You asked us: Building construction industry resilience to global headwinds

How is the drive to net zero being impacted by the current economic environment? Are clients still too focused on the lowest cost and contractors on their margins? And What can clients do to address skills shortages? During our recent webinar: Battling the headwinds: Navigating construction industry storms and building resilience for the future, you asked us. Here, our experts respond.

Expert panellists:

Harry College, Partner, HKA

Julia Humpidge, Principal, Forensic Technical Services, HKA

How do you see the drive to net zero being impacted in the current environment?

Julia Humpidge: The sheer number of low carbon and green energy projects underway and in the pipeline will put enormous pressure on the already stretched supply chain and skills shortage. The current environment of uncertainty and inflation will only exacerbate the issues.

Harry College: Whilst the current economic context places heightened pressure on parties across the construction supply chain, the challenge to achieve Net Zero is not going away. Regulatory and policy drivers are only being accelerated to drive further change. Equally, new contractual frameworks can also be an enabler for the transition to low-carbon construction. In July 2022 the New Engineering Contract (NEC) released the new secondary option X29 designed to help the construction industry achieve net zero emissions and deliver sustainability in built assets. They allow clients to specify ‘climate change requirements’, including use of renewable energy on site and designs that reduce carbon emissions. Failures to comply are treated as breaches or defects. A disclosure clause allows environmental performance data to be gathered, disclosed, and publicised.

Professional bodies representing surveyors, architects, and lawyers have also proposed embodied carbon criteria and commercial agreements to align contracts with net-zero targets. It remains to be seen if other widely used standard forms will embrace the greening of construction and engineering projects – and how widely they are adopted by private as well as public clients. Many international and British Standards now include sustainability requirements for projects, whilst some financiers have made capital loans contingent on borrowers’ commitments to build sustainable measures into project delivery.

Further exploration of additional R&D tax breaks for innovation in green technology, acceleration of repeatable off-site Modern Methods of Construction with lower carbon materials should be undertaken, so that the supply chain has an incentive to invest from a financial perspective

We are roughly 30 years on from Latham's 1994 Constructing the team report which aimed to revolutionise construction especially focussing on client / contractor relationships.  Would you argue that we haven’t moved on that much at all, and clients are still too focussed on lowest cost and contractors on their margin?

HC: There remains pressure on costs, and by extension margins for contractors and these issues are heavily embedded within the sector.

Though adoption is not as widespread as it could be, the lessons being championed by the likes of The Institution of Civil Engineer’s Project 13 and The Construction Playbook are playing a strong role in influencing change in behaviours and culture in construction through specific methods of delivery. The ravages of both COVD-19 and war in Europe continue to take their toll and parties are seeking, particularly on larger scale, longer term contracts, to seek to enact more joined up, collaborative ways of working. This needs to ripple down to shorter term projects.

However, because further into the supply chain, there remains a large proliferation of suppliers, this does inevitably bring about high levels of competition; a race to the bottom on price needs to be avoided, so that outputs will stand the test of time, i.e. seek to rank quality as opposed to price as a more important criterion.

What can we do to get clients to move to a more collaborative mindset with contract procedures and risks rather than instructing lawyers to lay all the risk with the contractor?

HC: There are four things that I would highlight:

Firstly, we can demonstrate that fair and equitable sharing of risk will deliver better project outcomes in terms of time, cost and quality.

Secondly, we can identify who between the employer and the members of its supply chain are best placed (commercially and operationally) to own and manage risk.

Thirdly, client and supply chain need to work collaboratively to ensure the contract is being administered well, so that challenges, issues and risks are highlighted earlier and mitigated in a pre-emptive manner.

Finally, clients can engage the contractor (and supply chain at large) earlier to mature required outcomes and design as far as practicable, in order to collectively identify project delivery risks.

JH: I’d also add that greater transparency on costs and margin is required to build the trust needed for this to be successful.

What are the benefits of team coaching in the avoidance of disputes and poor performance?

JH: Team coaching, where both employer and contractor teams are coached to become one team, is a crucial first step to building a more collaborative project environment. Leadership from both parties needs to be very visible on this to ensure the collaborative culture reaches all areas of the project team. Where the time is given to set clear project objectives, rather than employer or contractor objectives, and the plan to reach them is developed, then this can be a hugely beneficial step in achieving the desired project outcomes and reducing disputes.

HC: Team onboarding is critical – joint understanding across all parties of project outcomes has to be in place. This requires coaching in leadership and communication skills at senior levels to avoid parochialism; rather, an emphasis by project leaders needs to be placed on creating team unity for the good of achieving overall project outcomes.

Coaching and development should cover all stakeholders from across the supply chain involved in project delivery and be founded on providing new ways of working. The emphasis in coaching has to be on ‘project outcomes must come first’ regardless of which company you work for in the supply chain.

Encourage coaching that promotes more open communication; a culture of encouraging parties to raise issues earlier without fear of recrimination, so that solutions to technical issues can be addressed before they escalate into being major risks.

The CRUX Insight report highlights that skills shortage is a key headwind. What can clients do to help address this?

HC: I would highlight a few things here:

·        Provide surety of pipeline to allow contractors to know there is consistency of demand. This will allow contractors the confidence to continue to invest in encouraging / sponsoring education for new talent; continue to build requirements for apprenticeships, shorter term programmes to upskill and appoint new candidates.

·        Further engagement with schools, colleges, FE Institutions and Universities.

·        Address the issue of the image of Construction – it’s not just about muddy sites with a macho culture.

·        Engage a wider diversity of talent – women need to be attracted to the sector.

·        Communicate the role that ICT, systems and technology are playing to entice talent into construction.

JH: Taking a longer term view is key to getting engagement here. There are no quick fixes when hearts and minds need to be won over.

What approaches can the industry take to step forward to avoid challenges likely to be faced in 2023?

HC: A change of mindset in both public and private sectors at industry, enterprise and project level is needed. This is about:

·        creating of long-term pipelines of work focused on the delivery of desired outcomes and value;

·        a re-balancing of risk allocation, so that risk is fairly shared;

·        engaging the supply chain earlier; and

·        a wider perspective of talent acquisition and development.

The client needs to understand the capacity and capability of the supply chain before determining its procurement and delivery model and bringing a project to market. Collaboration is also needed on embedding digital technologies founded on common data environments to enable greater delivery efficiency.

Costs can be tested and evaluated to ensure realism, as opposed to optimism bias. There can also be consideration of the basis for a contract award. Most Economically Advantageous Tender should not just mean cheapest; it should emphasise a better evaluation of outcomes to be delivered and quality to be provided.

Identifying payment mechanism improvements (whilst ensuring relevant delivery performance in place) can help assist cash flow.

Construction project stakeholders can also plan early for the means of de-escalating problems before they arise; pre-emption rather than resolution of problems needs to be adopted. Contract challenge sessions can be used to establish whether the contracting approach is watertight, but equitable.