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Stark warning issued to industry as claims and conflicts return

Construction bosses were today slammed for adopting a “skin deep” approach to improving efficiency, quality and profitability as “subbie-bashing” and claims culture returns.

The attack comes from Constructing Excellence, the government body set up to encourage construction industry efforts to implement the recommendations of Sir John Egan’s Rethinking Construction report published in 1998.

Its root-and-branch review of the industry’s progress in implementing the recommendations describes the industry’s approach as complacent and ineffectual.

“Even where the principles of Rethinking Construction have been adopted, too often the commitment is skin-deep.”

Andrew Wolstenholme, Constructing Excellence

The Rethinking Construction report was an attempt to end cost overruns and disputes which dogged the industry in the 1980s and 1990s. It introduced radical ideas such as dedicated multi-disciplinary project teams, supply chain partnering and the use of prefabrication to eliminate defects and cut wastage.

But Constructing Excellence’s latest report Never Waste a Good Crisis, released this morning, has found that the industry’s approach to implementing Egan’s recommendations to be little more than lip service.

“Even where the principles of Rethinking Construction have been adopted, too often the commitment is skin-deep. Scratch beneath the surface and you find many so-called partners still seeking to avoid or exploit risk to maximise their own profits, rather than finding ways to share risk and collaborate genuinely so that all can profit,” said Constructing Excellence review team chairman Andrew Wolstenholme.

Disappointing response

Contributing to the report, Egan himself said the response to Rethinking Construction had been disappointing. “We could have had a revolution and what we’ve achieved is a bit of improvement. I would give the industry four out of 10.”

Egan set targets for 10% to 20% year on year improvements in safety, profitability, cost certainty, time certainty, capital cost, construction time and productivity.

Only the profitability target has been met by the industry overall, with safety and productivity considered to have made reasonable progress. Shockingly there is still only a 50/50 chance of a project coming in on cost or on time. Wolstenholme warned that without action, this situation is set to rapidly deteriorate.

“A crisis is coming in so many ways,” said Wolstenholme. “The low penetration of cultural change has been exposed by the economic downturn, with evidence that clients and main contractors are now reverting to type.

“Instead of drawing opportunity up from the supply chain, there is a determination by main contractors in particular to tender every package, every time, and select on the basis of lowest price.

“We could have had a revolution. I would give the industry four out of 10.”

Sir John Egan

“We are seeing a return to long tender lists, firms chasing work at unsustainable margins, cost and time overruns, jettisoning of quality or sustainability initiatives and more of a claims-oriented approach,” said Wolstenholme.

“One major contractor recently reported in private that its strategy was “to bid low and provide in the budget for a claims consultant”. Other anecdotal evidence describes longer payment cycles, further fragmentation of supply chains and the practice of subbiebashing through the retendering of sub-contracts.

First tier contractors are still taking on and charging clients for taking risk, then seeking to pass this down the supply chain, without always developing a mature approach to risk mitigation, says the report. “This inevitably leads to high levels of dispute when the risk materialises,” said Wolstenholme.

“Even when the first tier of clients, lead consultants and main contractors develop long-term relationships based on collaborative teams, there is usually a failure to involve specialist contractors and manufacturers early enough in the process, which effectively closes off the tap of innovation and frequently results in unnecessary costs further down the line.”

A vital role to play

Wolstenholme said the onus was on main contractors to take the lead, but also said clients still had a vital role to play.

“Improve your team’s ability to develop and control the brief. You and your consultant teams are injecting waste into the procurement process by specifying one-offs and by introducing late changes when it is inefficient and expensive to implement them.

“You also need to challenge your consultants to develop more options for risk transfer.

“Passing the risk down the supply chain effectively turns off the innovation tap. The more innovative the solution the closer you will need to get to the supply chain and the greater the potential to generate long-term value.”

Constructing Excellence surveyed 1,000 industry bosses last summer. Only 60% of respondents said that they worked in integrated, multidisciplinary teams. Less than half – 48% – believed that the projects they work on are completed to time, to budget and consistently exceeded expectations.   

Readers' comments (2)

  • The current economic conditions have created a difficult trading market for the construction industry, far more so that the early 90’s recession. As a result of this many companies are chasing far fewer projects, for far less return. I doubt whether a downturn of this magnitude could have been foreseen by Sir John Egan and his team in 1998.

    Claims in construction have not returned: the reality is that they have never gone away. This could of course indicate that the principles of Rethinking Construction have not been adopted either sufficiently or in some case at all. However, there is a limit to how far the principles would assist in current market conditions, which are driven ultimately by financial liquidity, or rather the lack of it.

    Disputes are on the increase, but it is wrong to overstate the increase. There is still a great reluctance by companies to embark upon formal dispute resolution unless they absolutely have to. With fewer projects around, contractors and sub-contractors are far less likely to wish to bite off the hand that feeds them. Negotiation is at the forefront of our clients’ minds and less adversarial dispute resolution procedures such as mediation are more frequently being used. Procedures such as Early Neutral Evaluation (ENE) are also being used to identify and manage construction risk and to involve the whole project team. Fair treatment of the supply chain is equally important in a highly competitive market, and we have not as yet seen a return to “subbie bashing” as referred to in your article. The example provided of one contractor pricing low and budgeting for a claims consultant must, in my view, be a rare exception.

    Alastair Farr, LLB(Hons), MCIArb, Barrister, Trett Consulting

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  • Sounds like the UK industry is where the US was in the '80s. These days General Contractors in the US are the Owner's trusted partner because consulting firms refused to move away from unfair risk transfer and the projects were adversarial and unsuccessful. I recently worked for an Arizona General Contractor who completed almost all our work on a negotiated basis. We loved our Owners and the design teams and our subcontractors and they loved us. Our projects got done on time, under budget and successfully.

    What was the secret--selecting a contractor at the same time as the designer on a Construction Manager at Risk basis. (Basiscally a contractor chosen by qualifications who in turn selects a few (usually electrical/mechanical and sometimes curtain wall) key subcontractors the same way and they are on the project team during the design process). The contractor has an open-book arrangement and agrees to open their cost records to the Owner. The contractor provides ongoing real-time cost and scheduling and constructability input during design so there are no surprises at tender time.

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