Longer term contracting in construction: when it works and when it does not, explained

The key facts

• The guidance note (September 2022) builds on Chapter 1 of the Construction Playbook and defines longer term contracting as any contract spanning more than three years.
• It applies to central government departments, executive agencies and non-departmental public bodies, with the wider public sector encouraged to apply it.
• Longer term contracts give suppliers the certainty to invest in new technologies, Modern Methods of Construction and workforce skills, but only pay off with a high degree of certainty about work volumes.
• Portfolios suit programmes with repeatable assets, strong MMC potential, a long-term pipeline (such as schools, hospitals and decarbonisation) or clear innovation opportunities.
• Long term contracts are wrong for bespoke one-off assets, programmes with only short-term funding, and authorities without an agreed long-term strategy.
• The guidance recommends disaggregating demand by category with suitable break and review clauses, ideally performance based, so innovation and market health are protected.
• Constructing the Gold Standard recommendations 10 and 11 support longer-term call-off contracts and portfolio call-offs in place of costly mini-competitions.
• The Department for Education framework case study uses a 70 per cent Pre-Manufactured Value minimum for participation and performance-based allocation of work; the Ministry of Justice alliance delivered around 6,500 prison places through four new prisons under FAC-1 terms.

What this guidance note is and who it applies to

Longer Term Contracting Programmes, Projects and Portfolios in Construction is a Cabinet Office guidance note, published in September 2022, expanding Chapter 1 of the Construction Playbook. It defines longer term contracting as any contract spanning more than three years, and frames the task as finding the optimal duration to achieve programme objectives for best value, not simply the longest possible deal. It applies to central government departments, executive agencies and non-departmental public bodies, and the wider public sector is encouraged to follow it.

The note is deliberately two-sided. Longer term contracts can give suppliers the confidence to invest in new technologies, sustainable solutions and skills, and to adopt manufacturing-led approaches that deliver safer, quicker, greener construction. But it states plainly that long term contracting is not always appropriate, must be considered case by case, and only realises benefits if the contract demonstrates continual improvement, efficiencies and value for money, with exit routes if it does not.

The case for longer contracts and portfolios

The core argument is that certainty is what buys investment. A supplier with visibility of work years in advance can fund technology, standardisation and training that a one-off design and build scheme never justifies. Stop-start investment produces uniquely designed builds that cost more and do not always meet user needs; long-term programmes with standardised specifications speed delivery, cut cost and improve safety and carbon performance. Productivity gains should be contractualised through year-on-year improvement plans set from the design and specification stage and reviewed regularly.

To find portfolio opportunities, authorities should review pipelines and live projects for work that can be grouped rather than tendered individually, then look across the public sector for product-level portfolios. The approach fits where the programme has repeatable assets or strong MMC potential, where a long-term pipeline exists (schools, hospitals, public sector decarbonisation), and where innovation could drive better value. The note also advises exploring tender pricing both for individual projects and clustered into portfolios, to give HM Treasury a concrete comparison, because without funding certainty the benefits are hard to realise.

When not to do it, and the risks to manage

The guidance lists clear disqualifiers. If pipeline funding only stretches three years, requirements may change and a longer contract may not fit. If the asset is bespoke and unlikely to be repeated, the constant specification changes will drive up cost and erode efficiency. If the authority has no agreed long-term strategy, attempts at long term contracting will often fail. And if specifications cannot be standardised, the note says bluntly to reconsider the strategy, because replicability is what makes the model work. A comprehensive market health assessment and Delivery Model Assessment should sit in the business case before any commitment.

The risk table repays close reading. Aggregated demand must not squeeze out SMEs and lower tier contractors, so contracts should be disaggregated by category with suitable break and review clauses. Contract management needs a clearly owned role backed by rigorous documentation to survive staff turnover. Value for money over a long life is hard to demonstrate amid market fluctuations and inflation, so break clauses are the safety valve. Forecasting demand is hard, so upper and lower volume limits tied to the funding commitment can underpin scope, subject to scrutiny by the Cabinet Office Controls team. And because long contracts shape market behaviour for years, objectives must be set at the start and the supply chain engaged early.

