bids announcements, that facilitates the access of small and medium firms to public markets. Finally, it cannot be forgotten the constraints associated to the technical dimension of the environment. Despite the fact that we observe the increase of the technical content of projects and the increasing complexity and variability of operations, the housing sector in Brazil still does not have the necessary level of normalization, and almost none of the knowledge of technical processes is recorded in documents (as the Codes of Practice). In

3 3 addition, workers have progressively lost their technical qualifications in the last decades, when there was a common sense that the construction sector should provide jobs for those people who moved from the country to the cities. Only recently the sector has started to focus attention to the importance of the workers qualification. The situation proves to be paradoxical. On one side, the competitive context undermines the strategies based on the commercial and financial efficiency logic or on the nonproductive aspects of the business, that had a special value until the beginning of the 1990 s. On the other hand, the actors need to develop the necessary expertise to face the new technical and economical efficiency logic that prevails in the sector, especially among the main general contractors firms. The action of the was possible due to the following reasons: the purchasing power of the state, that obtains founds thanks to a particular legislation of the state of Sao Paulo; and the strong competition environment, that has driven all actors of the sector to react and to accept a new logic of efficiency, ruled by the quality management principles. The result has been the establishment of new contractual relationships between this agency and its suppliers, including the general contractors firms, which are concerned here. In spite of its comfortable position in this process, the did not want to impose rules. Instead of that, and this is one of the most prominent features of the QUALIHAB Program, it took the decision to conceive and to implement a program based on "agreements." A particular characteristic of these agreements is that they were negotiated with the different actor s unions. These agreements have been establishing, since 1996, some points that the is taking into account in the procurement processes. One of these agreements, made between the general contractor s unions and the, has defined [Cardoso (1997); Cardoso & Pinto (1997)]: 1. the technical references adopted to qualify enterprises, based on the quality management approach (inspired in the ISO 9002 Standard s clauses); 2. four levels, or successive steps for this qualification process; 3. a schedule for general contractors to reach each of these levels, on a horizon of three years. After the agreement, the should respect the deadlines of the defined schedule and their mutual commitment and only accept in its bids announcements firms that are prequalified by the accorded rules. What are, then, the interests of the industrial suppliers, the general contractors and the client (the ) in this process that has changed the contractual relationships between them? The has realized that this was one of the few ways to recover the delay concerning the technical, organizational and managerial abilities of its suppliers. To the private actors, including the general contractors and industrial suppliers, in a context of strong competition, their interest is to have advantages in the procurement phase.

4 4 Actually, only the actors that are "playing the game" are nowadays able to participate on it. In a few words, the Program is based on the purchasing power of the state and on the expertise, weakness and needs of the private actors, to lead to a common objective, the improvement of the social housing quality on its multiple dimensions: architectural, constructability, environmental, performance, etc. And it can be said that one of the key points of this process is the change in the contractual relationships between actors. The QUALIHAB Program s negotiations with the different unions began in 1994, and in all the cases it has conducted to progressive processes, with partial deadlines, that foresee a period of two and a half or three years for their implementations. The Program is organized in two committees: "Materials, components and constructive systems" and "Conception and execution." The unions that take part on the first one are those that represent producers of: steel for armatures, cement, lime, prefabricated products, ceramics products, tubes and components in plastic, industrialized sealers, electric components, etc. The committee "Conception and execution" is more heterogeneous, and it is included, among others, unions that represent general contractors, architects, engineers, construction managers, laboratories, topographic services and foundation firms. Up to now, almost twenty different agreements have been signed in both committees together, and all of them are based on the following principles: the establishment of technical references adapted to each particular case, based on the quality management principles; and the definition of deadlines to answer to these requirements, on a horizon that varies from two and a half to three years. So, every actor's technological and financial limits have been respected. For instance, in the "Materials, components and constructive systems" agreements, the technical clauses were based on the objectives and principles of product certification. Before requiring that only certified products should be employed on 's projects, the Program has foreseen some intermediate steps, based on the idea of the progressive quality control of production lines. It has also foreseen the implementation of news standards, adapted to the country reality. And most of the agreements of the "Conception and execution" committee are based on the objectives and principles of the ISO 9000 Standards, as the QUALIHAB Certification System for General Contractors does. A French successful experience in adapting the ISO 9000 quality management systems requirements to the Building reality has inspired the Brazilian system: the QUALIBAT System [Sycodés Informations (1996/97); Archambault, G. (1995)].

