Who takes the risk when procuring and working on projects was a hot topic at last week’s CN Developer Forum.
I had the pleasure of speaking in the panel debate alongside contractor and developer colleagues.
The first ‘given’ we established is that there’s been no real change in the approach to risk-sharing, certainly since the recession, so we all need to change our behaviours if we want to achieve a better outcome in the future for all those involved.
The processes we use have been in place for decades, so the key for clients and contractors isn’t to reinvent the wheel but to think more intelligently about how to make existing procurement better.
There are some very good principles identified by the Cabinet Office’s Infrastructure Client Group that should be carefully considered.
This can mean lighter, less bureaucratic tendering, partnering and procuring based on value and the proposed team.
There’s no silver bullet and, as Lee Penlington at Mace admitted, we would all be very rich if we knew how to eliminate poor procurement and problem projects that wipe out profit!
Getting in early
One area in which I particularly agreed with Lee was that the earlier clients engage contractors in the process, the better informed decisions will be, the more risks will be managed and the more innovation you will be able derive from the supply chain.
However, at the early stage of projects there is a clear difference in the UK compared to other countries.
“There has been an oversupply of work, which has created an environment of mistrust through opportunistic pricing in some quarters”
Here we have the notion that doing design and construction in parallel with PCSA negotiations is a good thing.
For a contractor, this can mean working on piling designs on site with a subcontractor whilst the client may still be tinkering with the design.
Who owns risk in this scenario can be unclear.
You’d be less likely to see this in the US, where they may spend more time on planning, but once they start building they go for it with everything in place.
Market value distorted
The biggest factor that determines risk is the state of the market.
Phil Wade from First Base noted that with construction inflation outstripping house price inflation, it’s certainly a contractor’s market.
With pent-up projects being released to market, there has been an oversupply of work, which has created an environment of mistrust through opportunistic pricing in some quarters.
For consultants, with prices rising all the time and some tenders coming back up to 30 per cent higher from contractors, we’re increasingly and unrealistically under pressure to solve the problem with some value engineering ‘magic’ – the benefits of which Phil Wade would like to see shared.
From my perspective it would be very beneficial if contractors were brought on board to work with the team early, to be part of the solution to achieving the client’s aspirations at an affordable cost, rather than being part of the problem.
I would also like to see contractors taking more accountability and ownership of the risks that they are best placed to manage, rather than passing it down the supply chain.
“It would be very beneficial if contractors were brought on board to work with the team early, to be part of the solution to achieving the client’s aspirations at an affordable cost”
For this to be a success, however, clients will also have to accept more risk themselves if they wish for their aspirations to become reality.
I remain optimistic, we are talking about what needs to change more now than we used to, which is translating into further dialogue and collaboration in projects itself.
Marcus Harling from Burges Salmon said it best: “Has the industry changed? No. Is it changing? Yes.” I agree, but don’t expect a revolution.
Paul Tremble is executive director at WSP Parsons Brinckerhoff