UK Construction 2019 – What next? London 2019

Procurement

Current procurement methods are not working well for developers or contractors. The move from single stage to two-stage tendering has given rise to risk and debt issues. Two-stage tenders are complex, time consuming and expensive, and Tier 1 contractors are losing interest in participating. They are trying to consolidate their positions and pulling back from assumption of risk. Two-stage tenders are also not working well for employers as they do not have visibility of outturn cost until late on. Often the second stage tender is not an open book, which leads to a lack of trust.

This was considered to be the wrong structure to try to get people working together. Consideration should be given to alternatives to the two-stage bid in favour of delivery models which risk-share more, move away from approaches driven only by profit and focus on better quality.

Early involvement of the supply chain can bring benefits. For example, for developers/property investors prior to purchasing sites to manage expectations regarding budget for the potential project. The developer market is currently running hot in that there are not many properties coming onto the market leading to a lot of competition for each property and a requirement for development costs to be at the right level. Certainty of cost, programme and quality are key.

A potential solution is for “front end clusters” – procuring only the ground-work contractor whilst finalising design and before procuring the infrastructure.

Other key points highlighted include:

• Government could do more to pave the way for infrastructure in the UK
• PPP/PFI has proven to be an unpopular model
• The off-balance sheet treatment has led to higher pricing.
• Clients are looking for something other than design and build.
• There has been a move towards construction management/management contracting.

Resources

Challenges brought by a shallow supply chain are increasing. The supply chain is struggling with cash flow, low margins, labour and diminished apprenticeship opportunities. There is a short to medium term need for more skilled labour.

Contractors from outside the UK currently see the UK as an opportunity. They are experiencing difficulties with attracting the interest of the local supply chain. It is therefore not a simple process to enter the market and achieve best pricing and compliance with UK-specific regulation.

Post Brexit, European contractors will still need to recruit local talent to be successful in the UK to become able to self-deliver, but it was agreed that there is lack of skilled labour. More vocational training is necessary as well as upskilling internally and making better use of technology.

Construction has an image problem in terms of attracting new entrants. It is perceived as being behind the curve and to present a challenging working environment. As there is no easy answer to how to attract vibrant and enthusiastic young people, structural change is required. There is a role for government to encourage vocational training and modern skills development and to act as an exemplar-client.

Technology, Digitalisation and Disruption

The industry is ripe for disruption. This will be driven by the level of investment.

Modern Methods of Construction, digitalisation and smart assets are all coming to the fore. There is huge growth in Proptech. The construction industry presents an enormous opportunity and it is likely to attract the attention of technology companies.

Project and cost management companies are investing in technology to develop more accurate price information, which should assist in setting of realistic budgets and testing potentially undeliverable pricing. Data driven pricing is likely to change practices, leading to more certainty at an earlier stage.

Digitalisation has led to the use of software engineers to challenge the old methods and create newer methods that "lean out" the construction processes and enable better project collaboration and enhanced project productivity.

Modular construction is featuring a lot in the residential market but there is the potential for significant disruption if this can be rolled out to the commercial market. Modular capacity has not yet been fully put in place in the UK. An increase from c.20% to c.40% is expected in the short term.

The modular industry is comprised of a relatively small supply chain which does not have strong balance sheets. Their work tends to be on the critical path, meaning it is difficult for main contractors to make the leap of faith. However, rewards can be high with significant savings available and as the market develops, the risks will reduce.

Issues arise with behaviours. The more experienced generation are tending to resist change and "hearts and minds" change is required to overcome this. There is also a need for skilled apprentices and graduates.

BIM brings real benefits in terms of its collaborative data environment, its use of virtual reality design walk-throughs and quality assurances drastically reduce clashes and so it de-risks projects. However, there is currently a lack of capability. The technology is there, the issue now is how to develop teams and capabilities.

Again, Government could take the lead in making use of technology and digitalisation in its procurement methods.

Partnership and Collaboration

Relationships are essential to the future success of the industry and trust is at the heart of a project, which can easily be eroded. It can be won through demonstrating successful project delivery over time.

It is easier to overcome challenges when collaborating, and the use of BIM design reviews in a more collaborative way and BIM assurance in order to de-risk projects are potential solutions.

There is a need to change behaviours to build relationships. This may mean not always strictly applying the black letter of the contract, but instead prioritising the long-term objectives to achieve collaboration and innovation.

Some developers are using Project Bank Accounts to build a reputation for good payment practices.

There is a move towards clients wanting a one-stop-shop for Architect, Engineer and Project Manager and looking at ways to collaborate to drive efficiencies. Contractors are also looking at who to partner with, and academics able to drive forward research and development and tech start-ups are targets.

It is possible to “lean out” construction processes but this can be constrained by design. For this to succeed it requires collaboration amongst the full project team.

Funders’ demands in relation to contracts can present an obstacle to a more collaborative approach and prevent flexibility. This approach works best when all parties get involved to try to solve problems with an ethos of “the project’s problem is your problem”. Building trust is necessary to achieve that and it is the client’s responsibility to set the tone. It is also helpful to have a pipeline of work to allow relationships to be built. When putting in place frameworks, carrying out background checks and taking up references is useful in identifying suitable, collaborative parties.