UK market intelligence - rising to the challenge
In an overheating market, teams need to be well resourced, maintain good records and administer contracts appropriately to manage down risk
The UK contractor market continues to show evidence of overheating and contractors and specialist sub-contractors are now in the enviable position of being able to be selective and risk averse about which projects they bid for and ultimately take on. This change in the market has created tensions in the supply chain and an increased appetite and budget to fight. We are now seeing an increase in claims and disputes across the board and within the article we have set out focus areas to help manage risk in the current market.
Secure the right capability
Many of the issues we are currently seeing in the market are resource driven. It is therefore important to be objective and realistic about current project delivery resource capability.
Three areas to consider:
- Identify skills gaps as early as possible and invest in recruitment and learning and development to bolster existing technical and commercial capability.
- Build a properly defined and structured project delivery team with an authority approval process to ensure that there are no delays in business critical project decision making.
- Deploy an effective document management system complete with the resources to manage it. Remember the old adage of records, records, records.
Be realistic about risk transfer
During the period of low growth in the construction industry, single stage tendering has been prevalent with project risk compressed into the supply chain. In the current market, where two stage is more widespread, contractors are being increasingly selective about the terms and engagement they expect from their chosen procurement route. The current market, however, does not favour single stage tendering and contractors may refuse to participate in bidding activity unless a two stage procurement approach is adopted. This can impact on the number of competitive bids received. Contractors and specialist sub-contractors are also now less likely to agree to fixed price lump sum contracts, favouring - more commonly – re measurement/cost reimbursable or target cost contracts.
Three areas to bear in mind:
- Consider a two stage procurement approach which will generate greater interest from a wider contracting community than single stage in some markets.
- Use a standard form of contract which will be more acceptable to interested parties, and assume a flexible and conservative position in negotiating specific terms. It may be that you will have to give a little to get a little.
- Avoid adversarial contract terms and bargaining styles and incorporate terms and conditions which obligate the parties to provide early warning, collaborative and proactive (rather than reactive) behaviour and – where possible - incentivisation to perform
Comply with the requirements of the contract
This may seem an obvious point, however, teams can come under pressure when resources are stretched Claims are much harder to make or defend against where the contract has not been complied with – you can leave yourself exposed to unmeritorious claims. We are seeing a trend in the number of issues resulting from a failure to properly manage the contractual payment process. Equally, compliance with the contractual timescales for issuing payment notices and payless notices is very important. Remember here that a failure to issue a payment notice and a payless notice in the prescribed time limits means that the payment applied for must then be paid, often following expensive and time consuming adjudication.
Avoid change where possible
Changes to the design or design development and design creep give rise to more claims and issues than any other aspect of the construction process. Sub-contractors, especially specialist ones, are in high demand and contractors may struggle to demand competitive prices in delayed and changing projects. Be wary of design and build contract terms which purport to allow additional payment for significant changes to the design and others which are not clearly drafted and create ambiguity and uncertainty when dealing with changes.