Tony Bingham Those canny Irish have put their £4bn roadbuilding programme on hold until they see what happens to the English experiment with design-and-build
Have you ever been across the sea to Ireland? Go. See Kerry, Galway, Limerick, Cork. Go by car; a car with good suspension springs. Why oh why did Ireland send its road makers abroad? The lads they left behind built interesting roads.
But now the road makers are all back home, and Ireland is building motorways, bridges and tunnels. The budget was *6bn (£4.2bn). Was, and is no longer. The auditor general said: “Following concerns expressed in the Committee of Public Accounts, I decided to review how the [estimate] was compiled.” He soon found that the *6bn contracts were going to end up costing *15bn. Embarrassing. It has made the Irish think about a better way to place civil engineering contracts. Ireland is now watching England’s approach and asking whether it will work.
Across the Irish sea, the traditional way to build and buy a road, bridge or tunnel is by way of the Irish form of civil engineering contract, which is almost identical to the ICE standard forms. Both are “remeasurement contracts”. The tricky parts for civils work are unforeseen ground conditions; iffy weather resulting in bogged-down plant; stumbling into the awkward squad; world price movements, legislation and regulations. The employer takes on such risks in those forms of contract. On top of that, costs wobble around because of variations, design changes and the remeasure. When the motorway tape is snipped, the smiles give way to scowls which give way to anxieties about the consequences of all these risks coming home. The auditor found that risks, changes and design alterations added more than 20%. Price variations added another 14%. Disruption added 7%.
My dear chap, we English could have told you to add at least 40% to your contract cost to get an idea of the out-turn cost. We could have told you that the cost of quarrelling with the contractor, the cost of quarrelling between contractors and subcontractors, and the cost of those who went bust while forking out for professional quarrellers, adds another shed load of euros.
The auditor general found that risks, changes and design alterations added more than 20%. Price variations added 14%. Disruption added 7%
So, the Irish are now experimenting with design-and-build contracts. The selling point of these is that well trotted-out phrase, “it passes the responsibility for managing key risks to the contractor”. Then there are other soothing phrases, like it “creates a less adversarial approach”. Tish-tosh. My dear chap, let me tell you that the 40% uplift in traditional contracts will be less than half that with design and build. That’s because the wise contractor will add a big lump to his rates and prices at bid stage to price for him taking the risks instead of you. There are more disputes on my desk about design and build than any other kind of work. No, no, that’s not correct, the score is about even. Risk is risk is risk. Contractors price it. You’re not getting a cheaper job, but what you are getting is less of a red face once the auditor general starts sniffing around.
The canny Irish are not sold on design and build, and are waiting to see what happens in the English experiment. Some call it prime contracting. It has got legs. It starts with a sound idea: select a contractor even before the public inquiry about the prospective road or whatever starts. Wow! Select the contractor by discovering whether it really has the right skills and attitude and experience for the work. Different! Scoundrels, bluffers and duffers are weeded out. Once the right “professional” contractor is selected, pay it a fee to work together to minimise the need for future costly design changes, identify ways to drive out inefficiencies and minimise the risk of costly disputes. The system includes an option of target cost contracts under which contractors are asked to bid at an early stage (before the detailed design) on the basis of best information. Then the incentive for the contractor is to co-operate with the client in finding the cheapest/quickest solution with bonuses on a management fee for earlier, cheaper delivery but penalties for late delivery or over-runs. The soothing phrase here is that client and contractor are in a win/win situation.
Well, perhaps. Our friends in Ireland are right to wait and see. As for the *15bn for all these roads, hurrah for the 4 million inhabitants who clubbed together to get all these euros. Did they all win the lottery?