Reducing risk and adding value in a turbulent market

Three people sitting, and one standing, round a desk talking and looking at a laptop computer. They are in an office.

To add value in a turbulent market, everyone in the construction team needs to work together at an earlier stage - Credit: Superstructures 

Sue Wilcock speaks to James Potter and Bob Steward about how moving away from fixed price contracts to a more open collaborative way of working may well be the answer to the challenges of a turbulent market. 

The construction sector is facing unprecedented challenges around material and labour shortages and rising costs, which are being further exacerbated by increasing inflation and energy prices; all of which are putting huge pressures on the industry. 

According to an index published by the Department for Business, Energy & Industrial Strategy, contractors are paying on average between 20% and 25% more for materials. Everything is going up; imported bricks went up by 25% in a month, insulations products went up by a third overnight, and the outlook is bleak, with further increases on the horizon. 

Bob Steward is Joint MD at Barnes Construction and explains that the traditional way of securing a project is currently untenable. “Although there are increasing instances where a client has involved the contractor in the early stages, the conventional approach has been to ask them to tender on a ‘fixed price’ basis prior to the start of works. 

“However, the major issue at the moment is that the price of materials is rising faster and more often than the tender prices can be held for, and we cannot see the situation improving in the short term, with multiple cost increases across all products likely during the life of any construction project at present. This is resulting in excessively challenging times and with no control over market forces, the ‘fixed price’ approach is unsustainable until more stable trading conditions return.” 

Contractors are not the only party under extreme strain. The client is facing rapidly increasing building costs and unpredictable asset values. Decision making is becoming far more difficult. 

So, what’s the answer and how can other members of the project team help? James Potter, MD of Superstructures is pragmatic about what can be done. 

“As structural engineers, we form part of the design team, specifying the type of materials and how much of them are required in order to make the building stand up. Typically we would be called in to design the building in detail when the building form has been fixed and planning permission has been granted. Then, following the detailed design, the building would be put out to tender. 

“This traditional approach is very much an ‘over the wall’ design process. That is to say, the building is designed and then thrown ‘over the wall’ to the contractor to price and build. If there are any cost and buildability issues, then it’s thrown back ‘over the wall’ to the design team – and the process repeats itself, all whilst materials are rapidly increasing. 

“My view is that we should be looking at a joined-up approach with the client, design team and contractors working together on a project from its earliest stages. The design team should be discussing structural concepts and material choices with the client, contractor and cost consultants, as they know best where the challenges lie. 

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“The team should be doing their best to forecast material procurement costs and timescales. The client can then be advised of potential issues, and changes can be made to allow the building to be designed, so there are options around the best use of materials and how best value for money can be delivered. 

“With material and timescale issues as they are, it’s more important than ever to get the detailed design right early on, as any deviations once the building work starts are becoming more difficult to deal with. At the moment, if we need additional components, they are more expensive and on longer lead times, causing higher levels of disruption to the build programme and budgets. 

“The last thing you want is to start digging and realise you need an entirely different foundation solution, or get halfway through building an office block, to find the bricks you are using have doubled in price and will take 40 weeks to get to site. 

“As an industry we need to turn away from making decisions based on cost. We need to be investing in bringing onboard the best design team - a team who can interrogate the site conditions, design the building at the highest level of detail possible and who can specify materials, which provide contractors with a degree of latitude when it comes to materials. 

“In short, getting your design team on board early and having open discussions with contractors, based on trust, will ultimately lead to a reduction in the commercial risks involved. 

“Finding our way through these excessively challenging times is only going to happen if everyone works together.”