5 5 The agreement between the and the two general contractors unions [the SindusCon-SP and the APEOP; SindusCon-SP (1996)] has been signed in November As it was showed, it is a progressive process, with partial deadlines, that foresees the period of three years for its complete implementation. The negotiations for the conception and the implementation of this System happened between June 1996 and June The QUALIHAB System has four levels and according to them the quality management system of the firms are evaluated and classified, in a progressive and continuous way. It has also another particular point: the qualifications are made only by third-part audits carried out by accredited external independent audit service organizations. It consists itself of eleven requirements, that are relate to some of the twenty chapters of the paragraph 4 of the ISO 9001 Standards, as it can be seen in Table 1. It can be considered as a preparatory model to the certification ISO The most important principles of the QUALIHAB Certification System for General Contractors are: the progression by steps, that allows firms to adjust themselves to the accorded requirements, offering them the necessary time to develop themselves, while creating the educational conditions that incite them to progress in the development of their quality management system; the proactive characteristic, that aims to create an environment that should conduct firms to each level of certification; the fact that the assignment of a certification is a privilege of the Assignment Commission of an accredited organization, which is composed of representatives of the general contractors and the customers ( and the civil society); the guarantee of anonymity of the firm until the end of the assessment process; and use the transparency principles, the independence of those who accord the certifications and collective decisions process adopted in this case. As it is showed in Table 1, the eleven criteria of the System are related to the clauses of the ISO 9001 Standards, even though some have been abandoned and others were mixed, simplified or adapted. It is evidenced here some particular points of this new system, related to the contractual relationships between firms. The first one is the compulsory characteristic of some of its criteria, particularly the "5.1. Controlled Materials" and "5.2. Controlled Process." In fact, the, as the "unique" client, has established, in accordance with the general contractors unions, the thirty four most important products (in terms of messes and costs) and the twenty five critical production processes (also chosen according to messes and costs, while keeping a consistency with the "controlled materials"), for which it obliges firms to defined and to apply specifics control procedures. The second particular aspect is the evolutionary characteristic of some of its criteria, present again in the requirements "5.1. Controlled Materials" and "5.2. Controlled Process." It means that the firm does not need to establish and to hold up to date all the fifty nine procedures, at the same time, in the beginning of the process, to assure that all the materials and production process, made by themselves or by subcontractor, are in accordance to the specified requirements. Indeed, as it can be observed in Brazil a lack of

6 6 standards and of documents as the Codes of Practices, firms would have had an enormous work to create and to apply all these procedures at the same time. Table 1. The clauses of QUALIHAB Certification System for General Contractors and the level of certification when they are required. ENGAGEMENT D C B A Ã5HVSRQVLELOLW\ÃRIÃWKH 1.1 Engagement of the firm X X X X X ÃÃÃÃGLUHFWLRQ 1.2. Coordination of the Quality and Management Representative X X X X 1.3. Quality Policy X X X X 1.4. Responsibility, authority and means (evolutionary) X X X 1.5. Management review X Ã4XDOLW\Ã6\VWHP 2.1. Diagnoses of the firm X X X X 2.2. Quality planning X X X X 2.3. Projects Quality Plan X 2.4. Quality Manual X Ã&RQWUROÃRIÃGRFXPHQWVÃDQG 3.1. Control of documents X X ÃÃÃÃÃ5HFRUGV 3.2. Control of records X X 3.3. Traceability X Ã&RQWUDFWÃDQGÃFRQFHSWLRQ 4.1. Conception review X X ÃÃÃÃÃ5HYLHZ 4.2. Contract review X X Ã6SHFLILFDWLRQVÃDQGÃFRQWURO 5.1. Controlled Materials (evolutionary) X X X 5.2. Controlled Process (evolutionary) X X X ÃÃÃÃRIÃPDWHULDOVÃSURGXFWLRQ ÃÃÃÃSURFHVVHVÃDQGÃFRQWURO Ã3XUFKDVLQJÃRIÃPDWHULDOV 6.1. Process of purchasing and subcontract X X ÃÃÃÃDQGÃVHUYLFHV 6.2. Assessment of suppliers and of subcontractors X X Ã,QVSHFWLRQVÃDQGÃWHVWÃVWDWXV X X Ã+DQGOLQJÃVWRUDJH 8.1. Control of handling and storage of materials X X ÃÃÃÃSUHVHUYDWLRQÃSDFNDJLQJ 8.2. Preservation of products achieved X X ÃÃÃÃDQGÃGHOLYHU\ 8.3. Final inspection and test X X 8.4. Delivery and instructions for use and maintenance X 9.1. Control on nonconforming products X Ã&RQWUROÃRI ÃÃÃÃÃQRQFRQIRUPLQJÃSURGXFWV ÃÃÃÃÃDQGÃFRUUHFWLYHÃDFWLRQV 9.2. Corrective actions X Ã,QWHUQDOÃTXDOLW\ÃDXGLWV Ã4XDOLILFDWLRQÃDQG ÃÃÃÃÃÃÃWUDLQLQJÃHYROXWLRQDU\ X X X The solution was to establish a progressive process of development, during the thirty months that have been fixed by de agreement from the level "D" up to the "A", passing by the levels "C" and "B." Initially, for each level, some of the thirty four most important products and of the twenty five critical production processes were fixed, in a sequential order (fourteen products for the "C" level, ten for the "B" and again ten for the "A"; similarly, three processes for the "C" level, twelve for the "B" and ten for the "A"). Nevertheless, this option has been seen not flexible at all, and the rules had to be changed. Nowadays, firms can chose in the list of thirty four materials and twenty five services

