When partnering was introduced, contractors tended to get landed with most of a project’s risk. In these days of high demand, they’re trying to pass it back to clients. But is that a good strategy?
Cast your mind back a few years. Our industry used to be described as a rollercoaster – up one minute, down the next. You couldn’t see a headline about contracting without being visually assaulted by the term “boom and bust”.
At the time, industry luminaries described the relationship between contractor and client as adversarial and said this must stop, for the good of all.
So in came the concept of partnering. No longer were contractors forced to participate in tender lotteries. Those prepared to fix prices and work as part of a team would be given the magical status of “preferred partner” – they wouldn’t have to bid for work and they would have a cadre of suppliers that would work on an open-book basis with “declared margins”.
Suppliers welcomed their earlier involvement in a project and the promise of a secure workload. Contractors offered to share the efficiencies gained from lessons learned and remained responsible for the risks down the supply chain. They would, of course, have preferred to share the pain as well, but not many clients employing contractors embraced this. They didn’t have to.
In the last cycle, when contractors were seeking work, partnering was heavily promoted. The contractors were appreciative of the steady flow of work but not necessarily comfortable with the risk profile. Nevertheless, they queued at the doors of clients, who for their part particularly enjoyed the fact that risk was being taken by somebody else, and that that somebody else had the power to control costs.
Now the balance has shifted again. We are in the pre-2012 boom and from Building Schools for the Future to the NHS, everyone seems to be busy. The market has changed for the better, work is around in abundance and contractors that are prepared to take risks are as rare as Northern Rock savers. With projects like the Cardiff Millennium stadium fiasco still fresh in their minds, contractors have the whip hand, and are prepared to use it.
As a result, the meaning of partnering has shifted as clients are informed that contractors will not bid for work. Rather, contractors are taking on the role of construction consultants and trying to avoid any risk. And if they are persuaded to begrudgingly take on some risk element, they inflate the price of the job.
When this happens they try to lay off the risk to their subcontractors – again with a corresponding price inflation. I have heard of one example where a painting and decorating firm was encouraged to take on what was termed “the design development” risk of the project.
Work is in abundance and contractors that are prepared to take risks are now as rare as Northern Rock savers
The retail prices index stands at about 3.5% for most areas of British industry, but in the world of the construction tender, it is reported to be closer to 10%. So what? I hear you cry. What is wrong with making money out of a buoyant market?
Now that there is more work available than there is capacity to do it, the period of glasnost between clients and contractors, when we all helped each other, seems a distant dream. Some clients, including a few of the larger developers, are considering managing subcontractors themselves. After all, if they are having to take all the risk and are no longer able to confer preferred status, why not cut out the middleman?
This could be bad for a project, though, as few clients have the skills to manage risk as well as contractors. Indeed, the lack of commercial responsibility undertaken by the contracting supply chain at the moment will work against the construction industry in the long run.
Many contractors would argue that the death of partnering has been exaggerated and that the concept is used as a form of contract on many successful, high-profile projects. They would add that some of the more enlightened clients have been partnering and sharing project risks for years.
However, I would question whether these firms are really enjoying the benefits of their long-term relationship. Even the most far-sighted clients complain that they are suffering as their partners say labour shortages and hikes in raw material costs have caused them to increase their prices. Contractors can say this, but I am not sure clients are buying it.
When the inevitable downturn occurs, I fear we will return to the adversarial positions that were adopted in the late eighties. This led to a rush of people leaving the industry, arguably laying the foundations for the skills shortages we suffer now.
Partnering was far from being a perfect arrangement, but if we see-saw between all the pain being endured by one party and all the gain enjoyed by the other, we will all suffer payback when the roles are reversed.
The industry would be wise to discard the make hay while the sun shines philosophy and readopt the adage that the client is always king.
Richard Steer is senior partner at Gleeds