Commercial Update - Spring 2008

From recent discussions I have had with site commercial staff it is clear that not all communications from the Centre or Business Units are reaching site staff.

It is essential that we communicate clearly on all areas of change and development across Wates so we can build on the exceptional performance of all businesses in 2007 and achieve our ambitious 2012 growth targets.

This update is designed to sit alongside and support our existing communications. It provides a review of progress on all key commercial issues. It is intended to be a useful reference document and will be issued twice a year to ensure maximum awareness on all critical commercial issues.

Please ensure you cascade this information to relevant colleagues – particularly those on site. As well as this electronic version there is a printable PDF attached should a hard copy be required.

If you have any queries about the content featured please contact myself or the individuals referenced in the document.

Regards

Andrew Laird

Commercial Structure
Commercial Director and Regional Commercial Director Appointments

I am pleased to confirm the appointment of Rod Short as Commercial Director for Living Space.

Rod previously worked with Alfred McAlpine Ltd for 14 years where for the last five years he held several Executive roles most recently Managing Director Alfred McAlpine Major Projects & PFI and UK Commercial Director Alfred McAlpine Special Projects.

Rod has a broad experience in the industry including PFI, developments, housing and civil engineering and will bring additional skills to the Living Space board.

Congratulations to Andy Wall who has been promoted to Regional MD London and to Stuart Togwell on his appointment as CD Construction. These appointments are great examples of the potential for personal development within Wates. Our policy of promoting internally, where possible, has also been evidenced by recent Commercial Manager appointments across the businesses.

In line with the restructuring and growth of Construction and Living Space, the post of Regional Commercial Director has now been consolidated and I am delighted to confirm the following appointments.

Construction: James Askew (London)

Adrian Johnson (Midlands/North)

Living Space: Jon Wardle (London)

Darren Kehoe (Midlands/North)

Mandatory Policies and Best Practice Notes

Listed below are our recent posted Commercial Mandatory Policies and those proposed for 2008:

Posted Commercial Mandatory Policies

Ref Policy Title

01 Authority Levels

15 PI Insurance from Wates

16 Entire Agreement Clauses in Subcontracts

17 SCL Protocol

20 Adjudication

60 Which Form of Subcontract?

61 Subcontractor LOI

62 Selection of Subcontractors

80 Appointment and Payment of Consultants

81 Establishing SHE Competence of Consultants

90 Collateral Warranties

91 Parent Company Guarantee (from Wates to Employer)

92 Arranging Performance Bonds

Proposed Commercial Mandatory Policies 2008

Letters of Intent from Employer to Wates
Will identify the key points to look for in a LOI.

Termination of contracts
Will identify the procedures and authority levels for termination of a main contract / subcontract / supply order / consultant appointment.

Fitness for Purpose
Will identify where/how a FFP obligation may arise, the issues for Wates and who has authority to accept such an obligation.

Novation
The procedures to be followed before accepting a novation.

Contracts (Rights of Third Parties) Act 1999
Policy on the use of third party rights.

Insurance
Checking insurances provided by the Employer

Caps and net contribution clauses
Policy for inclusion by Wates in main contract and dealing with requests for same from the supply chain.

Financial security of supply chain
Policy for bonds, guarantees or other financial security from subcontractors / consultants / suppliers.

New Letter of Intent for Subcontractors
Replace current policy mp-C-61; part of the new suite of subcontract documentation being prepared by Masons (for Living Space) and Meyer Brown (Construction).

Assessing Employment Status
Procedures for assessing the employment status of subcontractors

County Court Claims
Procedures for dealing with CCCs

Charging for Parent Company Guarantees
A paper to implement the policy approved by ExCo.

Group Delegated Authorities

A replacement for the current mp-C-01 Authority Levels which covers all Group delegated authority.

In addition, there will be elements of mandatory policy in the Best Practice Guides for JCT’05, GC/Works, NEC3, PPC2000 and Consultant Appointments currently being prepared or revised.

Supply Chain

We are progressing the new Supply Chain Strategy “Closer to Fewer” via the central Steering Group which has representatives from all Business Units and the Centre. It is essential that all our staff are aware of, and engaged in, the strategy and accompanying policy/procedures to maximise the benefits which underpin our 2012 Group Strategy. The Steering Group, in conjunction with Business Unit Managing Directors, Commercial Directors and Business Unit Boards, will communicate the strategy and benefits throughout 2008.