7 7 those for which they want to start to develop and to apply control procedures, since they respect the progressive processes presented in Table 2. Table 2. Minimum number of Controlled Materials and Process by level of certification. Level Controlled Materials Controlled Process Defined and trained Applied Defined and trained Applied C B A It is showed in Table 2 that, for each level both for controlled materials and processes, the firm has a minimum number of defined and trained procedures (D/T) and also of applied procedures (A). Defined and trained procedures means are those that are written and approved, and for which the involved personnel are already trained. The "applied" procedures are those that were already used in material or service control, and the general contractor is able to show the auditors evidences that it has provided the necessary resources for the controlling activity and it has kept the quality records related to those procedures. It is also important to remark that, for the level "A", the general contractor should have a procedure explaining how to develop specific new procedures for all other products or processes that affect the quality of a particular project, when it is established by the. The procedures can be more flexible if certified products by the QUALIHAB Program are being used and if subcontractors engaged in the Program are executing the controlled services. This point clearly affects contractual relationships between firms. The definition of criteria that should be respected in each level of certification follows a particular logic: the "Engagement" step simply requires the engagement of the firm; nevertheless, it is an important step, once it is when the firm itself recognizes the Program and becomes part of it; in the "D" level, the firm begin to conceive the quality system that it is going to put in work, in addition to be obliged to achieve an internal diagnostic; the "C" level probably characterizes the most difficult moment of the process, because, for the first time, site works are concerned, through the implementation of the first procedures of inspection and control of materials and process, which represents a real cultural revolution for the sector in Brazil; it is from this level that contractual relationships between the general contractor and its suppliers begin to change; in the "B" level, the quality system reaches news functions within the firm (conception, biding, documents and records) and within the construction sites (purchase procedures, assessment of suppliers, handling and storage of materials, preservation of products achieved); requirements concerning the formation and the manpower qualification also begin in this level, for the controlled "material and process" (evolutionary); in this level the new contractual relationships between the general contractor and its suppliers become more mature;

8 8 finally, in the level "A", the quality system is concluded, through the writing of the Quality Plan of each project and of the Quality Manual, becoming very closer to the ISO 9002 Standards requirements. Table 3 shows the schedule established by the agreement celebrated. Table 3. The schedule established by the agreement celebrated between the general contractor s unions and the. Level Preparation period Bids announcements (internal) Engagement From November 96 to June 97 From July to December 97 D From July to December 97 From January to August 98 C From January to August 98 From September 98 to June 99 B From September 98 to June 99 From July to December 99 A From July to December 99 From January 00 Finally, it can be said that the process is under way, and Table 4 shows the number of general contractors certified in the different levels of the System. Table 4. Number of firms certified in the different levels of QUALIHAB Certification System for General Contractors (up to July 1999). Level Number of firms D 41 C 155 B 35 A 5 Total 236 Source: ITQC records (July 1999). Up to now, this paper has just focused the relationship between general contractors and the. However, the QUALIHAB Certification System for General Contractors is also affecting the contractual relationships between general contractors and their suppliers, with a very important "up-stream" effect in the Building sector. To understand these changes, between June 1998 and February 1999, we have studied eight general contractors, which have progressed from "D" up to "B" levels. Four of these firms are based in the city of Sao Paulo, and the others in four other cities in the state; they are all small or medium size ones [Cardoso et (1998a), (1998b) and (1999)]. To understand the major consequences of the QUALIHAB Program on the contractual relationships related to material specification and control, it is important to say that in

