Can you make a profit from guaranteeing a maximum price? Despite Laing's Cardiff nightmare, Mace's new move suggests you can.
What is happening in the construction market at the moment? We have contractors moving into the private finance initiative; stopping any further involvement in PFI; merging with consultants to provide a one-stop shop; merging their building and civil engineering divisions; and demerging their management contracting services. A pretty confusing picture on the whole.

In among all this, we have some contractors getting their fingers burned while others are putting on oven gloves and plunging their hands into the hot stove for the first time.

If you are wondering what I am talking about, take a look at two recent announcements. First, Laing's loss of at least £20m on the Cardiff Millennium Stadium contract. It seems this was one design-and-build contract where a price had been tendered for a scheme that, in the end, turned out not to be quite feasible.

Negotiations were held with Laing, which was the lowest tenderer, to achieve a price for a revised scheme. Time was short. The price was agreed at £99m on the basis of sketchy information, and the job progressed.

Then disaster struck. For whatever reason, Laing had underpriced. Claims came in from at least one subcontractor. Under the contract, Laing carried the risk and was left with the bill.

The consequence? The departure of a number of staff and a new central management team to stop "local barons running the show". Somehow, Laing had completely failed to price the job correctly, either because of errors, or because of a lack of understanding of the complexities of the project.

And what is Laing's response? Predictably, to move into lower risk partnering and negotiated contracts.

Contrast this with the announcement from Mace that it is about to enter the lump-sum contracting market. This comes as something of a bombshell bearing in mind that Mace has always, in the past, made the running as the purest of the construction managers.

Who has got it right? Laing fleeing the kitchen, hands aflame; or asbestos-fingered Mace, passing in the other direction?

The principle of construction management is, of course, to work with the client rather than against it. Mace never used to accept lump-sum work as it thought that to do so would put it on the other side of the table from the client – in other words, make it into a contractor.

Who has got it right? Laing fleeing the kitchen, hands aflame; or asbestos-fingered Mace, passing in the other direction, towards the roaring lump-sum construction stove – a market that it thinks will enable it to increase its turnover threefold? Strangely, perhaps they are both right. Reading between the lines, I will take a guess at what happened to Laing at Cardiff.

I bet that it was a good old-fashioned lash-up and that not enough thought was put into the effect of the changes. I bet the original price was assumed to be right and was adjusted up or down for the alterations. I bet no one stood back from the job and looked at the wider picture. I would be surprised if there was much, if any, time to consult with subcontractors about the design changes and their cost implications. And if that was the case, then it must be a mistake, as it is the subcontractors that really have the specialist skills and knowledge in their particular trades.

So, why does Mace want to join the lump- sum market? Again, I will hazard a guess. It does not want to go for the cut-throat tender market. What it would rather do is transfer its expertise as construction manager to the lump-sum market.

Look at it this way – if you were Mace, running a project in the usual way and tendering trade contracts, then there should be little marking for overruns on the package tenders, as long as it is done right. When you have tendered all the trade contract packages, you can convert from a construction management basis to a lump sum by reviewing and adjusting the price to take account of any remaining risk. Clearly, if the client wants the conversion to take place before all the trade contracts have been tendered, the risk allowance will need to vary.

My guess is that what Mace is looking for is a long-term involvement in the project's planning and package tendering, and a lump-sum conversion at a stage when 70-80% of the trade contacts have been tendered. This gives it a stepping stone from construction management to lump sum, and it ought to work.