“The Confederation of British Industry (CBI)’s recent report, ‘Fine Margins’, paints a rather gloomy picture of the state of the construction industry.
It rightly points to problems, in the procurement process especially, but seems to put most of the onus for change on the side of clients and indeed the Government.
I think the fate of the industry, and the key to its salvation, lies mostly in our own hands. We cannot and should not rely on the ‘kindness of strangers’ to get construction onto a sustainable footing.
Ultimately if construction firms are delivering high-quality outcomes and managing their own costs effectively, they will thrive. We must look to our own practices and processes, and take clients along with us by showing them the benefits of doing things differently.
The industry needs, in short, to help itself before it turns to others for assistance.
The CBI is correct that clients too often take what I call ‘the IBM approach’ to tendering. Famously, in the 1980s, IT procurement directors would ‘never get fired for buying IBM’ – it was seen as the safe option.
The traditional tendering process is the equivalent of this for construction. Everyone can be satisfied that due process has been followed and that the decision will stand up to shareholder scrutiny and external audit.
The process is elevated above the outcomes and what the customer is actually looking to achieve can too often get lost in the thickets.
The report argues for a two-stage tendering process for major projects and that is something I would enthusiastically endorse.
Indeed, we are showing that it can work in practice, as with new student accommodation at Somerville College, which completed last autumn, on time and on budget, after just such a two-stage process.
We can’t expect clients just to ditch time-honoured practices, however. The key is for firms and the industry as a whole to showcase successful outcomes and to demonstrate, through actions not words, that a more collaborative approach is more likely to produce the result clients want than a more adversarial process.
Whether it is the intention to not, the ‘IBM’ approach frames the entire process around the question of price. The client is geared around getting the work done at the lowest cost possible, and this in turn creates a perverse incentive for firms to underbid in order to secure a contract.
It should be obvious that this doesn’t serve anyone’s interests in the long run. Clients may get the low price they want but they also get a successful bidder that is likely not to be in rude financial health. Why else are they taking on projects with low or negative margin?
As a result, that firm will be looking to cut costs on the project at every opportunity, to the probable detriment of quality.
There is also a heightened risk that the firm will go bust and cease trading midway through the project, in which case the term ‘false economy’ does not come close to expressing the impact on the client.
Again, though, while there is certainly every reason for clients to steer away from this approach, it is up to firms themselves to demonstrate that they can deliver high quality within the cost envelopes
demanded by clients. If they feel they can’t do that while maintaining a reasonable margin, they need to be prepared to walk away.
Some may think this is ‘easier said than done’ but there is no future in taking on projects at a loss just to keep the work going. Ultimately, decisions like these rest in the hands of firms, and their own governance.”
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