9 9 Brazil the building materials are not certified at all and, normally, the general contractor buys the materials and "give" them to the subcontractors. Before the implementation of the Program, most of the firms could not assure the properties of the materials that they were using, but now it could be observed that the quality control of materials begins to be a routine in the construction s sites. Some general contractors had already established purchasing procedures for materials and the clause "6.1. Process of purchasing and subcontract" has been shown as fundamental for the quality control of materials and services. For this reason, the purchasing process now starts with a clear specification of the desirable performance proprieties of the materials to be bought, made by the general contractor (notice that there is a small number of products standards in Brazil). Thus, these materials can be correctly controlled at the moment of their deliverance. If they do not respect the specifications, they are simply rejected. For the suppliers, this new attitude has a very important effect, as they have to improve their quality, in a broad sense. In fact, these major contractors that formerly used to have the price as the most important aspect to be considered in material procurement relationships, now consider both price and quality. If these changes are true to the materials, for the moment, the same can not be affirmed to controlled services. Actually, during the research, it was not possible to evaluate the major consequences of the use of the procedures related to the "controlled process" on the contractual relationships related to production processes and control. The reason is that, at that moment, none of the firms was already qualified level "B", and so the development of the clause "5.2. Controlled Process" was still in its initial stage, with a small number of records already registered. Beside this, the major procedures related the clause "6.2. Assessment of suppliers and of subcontractors", were not being applied, even if some of the firms had already begun to developed them. Consistent records of the use of evaluation procedures did not exist in any of the researched companies. In spite of that, it was noticed that some of them were developing efforts and applying resources for this purpose, since this is a fundamental aspect to the development of the Quality Systems. Another interface concerns the "4.2. Contract review" clause, even if only in one fourth of the firms it was found a procedure for it and if another one fourth of the firms were developing it. Once these General Contractors begin to use their contract review procedures, they will have to be sure that all their suppliers and subcontractors are capable of accomplish all the contracts needs before signing them. This might also have an up-stream effect in the production chain it is expected that more solid relationships between General Contractors and its suppliers and subcontractors be established. To verify if the general contractors have a good perception of the impacts of the Quality System level "B" that were being developed and implemented, it was discussed with them four majors aspects: organization and management of the company; competitiveness capacity of the company; management of the production system; and quality of the final products. Actually, the companies did not know how to evaluate which were such impacts, maybe due to the lack of measurable indicators of improvement, neither in quantitative terms

10 10 (productivity, waste, etc.), nor in qualitative terms. Maybe when the development of the requirements "11. Internal quality audits" and "1.5. Management review", that are only demanded in the level "A", the companies will be able to better evaluate such impacts. However, in a general way, it was observed some real evolution at the moment of the visits, even if they were still shy and shown through punctual improvements. Although the firms did not have reliable indicators, it was observed that a cultural change was in course and that the materials and process quality, among other clauses of the Program, have begun to affect the companies in a positive way. On the other hand, when asked about the impacts of the Program concerning their internals departments and processes, the companies could give answers in a more objective way, and they were even able to indicate some evolutions related with the procurement phase. In fact, all the eight investigated firms have obtained improvements in its logistics systems and purchasing department, five in the biding process and four in the production processes itself. Another important aspect to show is that, independently of the level of the implementation of the quality systems, none of the companies pointed out a major problem concerning the practical use of the QUALIHAB Program s rules. The confirmation of this is the fact that a great part of the quality procedures was ready for use, even in the site works. This can confirm the viability of progressive systems based on the ISO 9000 Standards in civil construction. The largest problems faced by the companies during the development and maintenance of their programs were related to internal changes and to the costs of such programs. In fact, they demand important investments in recruiting and training people. The warranty of a minimum number of running projects, along a relatively long period of time (two years), appears as an essential requirement to give support to such investments. Finally, all the companies recognized the importance of the QUALIHAB Program for the Building Industry. It is also important to stand out their great motivation in developing and applying their quality systems some of them were not measuring efforts for doing this. The first conclusion is that both the QUALIHAB Program itself and the QUALIHAB Certification System for General Contractors are currently appropriate in their first stages of implementation. The first steps, the most difficult ones, have been clarified: they both advance with the consensus of all actors concerned. There is still a lot of work to be done, according to a process that will still last some months. It leans, nevertheless, on solid bases, with a systemic approach of the problem, what is fundamental for Brazil. It is worth to stand out that during the research accomplished in the levels "C" and "B", it could be proven the QUALIHAB Program s importance as an instrument for developing the construction supply chain in the state of Sao Paulo, specially promoting the aspects

