Operating in uncertain times: How can the construction industry adapt to a ‘new normal’?

Low margins, friction and fragmentation

Construction is a low margin industry. Where tier one contractors win contracts and then attempt to drive down sub-contractor prices to improve margins this creates friction and leads to disputes. Collaboration and flexibility are the solutions. There are an increasing number of initiatives to help foster collaboration, the Construction Leadership Council is one example, says Justin.

In the past few months RICS has been seeing more small and medium-sized enterprises using adjudication and more than once, painting a picture of an industry rife with disputes, notes Martin. The industry desperately needs a culture change and to move away from its historical combative, adversarial nature. In the UK, for example, the government is promoting conflict avoidance and early intervention, encouraging parties through guidance and through policy notes to try and work to resolve issues before they turn into disputes.

Banking disputes and breathing space

‘When the pandemic started, there was lots of goodwill and willingness to compromise, as the situation was so unprecedented. Parties were willing to delay entering into disputes to see if issues could be resolved. But now it’s back to normal' says Laura Lintott, Senior Associate at Trowers & Hamlins. ‘Changes in economic conditions can lead to an increase in disputes. This can be because companies have the funds to afford the legal fees, but it can also be because they are desperate to get everything they feel is owed to them.’

‘Mediation can give parties in a dispute breathing space, especially when litigation has commenced, and they are highly emotionally charged. It is also very cost effective’ explains Laura. However, parties will come under different pressures and will have different agendas. ‘How amenable they are to mediation can depend on circumstances, such as their comparative sizes and financial targets.’

Catalyst, concerns, catch-22, and collaboration

‘Technology has the capacity to help reduce construction disputes, particularly in difficult situations which tend to spur innovation’ says Helen Collie, Technical Director at HKA.  ‘However, new technology potentially has a role in increasing disputes as well’. COVID-19 has been a catalyst for digitalisation in the industry, but some changes may have come around too fast, Helen explains. Construction has been a technologically conservative industry, but the past 18 months have forced a reliance on technology. This reliance, combined with inexperience and skills shortages, has given people some cause for concern. However, technologies such as BIM, and Digital Twins are both extremely powerful tools. ‘In short, a BIM model allows you to test ideas quickly and efficiently – such as with clash detection. Digital Twins promise to be extremely effective in identifying problems several years down the line. Physical technologies like drones, and Augmented Reality (AR) are also important. AR can be used when sites are down or unsafe to walk around.’

The construction industry faces a catch-22 situation when it comes to adopting new technology. ‘Small projects, while seemingly perfect for technology trials, are too small to justify the cost. Large projects offer the economies of scale, but their size makes the use of new technology too risky. Better collaboration and sharing of best practice would help lead to greater adoption of new technology on bigger projects,’ says Helen. ‘When that information is not available, there is a tendency for project managers or for engineers to continue with the same, old methods. It works, it doesn't always lead to the best result, but it's at least predictable – whereas the outcome with using new technology is unpredictable. And construction doesn't like unpredictability, because you're spending a lot of money and you want a fixed result at the end.’