Shifting Attitudes to Project Procurement and Risk

Nigel Hinks
The Brexit referendum result could have significant implications for construction procurement.

During the previous property market downturn, contractors commonly accepted project risks and contract conditions that would earlier have been declined. In recent years, single-stage tenders have been readily available in the market, with clients benefitting from contractors' straight race approach on lowest cost and project risk transfer. The lack of high value quality projects, particularly outside of London and the South East, created a market which assumed that contractors would participate in a way that overly favoured the client.

However, today's more buoyant property market is very different and contractors are reluctant to enter in to single-stage tendering arrangements. Two-stage and negotiated procurement are currently the routes of choice. Having moved away from what some considered a client-privileged market, contractors are now more selective in their choice of projects to tender. Contractors' direct costs on Preconstruction Service Agreements are generally no longer provided at no cost, and the acceptance of onerous conditions and risk transfer is no longer the norm.

In our experience, contractors are acutely aware of their capacity constraints. Many firms suffered the loss of experienced staff during the downturn, with contractors estimating departments considerably reduced. Contractors have emerged leaner, just like client organisations and consultancies, and they often don't have the capacity for short-notice tendering, especially for projects requiring specialist package input such as bespoke or complex mechanical & electrical solutions.

At project outset, getting early speculative advice from contractors has been a time-honoured informal part of the procurement process.

This leaner culture has reverberated through the development process. At project outset, getting early speculative advice from contractors has been a time-honoured informal part of the procurement process. It still happens, but response time, and the time contractors and their supply chain are willing to spend at this early stage, is limited. Subcontractors have experienced similar changes and they too often lack the resource to offer comprehensive early cost advice. Attitude to risk has shifted and contractors are usually unwilling to accept risks that they are not best placed to manage, or not given control to manage.

With the rebalancing of terms across the client/contractor relationship and given that the two-stage approach is undoubtedly more attractive and important to contractors, how can clients get the best procurement deals and ultimately have their project delivered satisfactorily? Open and honest conversation across the client, consultant and contractor parties, supported by good working relationships are key. The ‘take it or leave it’ approach is a relic of poor procurement practice and well-informed clients seek the advice of their team to assist them fulfilling their goals.

At Faithful+Gould, we frequently engage with contractors and subcontractors, understanding what is important to them, what makes a project a desirable prospect and what will motivate them to accept the level of risk proposed by the Client. In our experience, negotiated procurement on complex developments is becoming commonplace and we have built an excellent track record of tendering in this way, on developments such as Paradise Circus, Birmingham, for example.

It is worth noting that expectations on tender return dates need to be realistic in order to achieve the best result.

To make this work, Employers Requirements need to be carefully and attractively designed to appeal to targeted contractors. We support our clients in developing a clear brief that removes uncertainty and limits the client’s risk profile, whilst ensuring that the contractor is armed with the information required to enable them to accept those risks which they are best placed to manage. This means providing high quality information with the right level of detail, packaged as a favourable proposition for contractors. It is worth noting that expectations on tender return dates need to be realistic in order to achieve the best result.

This is undoubtedly a sensible tactic, but in reality it’s not always the one employed. An inflexible approach by either the client or contractor can unfortunately jeopardise the relationships and reputations that are so vital to project success. Post-Brexit, there is huge uncertainty within the property and construction market. Some insiders are forecasting a return to recession, and as a result we are once more seeing a shift in procurement expectation and assignment of risk. Events will unfold in due course, but our early observations suggest that contractors are reviewing their procurement approach in favour of the client.

At Faithful+Gould we take pride in tailoring our approach to meets the needs of each development. Our aim is to get the best results from the procurement process, not only for our client but ideally for the whole design team. Teamwork, rather than a rigid hierarchical system, together with aiming for a balanced risk register, is more likely to bring about a satisfactory project outcome.

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