11 11 linked to the quality of the materials and processes and, consequently, of the final products. Besides, the QUALIHAB Program permits to face two major problems at the same time: to procure housing to those who need them and to contribute to the technical, organizational and managerial capacities of the different actors of the Building sector. The most important conclusion related to the influence of QUALIHAB on contractual relationships is that, even if it is not possible to prove it through the visits, the systematic evaluation of suppliers and subcontractors by the general contractors, added to the control and auto control attitude of all the actors of the supply chain, will very quickly change the relationships between them, mainly in the cases envolving less developed firms. In fact, the power of the general contractors as clients, combined with the small and medium suppliers dependency of them to improve their quality, will force the general contractors to help their suppliers. A new approach of the relationship between the general contractors and their suppliers, closer to a partnership, will be at the same time a desire and a necessity. Finally, it is necessary to say that the model created and implemented in Sao Paulo, for the social housing, is now adapted to other markets, as the school construction, for example. Moreover, the (Brazilian Housing Quality and Productivity Program) is adopting a National Certification System for General Contractors similar to the QUALIHAB s one. This system, unique for all the country, also proposes a technical reference to qualify entreprises, based on the quality management approach, and has also four levels or successive steps in its qualification process. In a short period of time, not only the, but also a great number of public and private clients will start to look for qualified firms in their bidding announcements. It is important to say that, if the system is the same in the whole country, the periods for general contractors to reach each of the levels will vary, depending on the technological development stage of each region. These periods are going to be respected by the clients as a result of a mutual commitment. The National Program might represent a huge challenge for all the actors in sector, not only due to the construction s inherent difficulties, but also because it will try to apply a local and well succeeded experience to a country of continental proportions with appreciable differences between its regions! Archambault, G. (1995). Certification qualibat. Le tournant décisif ( ) in: Sycodés informations. Paris, Qualité Construction, n 29, Mars-April 1995, pp Cardoso, F. F (1997) QUALIHAB: un programme pour améliorer le logement social au Brésil ( ). Sycodés Informations - Qualité Construction, Paris, 1997(45), November- December 1997, pp

12 Cardoso, F. F. & Pinto, C. A. P. (1997) O Sistema de Certificação QUALIHAB de Empresas Construtoras ( ) in : 3rd International Congress of Industrial Engineering & ENEGEP 97 : 17o. Encontro Nacional de Engenheiros de Produção. ABEPRO-UFGRS, Gramado, 6 to 9 October 1997, p. 67 (Summaries) and CD-ROM. Cardoso, F. F. et (1998a). Uma primeira avaliação do programa QUALIHAB e de seu impacto nas empresas de construção de edifícios ( ) in : Congresso Latino-americano: Tecnologia e gestão na produção de edifícios: Soluções para o terceiro milênio. Vol II, EPUSP-PCC, Sao Paulo, 3 to 6 November 1998, pp (1998b) Acompanhamento da implantação do Programa Setorial da Qualidade do Setor de Obras do Programa QUALIHAB Nível C ( ). Sao Paulo, Agreement EPUSP-ITQC, November p. (1999) Acompanhamento da implantação do Programa Setorial da Qualidade do Setor de Obras do Programa QUALIHAB Nível B ( ). Sao Paulo, Agreement EPUSP-ITQC, May p. SindusCon-SP (1996). Programa Setorial da Qualidade do Setor de Obras ( ). Sao Paulo, SindusCon-SP and APEOP, (1997) Sondagem conjuntural. Sumário Econômico ( ), Sao Paulo, SindusCon-SP, October 1997, p.18. (1999) Conjuntura da Construção. Sumário Econômico ( ), Sao Paulo, SindusCon-SP, June/July 1999, p.10. Sycodés Informations (1996/97). Critères du référentiel de certification QUALIBAT (I à VII). Sycodés Informations - Qualité Construction, Paris, (34 a 40), maijuin 1996 à janvier-février