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A cure for the blame game

The effects of lingering economic doldrums will inevitably be felt in countless ways, but recent events suggest they may be triggering an increasingly aggressive and adversarial approach to doing business in the construction industry.

News headlines this week point the way. First it is thought that contractor Carillion’s elongated payment terms could set a precedent for other contractors keen to keep themselves cashhealthy at the expense of their suppliers; meanwhile Luton Borough Council has revealed that it is about to embark on mediation with contractor Bam Nuttall to resolve a dispute over costs on the £91M busway scheme (News this week).

This is not helpful in light of last week’s confirmation from Cambridgeshire County Council that it was not settling its dispute with the same contractor on a similar busway scheme (News last week).

Putting some numbers to the headlines, research from consultant EC Harris - published late last month - reveals the depressing statistic that legal disputes in the UK’s construction industry are now taking over a year to resolve - a worrying 33% increase in the average time for resolution from 8.7 months in 2011 to 12.9 months in 2012.

Dispute values fluctuated dramatically from £6.6M to £17.7M in the same period.

EC Harris says that last year was also witness to one of the most high profile disputes involving Europe’s tallest building, the Shard in London. The dispute between steelwork companies Cleveland Bridge UK and Severfield-Rowen Structures first came to light in early 2010, but was only resolved in January 2013 after it ended up in the High Court.

What is clear is that there are few who will be happy if there is a return to an industry built around a bid low and claim high culture

Cleveland Bridge was ultimately ordered to pay £824,478 in damages to Severfield-Rowen for delays and defects which were estimated to cause a delay of 42 days on construction.

The cost consultant says that the causes are partly because of a trend of projects increasing in complexity. But it goes on to say that all of the top causes revolve around a mistake or failure and that they are all avoidable “to varying degrees”.

So why are organisations - both clients and from the supply chain - often equipped with the NEC which has at its contractual heart the ability to prevent disputes - not able to avoid conflict and reverse the trend?

And in a time when infrastructure is getting more and more public and political attention, and a time when funds are being diverted from savings made elsewhere in government to deliver more projects, would it not be prudent for industry to want to avoid the negative headlines?

Cost conscious times may be exacerbating the problem, as the theory goes that the incessant pressure on clients - particularly public sector - to drive down costs is being transferred to the supply chain in such a way as to breed animosity.

Whatever the cause, the effect is being noticed. NCE is aware that there are senior civil servants in central government who perceive that where a conflict exists in major project delivery a low bidding contractor may be lurking, trying to claw back some profit.

Some may dismiss this as being typical of client organisations wishing to shift blame, or it being a well-worn argument from the past. But whatever the cause, this week’s news headlines, along with the EC Harris research, could prompt some to ponder whether a change of approach is needed.

In the past couple of years, under scrutiny from Treasury and the Department for Business, Innovation and Skills, public client bodies have begun to make known their statements of principle in favour of becoming better at telling the supply chain what they want, and giving it certainty and improved visibility from improved forward planning.

In 2010, the UK Government committed Whitehall Government Departments to aim to pay 80% of undisputed invoices within five days.

It has also looked to improve payment times within the supply chain, with all Whitehall departments having to include a clause in contracts requiring prime contractors to pay their suppliers within 30 days. It also intends to increase its usage of Project Bank Accounts, both certainty and speed of payment to suppliers down to tier 3 of supply chains.

Network Rail has followed these principles with its own fair payment charter. This was signed by 30 of the biggest construction and engineering companies operating in Britain today and commits, though not legally, firms to shorten the time it takes them to pay suppliers from 56 days to 21 days.

In addition, as NCE reported last month, the railway infrastructure owner and operator is attempting to find ways of ensuring contractors focus on best practice rather than low price by ensuring that in future contracts feature enough of a weighting on sustainability so that even if a bid isn’t the lowest on price, it can still win the job.

The current issues may be one of public relations and a reflection perhaps that clients have been better of late at demonstrating their willingness to affect change and develop mutually beneficial relationships with those delivering the vital infrastructure that is increasingly high up the government’s agenda.

What is clear is that there are few who will be happy if there is a return to an industry built around a bid low and claim high culture.

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