Avoiding Athens

As the 2012 Olympics looms ever closer, the pressure is on the industry to ensure that delivery of construction projects will be smooth and efficient. But as significant efforts are made to ensure a focus on whole-life value and sustainability the construction industry continues to make a fatal error that is costing hundreds of millions of pounds every year.

We’ve talked the talk in Singapore. We’ve celebrated in front of millions. But, as the reality of 2012 Olympics slowly dawns upon the UK construction industry, we risk putting out the Olympic torch.

Each year the UK construction industry wastes millions of pounds because of a failure to understand something as fundamental as robust contract management. A figure in the order of £500m to be precise. As the immovable deadlines and budget targets of the Games approach, this lack of attention to contracts has the potential to hamper our efforts before they are fully underway. But in the flurry of activity aimed at addressing the huge task ahead, are we really seeing things clearly?

Skills shortages are the words on everyone’s lips as the enormity of the wider scope of London 2012 finally sinks in, but references to the role of the QS are few and far between. This is a fatal mistake.

Let’s think about it logically. If you’re ill, you see a doctor, if a crime is committed you call the police. It’s common sense to bring the professionals on board. So why are we still failing to address the current shortage of skilled QSs? These professionals will be essential in ensuring the establishment and management of the contract agreements needed to see us safely through the next eight years.

The build-up to the Olympics will put the construction industry under pressure unlike anything it has faced before and amidst this hub of activity, vulnerability to dispute will be heightened. With professionals on board to oversee the smooth delivery of contracts, the UK construction industry has the ability to do itself proud. A failure to take these measures could produce an Athens Games scenario.

Skills shortages are the words on everyone’s lips as the enormity of the wider scope of London 2012 finally sinks in

The potential 2012 Olympics story looks depressingly familiar. A contractor competitively bids for a contract, focusing on time and costs. The contract itself concentrates on the terms and scope of the project but fails to provide clarity as to how the parties will manage and administer it during construction. This inevitably results in misunderstandings, ambiguities, miscommunications and failure to meet the contract requirements – a major problem in an industry where profit margins are tight. Meanwhile, the contractor is delayed, notices for time extensions and associated costs may be submitted in accordance with the contractual requirements, but the real reasons for delays and necessary mitigation measures are subsumed by arguments, leaving contractors to face the contractual consequences of late delivery and cost overrun.

With such huge figures at stake, why has there been a reluctance to change the way the industry conducts itself? The answer is clear – a failure to understand the contract, its mechanisms and the defined obligations and liabilities.

As a specialist consultancy in the field of contract management and procurement, we see the results of this first-hand. The situation is compounded by the fact that few contracts focus the necessary attention, processes and resources by which such problems could be anticipated and prevented.

This is about actual results at grassroots level. One client with whom we work invested £100k on contract management. This was spread over 20 contracts and identified a staggering £5m of additional revenue. Now imagine the potential savings on the overall £1.4bn investment in the Olympics. Far from reverting to a focus on cost-cutting, stringent contract management releases funds for future investment and ensures that disputes do not hamper the delivery of an essential project.

The contract implementation problems usually have their genesis in the tender stage and the challenge lies with contractors to ensure they understand how the contract conditions are to be practically applied. An early and informed understanding of liabilities and responsibilities and the implementation of effective contract management processes is the best and only way forward from this.