A new form of working could benefit both builder and client
Contractors are like farmers in many ways. They are a vital part of the supply chain but they do love a good moan. It’s the goldilocks effect. The market is either too hot, in which case they pick and choose which jobs they want to tender, or the market is too cold and supply outstrips demand or they complain at their poor margins.
I appreciate not everyone is a house-builder with their huge profits and happy shareholders, and I have sympathy with many builders who bemoan their lot scraping by on wafer thin margins, especially those operating outside the south east. However, I really sense a change occurring at the moment in both the attitudes of clients and the wiser, larger contractors.
We recently saw 3 large contractors walk away from projects. Bouygues, Kier and Morgan Sindall have left jobs after bearing the cost of bidding and mobilising teams for what they saw as uneconomic work. The quantity surveyors are blamed for haggling too hard and making profits too small. If in doubt kick the quantity surveyor!
I think the market is in transition at present and we are starting to see both client and contractor accept that the pipeline of work post-2017 is decidedly uncertain. The old two-stage tendering process where 40% of costs would be established at the first stage of the procurement process but 60% would be subject to variances by sub-contractors, suppliers and market factors, is falling out of favour.
It is not surprising therefore that some are saying that the client has fallen out of love with this form of procurement and the contractors may be quietly starting to realise that a better way has to be found to work in a market that does not have such a certain future.
At a recent British Council of offices dinner, one started to hear the gentle ruminating of the idea of a return to single-stage lump sum tendering. Here, all the costs are exposed after a 6 to 8 week period of research by contractors. Possibly 3 suitors will put forward one price and one figure. There is obviously more risk for the contractors with what is in effect a fixed price and they may be tempted to build in some wiggle room. There is also a realisation that what some saw as the ‘golden era’ of clients accepting two-stage pricing is coming to an end. If not it means that projects are not going to get built and that developers will walk away from such an uncertain risk profile. Not all are happy however and the lump sum option did not appear to suit Bouygues, Kier and Morgan Sindall.
We may be seeing the start of a temperature change in the relationship between builder and client. The decision to walk away by 3 of our larger contractors, may be the sign by some in the supply chain that although the pipeline of work is starting to slow, they are not going back to the margins of the past. I am not sure that this stance can survive a declining long term market. If things are going to get built, establishing a new form of working relationship will be in both parties interest.