Frameworks, performance and continuous improvement

Two recommendations from the Constructing the Gold Standard review are singled out. Recommendation 10 answers industry frustration with inefficient, costly mini-competitions: framework strategies should set the optimum duration, scope and continuity of call-offs, including awarding long-term or additional project contracts without further mini-competitions, in exchange for supplier proposals showing how that continuity funds innovation and efficiency savings. Recommendation 11 urges call-offs for aggregated portfolios of work specifically to unlock supplier investment in MMC and offsite technologies.

Performance management is what keeps a long contract honest. The note calls for regular supplier and contract evaluations, lessons learnt shared across government, performance-based break clauses, stakeholder satisfaction surveys that evolve with the project, and SMART KPIs benchmarked annually so problems surface early. Post-contract Supplier Relationship Management builds corporate-level relationships that outlast individual staff, step-in rights are a last resort, and contract terms should describe a Supply Chain Collaboration process through which client and supplier jointly review the scale, duration and aggregation of Tier 2 and 3 appointments.

Two live examples: DfE schools and the prison alliance

The Department for Education framework shows the model in steady state: a four year framework term on top of a strong pipeline underpinned by a 10 year spending settlement, currently around 50 schools a year, with a weekly published list of future projects. Standardisation runs through the GEN-5 design guide and a rigorous output specification requiring all projects to be net zero carbon in operation, and a 70 per cent Pre-Manufactured Value threshold is a minimum requirement for framework participation. Work is awarded by performance-based allocation rather than mini-competition, with fixed framework rates, a harmonised rates book, a ratchet mechanism that discounts build rates as direct-awarded volume grows, and KPI results determining each contractor's share of future workload.

The Ministry of Justice New Prisons case study shows the model at programme scale: around 6,500 additional prison places through four new prisons, delivered by the Alliance4NewPrisons formed in June 2020 between the Ministry of Justice, ISG, Kier, Laing O'Rourke and Wates. Overarching FAC-1 alliance terms sit above NEC4 contracts for each prison. A pre-construction collaboration phase developed standard design and a common supply chain, the price for the first prison at Full Sutton became the baseline for the other three with site-specific adjustments only, and around 80 per cent of each prison's value was competed transparently. Delivery is monitored through 34 KPIs in core, stretch and performance tiers, with an incentivisation pot that cannot be reached through business-as-usual performance.

How eSourcing Data helps

Longer term contracting shifts the burden from running tenders to running relationships, and the guidance is clear that this depends on documentation, benchmarking and visible pipelines. eSourcing Data supports the full cycle: publishing pipeline and prior information notices so the market can see demand years ahead, running the framework procurement itself, and then managing call-offs, whether by further competition or performance-based allocation, with every award documented and auditable.

The performance disciplines the note demands map onto platform features directly: supplier management records KPI performance and evaluation outcomes over time, reporting tools support the annual benchmarking and satisfaction tracking that keep continuous improvement honest, and a complete contract record protects the authority against the staff turnover risk the guidance highlights, because the institutional memory lives in the system rather than in one contract manager's inbox.

For authorities testing whether a portfolio approach is justified, historic procurement data held in the platform, volumes, prices, supplier performance, provides the evidence base for the business case comparison between individual and clustered tendering that the guidance asks for.

What to do about it

1. 1Confirm a funded, credible pipeline and an agreed long-term strategy before contracting beyond three years.
2. 2Run a market health assessment and Delivery Model Assessment as part of the business case.
3. 3Price tenders individually and clustered as portfolios so the funding discussion with HM Treasury is evidence based.
4. 4Disaggregate demand by category and insert performance-based break and review clauses to protect innovation, SMEs and market health.
5. 5Contractualise continuous improvement: year-on-year improvement plans, SMART KPIs with annual benchmarking, and evolving satisfaction surveys.
6. 6Apply Gold Standard recommendations 10 and 11 to call-off strategy, trading continuity for supplier commitments to invest.
7. 7Set upper and lower volume limits tied to the funding commitment, and resource a clearly owned, well-documented contract management role.