Key areas of progress are:-

Approved Supply Chain

The Approved Supply Chain for Business Units has now been agreed. The subcontractors/suppliers will be categorised into ‘Approved’, ‘Preferred’ or ‘Strategic’ depending on the degree of integration within Wates. We have successfully reduced the number of active subcontractors from 4,000 to 2,900 over the past year with 80% of spend now with 500 subcontractors. This reduction is excellent taking into account our geographical expansion and new clients.

Supply Chain event

A Supply Chain evening with the CEOs or MDs of our key subcontractors and suppliers will be held on 13th May 2008. Paul Drechsler will explain the Wates Group 2012 strategy and I will present our overall supply chain strategy. Exco & MDs will also be in attendance. The principal aim of the evening is to engage with our key supply chain partners and communicate the Wates strategy and mutual benefits of working “Closer to Fewer”.

Centre Trading Agreements

New agreements are now in place with APlant (Plant & Small tools) & Hewden (Accommodation) as from 1st January 2008. These include new service level agreements, commitments to CR & sustainability in conjunction with value enhancement for Wates and key clients. It is essential that plant and small tools are off-hired from Hewden/Speedy and rehired with APlant now to minimise costs and maximise value and quality on all projects.

Other key action plans within the Supply Chain strategy include:-

• KPIs for supply chain performance, monitoring performance and compliance.

• TIVA enhancement to improve supply chain engagement in sustainable safety performance improvement

• Clarity of Supply Chain Steering Group and Supply Chain manager responsibilities

• Monitoring of financial performance against Supply Chain strategy benefits 2008 – 2012

• Centre agreements compliance levels

• RBS Onecard benefits

For further information on any of these topics please contact Steve Yazdabadi, Group M & E Supply Chain Director, or me.

Risk Management

Risk Practitioners

The role of Risk Practitioner is now embedded within the businesses and is being developed further to enhance awareness and risk mitigation.

The Risk Practitioners are:-

Construction: Simon Reddington

Living Space: Dave Brown

Retail: Hamish Finlayson

Interiors: Andy Bloomfield

The key Risk Practitioner action areas for 2008 are:-

Carry out specific project reviews (cross business).
Produce Business Unit quarterly reports on risk management review format prior to first report in March 2008.
Risk Practitioner responsible for ensuring Key Controls Monitor sheet and Deed Registers are updated - minimum quarterly.
Following production of quarterly report, Risk Practitioner to schedule Risk meeting with MD, CD, FM to discuss major risks in Business Unit + Report Update and forward risk management plan for next 3 months.
Risk Practitioner responsible (in conjunction with CD + MD) for production andupdate of Business Unit risk register.
Review Risk Practitioner role for Business Unit and consider recommendations to make role more pro-active (by June 08).

For further information please contact Jamie Williams, Interiors CD, or me.

Risk Committee

The Group Risk Committee meets quarterly and is chaired by Paul Drechsler. Business Unit Risk Practitioners attend on a rotational basis to ensure risk issues and best practice are transferred top down and bottom up.

The Risk Committee, in addition to considering significant risks and opportunities for the Group, reviews major project and Business Unit risks and the BU/Group Risk Registers.

For further information please contact me.

Lessons Learned

The “Lessons Learned” process, which captures the top three positive and negative lessons experienced, is now live on RIMS. It covers the four main areas of project activities: - Prequal, Tender, Construction and Post-Completion.

It is essential that the top three positive and negative lessons learned on each activity are noted and appraised at tender reviews on similar types of projects. Alec Jackman has project managed the process and is working with the businesses and functions to ensure full compliance. We are also transferring lessons learned from projects where there is either a significant positive or negative variance from the forecast profit.

For further information please contact Alec Jackman, Bid Centre Manager, Construction

Legal Update

Group Commercial Centre

Geoff Nobbs who has worked for Wates for 40 years retired at the end of March. Geoff has led the central Commercial/Legal team for the last 5years and I would like to personally thank him for his contribution to commercial best practice in Wates and risk mitigation on projects where front end advice is crucial.

As many of you know, Sarah Hall joined Wates in September 2007 and I am delighted that Sarah now leads the central team as from April 2008.

We are also very pleased to have Ruth Wilkinson join us for six months on secondment from Mayer Brown International LLP to assist with front end legal advice on contracts and general legal issues.

Legal Partners

As confirmed in Paul Drechsler’s recent announcement on organisational changes, I now oversee all Group legal matters. In line with our “Closer to Fewer” supply chain strategy, we are consolidating our Legal and Consultant Partners to ensure best advice and value going forward.

Delegated Authorities

A consolidated matrix of delegated authorities has been completed and posted on the Intranet. This combines previously separate Functional, Business and Group delegated authorities into one document for ease of reference.

