As money for schemes is squeezed, clients will opt for lowest price tenders. But contractors will then seek to boost their income through claims and variations, warns Sir Michael Latham
In my article on 1 April, I shared with you the problems arising from the huge deficit in public finances. Since then, there has been a change of government followed by the emergency Budget last month, as a result of which some capital projects have been deferred or cancelled, most notably the Building Schools for the Future programme. In October, the Comprehensive Spending Review is likely to bring cancellations to many more capital schemes.
So, how do we get out of this mess? A considerable number of clients, both in the public and the private sectors, are now saying, either through their cost consultants or directly, that they can get lower prices if they go back to choosing the lowest priced tender. Some local authorities may themselves be cost consultants and know that they can get a lower tender price or a lower fee bid from their architects or engineers.
During periods of low fee bids, the only way consultants can make any money is by sending new invoices every time they send an email or go on site or make a telephone call
Yes, they will. But that’s not actually how it will turn out. The main contractor and the specialist contractors - because the subcontractors actually do 95% of the site work on a major or medium-sized projects - will be looking for claims and variations to make any money at all.
When I wrote Constructing the Team in 1994, I referred to the important survey that the Royal Incorporation of Architects in Scotland carried out among its members. One of them said: “We look to limit our service in the fee-tendered service and are prepared to claim for extra services. We only make the client aware when appropriate. We cut back on stages A to D and severely limit after stage G and are ready to claim for any additional efforts.” Another said: “We’ll fight to minimise investment, visits to site will be limited … The number of production drawings will be cut by 30%.” The Association of Consulting Engineers responded similarly.
So, during periods of low fee bids, as in 1994 and now in 2010, the only way consultants can make any money is by sending new invoices every time they send an email or go on site or make a telephone call to the client or the contractor. One wonders how the client could be satisfied with that outcome. But they chose a low fee bid or a low tender, so it is a problem for them alone.
I regularly tell clients that you cannot go to bed on Friday night as an adversarial client or contractor, and then turn up on Monday morning as a partnering entity
From 1983 to 1992, I was on the Public Accounts Committee of the House of Commons. Virtually every year, the permanent secretary of the Department for Transport appeared in front of us to explain why his capital budget was overspent by 27%. He would say that they needed a new bridge to be built, or the ground investigation was not good enough. What he probably did not know - and this was before the Highways Agency was set up - was that the only way the contractor could make any money at all was through claims and variations.
Today, the Highways Agency is a good client, which I welcome.
I regularly tell clients, particularly public sector clients, either in my capacity as chairman of CWC (UK), a consultancy company, or as partnering adviser to Willmott Dixon, that you cannot go to bed on Friday night as an adversarial client or contractor, and then turn up on Monday morning as a partnering entity. You need plenty of external and impartial training. A lead from the main board or leadership from the public sector client is essential.
There are four types of people who do not like partnering. The first is the manager of 25 years who says that they will do the work in their way, as they have always done. The second is another manager of 25 years who says to themselves that maybe they should go on a workshop to study partnering, but if they do, the youngster who has just joined the organisation from university might get their job, so they don’t risk it.
The third is the main contractor who says they are already partnering, but then squeezes their subcontractors and pays them late. The fourth is the site manager who thinks to themselves that the boss comes on site once a month, so they will tell them that all is good on site, but then they go bawling out all the subcontractors and carry on the same way as they have always done, which is adversarial.
In my next article, in October, I will carry this message further. But best practice is best practice.