What are the risks concerning consultants in the current market? And how do you help alleviate them. The latest Griffiths & Armour/Infrastructure Intelligence meeting found out.

Jackie Whitelaw reports.

Contractors, the election and fragmentation of major programmes by clients resulting in little visibility of future workload are all causing consultants concern in terms of managing risk as the industry recovers from recession, the latest Griffiths & Armour/Infrastructure Intelligence breakfast debate revealed.

And the greatest concern is contractors. Industry has been awash with stories of the companies who put in cut price bids in recession to hang on to cash flow that are now finding themselves in all sorts of trouble as an unexpectedly quick recovery leaves them locked into fixed priced deals just as costs of materials and labour are rising. 

Infrastructure Intelligence is working with Griffith & Armour to help share best practice across the industry as a fundamental step in helping raise the industry’s performance when it comes to managing risk. A number of important case studies have been brought together on-line at www.infrastructure-intelligence.com to highlight lessons to be learned when avoiding contractual liability claims. This work will be expanded over 2015 to assemble a comprehensive information resource to help guide professionals towards a lower claim, lower cost future.

One remedy now being seen is to put in claims to replenish that lost cash, said our group of consulting bosses. And consultants are a particular target as they are at the front end of recovery and contractors can see them doing well and earning increasing margins. 

“When the cost of a brickie has doubled on jobs bid 18 months ago, what was a marginal cost has gone through the roof. At the same time consultancy is doing well even though it is stretching at the seams. We expect more claims,” said BLM partner Keith Lonsdale. “And we are noticing that there is a long lead time. Issues from 2009/10 are just coming to light now and from even earlier. 

“That said, though, in this recovery claims so far have not quite followed the pattern of earlier post recession activity. After the recession of the early 90s the courts were rammed with claims in the mid years of the decade. It’s not the same now. Things are resolved quicker and there are less disputes.”

Most of the consultants were resigned to the inevitable. “There is no doubt that if a contract is losing money we are going to feel some pain too,” said regional and divisional managing director for Buro Happold Neil Squibbs. “It’s all down to our record keeping; that’s the only thing that can help us.”

“What we are tending to see when companies do a lot of work for contractors is that the claims come to them more quickly than if they are working directly for a client. We have also seen an increase in the quantity of claims, a lot of them spurious, during the recovery in the last two years,” said Tony Gee director Richard Prosser.

Not all businesses had the same experience. According to Pell Frischmann company secretary Linda Roberts: “When the recession started, from 2008 onwards, there was a spate of notifications led by contractors who had priced at the margins. There is less appetite now.”

For Arup director Alison Norrish this was all to be expected from the current procurement cycle where the popularity of design and build in various guises, which she understands, means jobs are mostly contractor led and will be going forward – from Crossrail to HS2 and Thames Tideway Tunnel. “For consultants that’s high risk territory and likely to be a bigger challenge than anything else.”

Participants

Alison Norrish, director, Arup

Keith Lonsdale, partner, BLM

Neil Squibbs, regional and divisional MD, Buro Happold

Denise Bower, chief executive, Major Projects Association

Linda Roberts, company secretary, Pell Frischmann

Chris Rhodes, head of project management, Ramboll

Steven Trewhella, director, Royal HaskoningDHV

Richard Prosser, director, Tony Gee & Partners

Scot Parkhurst, managing director, Tyréns

Nick Taylor, chief executive, Waterman

Gareth Arber, head of legal, WYG

Steve Bamforth, chief executive, Griffiths & Armour

Antony Oliver, editor, Infrastructure Intelligence

Jackie Whitelaw, associate editor, Infrastructure Intelligence

The remedies need to include a focus on risk management even when you are stretched because there is suddenly so much work, said Griffiths & Armour chief executive Stephen Bamforth. “There is now money available so you will start to see claims coming back to life. And you have to make the effort to protect yourselves now because by the time the claims come through the insurance market will have hardened and will likely coincide with the next recession which would be a double whammy for consultants.”

Businesses admitted to becoming more hard nosed and more selective about who they worked for. “It’s my job to get a grip on our projects and ensure our teams become more cogniscent of risks,” said Ramboll head of project management Chris Rhodes. “We are focused on a stringent decision gate process and we are prepared to tell a director that perhaps this isn’t the client for us when this is perhaps the third job on which we’ve worked with that company and we’ve lost money.”

There is also an issue with time taken by contractors to resolve claims from consultants. “Working with contractors is challenging,” said Tyréns managing director Scot Parkhurst. “Their resources are stretched and if you put in a claim for compensation their QS team are juggling a lot of stuff and are not interested and want to deal with it down the line, at the end of the job. But you need it dealt with or the issues will just build up.”

Bamforth said that the lessons to be learned are the same ones that have been there for years – get the documentation right and keep it up to date; understand the contract and work to it; and don’t cut corners with insufficient resources.

BIM

No meeting of consultants can not mention BIM these days and the G&A breakfast was no exception. There was concern that consultants were not in the driving seat on BIM implementation as they did not have the funds to invest that it was perceived contractors did have.