Capped Liabilities

As we move forward with higher value and more complex projects, we must ensure that the Group exposure is mitigated and is reasonable for the risk profile.

We are currently negotiating Liquidated and Ascertained Damages (LAD) and specific caps in liability on several projects. We will be issuing a Wates policy related to caps in liability which will give advice and extent of acceptable liabilities on projects. This is scheduled to be implemented during May 2008.

Parent Company Guarantees/Bonds

ExCo and the Group Board have now approved charging for Parent Company Guarantees given by Wates Construction Limited or Wates Group Limited.

Details of the policy will be posted during May 2008, however, if you have any queries please discuss them with your Business Unit Commercial Director (BUCD) or Centre Commercial/Legal Department.

For more information on Delegated Authorities, Capped Liabilities and Parent Company Guarantee/Bonds please contact Sarah Hall, Commercial Legal Adviser.

Training

The QS Training team under the Chairmanship of Andy Booth, is maintaining the excellent progress made from the previous team chaired by Matt Pead. The focus in 2008 is to concentrate our efforts on the following areas:

Spring & Autumn editions of QS News

QS News is a fantastic opportunity to further engage and communicate with commercial colleagues throughout the Group. It will cover various topics from around the business, both internally and externally, such as business developments, colleague and client interviews, operational excellence, career development, training calendar and course availability.

Full review of existing Training Manual with RICS

The QS Training Team is reviewing the current Training Manual and its alignment with the RICS. The team is evaluating the document to ensure it is up to date with both Wates business practice and fully aligned with the RICS to maintain the accreditation.

Maintaining and monitoring the use of the Training Manual

We will continue to monitor and report upon the use of the Training Manual and promote the successes and failures of Business Units through QS News and at each Commercial Network Meeting.

In-house surveying library.

Following a useful suggestion that a couple of key publications should be held at head office and loaned out upon request we have looked at various options and recommend that we share books and publications donated by our colleagues at each regional office. This may particularly benefit our colleagues currently enrolled in higher education courses.

Commercial course roll-out 2008

The QS Training Team is working closely with the Training Department to continually review the courses offered to ensure that we are giving market leading training to our colleagues at all levels. To this end, we are approaching a number of professional consultants and legal practices, with whom we have working relationships, in order to draft and deliver pertinent training courses nationally.

We will also review the requirements of safety awareness knowledge and training for the commercial team. The aim is agree a programme for roll out in 2009.

For more information please contact Brian Hutchison, Retail CD.

Bid Management

Major progress has been made over the last 18 months on best practice and lessons learned transferred through the Bid Network. Excellent strike rates have been achieved in winning key projects under the correct terms and conditions and pricing levels. Trends and tender risks are under ongoing scrutiny and are discussed at every Bid Network meeting.

Individual Business Units are also analysing bid trends for their markets and passing information updates to Exco and the Bid Network. RIMS is being adapted to enable individual Business Units to obtain bespoke bid reports, enabling monitoring of future bid opportunities to be more relevant to each business unit.

Procedures and policies are now in place to manage bidding risks. Since the internal bid audit last year the bid policies have been made more robust and less ambiguous.

For more information please contact Neil Greetham, Bid Director Centre.

Insurance

This year we have carried out a full tendering exercise on all insurance coverage and renewal information has been produced to reflect the various risk profiles for the individual businesses and Group.

Our insurance broker, JLT, assisted in securing the best value deal.

If you have any queries on insurance claims, rates, coverage or contractual provisions you should discuss these with your Commercial Director or Centre Commercial/Legal Department.

Looking ahead

There is no doubt overall that the standard of our commercial, bidding, supply chain and legal teams is excellent. However we need to keep in mind that the Group is recruiting around 45 people every month all of whom need to be inducted and trained on the Wates policies to assist them to achieve the standards and values we expect. This will be an ongoing challenge that sits alongside our day to day business.

We now have a commercial technical competency framework, PDR process and staff development plans which will be driven by Wates. However these processes will only succeed if all commercial/legal, bidding and supply chain staff are fully committed to exceeding our 2012 strategic targets.

Our supply chain can have a significant impact on our safety performance. It is important that we enhance our processes, procedures and execution to ensure we manage the operational and safety risk throughout our activities.

Reporting through the new MCR system is now ‘best in class’ and we are seeing the benefits of accuracy and transparency across the businesses.

I look forward to working with you to enhance all areas of competence and achieve exceptional results.

Regards
ANDREW LAIRD