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Oct 09 2013

Take care with ‘collaborative’ change management

At the end of August, I read a Construction Enquirer report about a Danish contractor that was closing its UK operation: Pihl files for bankruptcy after ‘too aggressive expansion’.

It wasn’t just ambition that killed the business, but cost over-runs. According to the report, the contractor was caught out by recognising as income substantial claims against third parties and incurring unexpected costs for post-completion work on several projects. A statement said:

“The expansion took place without sufficient balance in the contract terms and without having sufficiently verified the credit quality of the foreign customers and sub-contractors, and without making sure that the qualities of the work processes and the risk management procedures were sufficient to support the increase in activity.”

At the time, reading between the lines, I identified Pihl’s issues were caused by over-estimation of the value of change – or at least the difference between value (of change) and cost (of change) – at the project level which probably wasn’t visible at the board level.

NBS contracts survey

NBS law surveyI was reminded of this today when I read about the latest NBS National Construction Contracts and Law Survey. Conducted by the UK building specification organisation NBS, with the help of more than 20 UK industry bodies, this survey (PDF) was completed by over 1,000 clients, contractors and consultants, and found that 30% had been involved in one or more contract entering into dispute in the last 12 months compared to 24% in the previous year, with 7% reporting that they had been involved in three or more disputes.

The tough economic climate was felt to have forced parties to be more adversarial, increasing the number of disputes, with more non-paying clients and clients going bankrupt. More than two-thirds (70%) of disputes occurred during the construction process, and most commonly arose between the client and main contractor (81%) with the assessment of delay and extension of time and contract variations cited as the primary causes of disagreement.

Sadly, nearly half of the survey’s respondents did not adopt any collaborative techniques in 2012, and only 10% did so for all projects. Perhaps because it was a law survey, the “collaborative techniques” mainly related to use of collaborative forms of contract, such as NEC3, and use of ‘partnering’ or ‘alliancing’ approaches. There was mention of information sharing and of electronic tendering but no mention of electronic document management or project collaboration platforms (in my view this was a major oversight in NBS’s research), and then some talk of building information modelling (BIM) – still hardly used at all. Forward-looking UK construction businesses have been using online collaboration systems since at least 2000, and yet their use was overlooked.

Two things stand out for me. First, we need for greater use of standard contracts – something highlighted in the report’s foreword by Richard Waterhouse, Chief Executive of NBS’s parent company, RIBA Enterprises:

“Further work is required to develop knowledge on how to improve and create effective contractual mechanisms that provide the framework for collaboration in construction projects

While disputes appear to be increasing, use of industry standard contract forms is not. Bespoke contracts and appointment arrangements remain prevalent. The survey gives us no evidence to support the view that bespoke contracts are a way of avoiding dispute.”

Second, I think NBS should be enquiring more deeply into how teams share information and manage contractual processes. There are many sophisticated industry clients, contractors and consultants who routinely deploy web-based collaborative platforms to support project control, information-sharing and forecasting that help both project teams and their corporate colleagues at head office monitor and visualise the impacts of contract changes. (It would be interesting to know if this is the same in other markets).

It’s easy to have 20:20 hindsight, of course, but if Pihl had used CONJECT Commercial Management, for example, it might have had much better visibility of its exposure to changes across its projects.

About the author

Duncan Kneller

Duncan Kneller is director of sales at Conject. He joined the company in 2000 and quickly established himself as a key sales and account manager, before taking on the sales director role in 2011. Duncan has also spearheaded the company's cycling fund-raising events in recent years.

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