But on a positive note there was general agreement that the CIC BIM protocol was building up a head of steam and helping to level the playing field. “What I have started to see encouragingly is the specification of the CIC BIM protocol and it prevents one party disproportionately floating the risk,” said Tony Gee’s Prosser. 

Clients need to be helped to understand the implications of BIM more and to understand the protocols for sharing risk, it was agreed. “We found in a recent review that our staff are prepared for BIM, but some of our clients didn’t understand what it was and not all projects were ready for it,” said WYG legal director Gareth Arber.

“Where we are finding lack of knowledge is with the clients. As an industry we need to recognise this and get into the client side so the BIM strategy is set from the outset and the CIC protocol is recognised in the contract.” Issues ahead included having enough people trained to implement BIM. “In terms of risk, we need to make sure that our staff are appropriately trained otherwise risks will increase” said Waterman’s Nick Taylor. 

“BIM requires senior engineers and technicians who have extensive experience so that they can review the output from the computers. During the recession we continued to invest in training and this has given us an advantage over our competitors. Waterman in the past has recruited apprentices direct from schools as we have found that they tend to be more loyal in the long term than university graduates. However, all consultants shoulder the responsibility of training engineers for the future.  We are all going to find ourselves competing for the same resource.”

“Our experience is that integrated project insurance enables true project collaboration and has the potential to be a game changer” Gareth Arber, WYG

Royal HaskoningDHV’s Steven Trewhella agreed but questioned how consultants could externalise the impact of overheads particularly when projects were being worked on in phases with no guarantee that the next phase would go ahead. “Only through collaboration can we afford it,” he said.

In terms of Professional Indemnity Insurance, the insurers are pretty comfortable with BIM, G&A’s Bamforth said. “We worked with Beale & Co on the CIC Protocol so we are relaxed about where we are now. But the next stage to BIM 3 is different. That is where BIM becomes a tool for collaboration and it requires integrated teams, open book accounts and an informed client. And it needs integrated project insurance.”

Integrated project insurance

IPI is an innovative form of insurance that insures project risks rather than liabilities. It operates on a blame-free basis and insures outcomes rather than causes; all members of the project are covered – including the client – and all rights of subrogation are waived (for details click here).

“It is designed to encourage collaboration,” Bamforth explained to an audience who grew more enthusiastic the more they understood the process of IPI. “The client pays for the insurance as part of the project cost plan and will claim on the insurance if there is an issue. All parties to the project take the degree of pain proportionate to their ability to pay. It means the team can’t ignore problems and have to work together to sort it out.”

“There is no doubt if a contract is losing money we are going to feel some pain too”

Neil Squibbs, Buro Happold

WYG’s Arber has experience of working with IPI on one of the trials being supported by the government on a public sector job.

“Some of the seasoned team were sceptical at first but were quickly won over by the experience,” he said. “Getting the right team together for an IPI project is very important and there were workshops to get that established. If people are adversarial, as some traditional forms of contract require, they need to be re-educated or they are not the right people for a collaborative  job.

“At the project start, all the usual barriers to collaboration are broken down so a true team is formed and rather than some contracts, where collaboration is mentioned at the start and is then forgotten, collaboration continued and increased throughout the project. Our experience is that IPI underwrites, encourages and enables true collaboration and has the potential to be a game changer for the construction industry”

“If we want to manage risk we need to commit to solve all the problem not put together a jigsaw one piece at a time”

Steven Trewhella, Royal HaskoningDHV

G&A has been working with government through the Cabinet Office on developing IPI. “There is very strong buy-in from there. It can see that the difference with IPI is that it drives collaboration even when things go wrong,” Bamforth said.

This also means that the biggest party with the deepest pockets no longer assumed to be the right organisation to lead the project. “It could be a designer who leads the team, it doesn’t have to be the contractor. But what will happen is that good, collaborative teams will become high value assets attracting lower premiums. Bad teams will be costed out of the market,” Bamforth said.

Election and EU referendum

Consultants do not like uncertainty and there is nothing more uncertain than a general election and indeed the possibility of a referendum on Britain’s membership of the EU shortly afterwards. “The private sector doesn’t like uncertainty either,” said BDP director Peter Drummond and in terms of commercial investment if it hasn’t started by the end of 2016, it won’t.”

“All consultants should shoulder the responsibility of training engineers for the future”

Nick Taylor, Waterman

According to Waterman chief executive Nick Taylor:  “I am concerned that there could be a slow down in 2017 resulting from the proposed European referendum. 

If a referendum occurs, the uncertainty may reduce property development and investment and companies will not recruit staff.”

Project fragmentation

There is a perceived lack of confidence within clients – both public and private sector – which means they are not prepared to commit to a whole project but want instead to build it in stages. Not efficient, and not good for risk management said the consultants.

“If we want to manage risk we need to commit to solve all the problem not put together a jigsaw one piece at a time which is expensive and difficult to manage,” said Royal HaskoningDHV director Steven Trewhella.

“Things are a little clunky, you can’t really plan. With frameworks there is often that euphoria when you win it, but that soon dissipates when reality set in and a year later you realize that despite your best efforts you have still had only limited work from it. Was the work ever really there? You would be brave to recruit solely on the back of a recently won framework.” said Ramboll’s Rhodes.