Steven Morgan, BAA’s capital projects director, has introduced a financial incentive plan that could boost contractors’ profit margins from 2% to more than 6%
Morgan revealed the three-pronged reward scheme at a BAA meeting for existing and potential supply chain members this week.
He said: “The average margin is around 2%, but we can offer around 3-4% in addition to that, which is not a bad return. This is about incentivising and rather than all holding hands and singing songs, I am offering my contractors the chance to make some extra money.”
The first element of the plan, which is a bonus for any firm that suggests a cost-saving innovation, is one Morgan claims has never been used in the UK and will reward contractors with a percentage of the saving for as long as it is cost effective.
Contractors could also win an extra fee every six months, which will be paid at Morgan’s discretion, based on the firm meeting a set of criteria including working on time and budget, health and safety record and the level of co-operation with BAA.
The third part of the plan will see contractors share the client’s savings if a project underruns or comes in under budget, although they will be charged for any cost or time overruns.
Companies on the BAA framework include Kier, Rok, Osborne, Warings and Willmott Dixon. BAA is set to spend £4bn on construction by 2013.
Morgan also revealed he is no longer looking outside the construction industry for supply chain members, following his announcement last year that he wanted to attract international firms from the energy and nuclear sectors. He said he had been impressed by contractors’ recent performances.