John Setra
Executive Chairman

Insights

Could this be the year of Construction Managament?

John Setra of construction management specialists K2CM argues for an alternative to the design and build method of procuring substantial projects

Many clients and investors are nervous about current market conditions, with all the resulting uncertainty and real risk of contractor insolvency, even of the largest construction companies. Laing O’Rourke’s recent record losses are a stark reminder of the difficulties faced by contractors.

With the background of a technical recession, high interest rates, material price inflation and skills shortages, the construction market has never seemed so precarious. So could the flexibility of construction management be the right solution for managing these risks?

Construction management (CM) last saw favour in the 1990s and early 2000s but is still seen by many to be the most intelligent way to procure substantial construction projects. Lump sum design and build (D&B) procurement is not always fit for purpose now because it sees high levels of risks passed to contractors and sub-contractors.

Even the largest contractors can be caught out by rising interest rates and skills shortages. Nevertheless, for the past 20 years, D&B has been the prevailing method of procuring projects.

Is it that the “professional consultants” who advise clients have become too comfortable and lazy in their approaches? Or are they not even aware of the alternative arrangements that exist?

Too many designers provide little more than “design intent” and then leave it to the contractor to make it work in practice. In reality, this means ditching much of the original design and starting again.

Project managers and quantity surveyors are often guilty of taking the easy route in promoting D&B – and very few lawyers and bankers would ever advise clients to retain more risk than absolutely necessary.

With construction management, the client pays a professional construction management provider to act as an extension of their organisation and manage these risks directly. In taking the risk on themselves, clients can achieve far better outcomes:

  • CM reduces the transactional costs associated with building projects because the margin built in by each contractor and sub-contractor in the hierarchy becomes cumulative and can get astronomically high as each company covers its own back and factors in risk upon risk within its tendered prices.
  • Contractors’ weak balance sheets mean they are less able to carry delivery risk at an acceptable price and many are unable to get these projects insured or guaranteed.
  • Under CM, each transaction is completely transparent and open to independent scrutiny. The savings generated are available to the client to then use as they see fit, while paying the supply chain fairly for their input. My firm is experiencing rapidly rising levels of interest from clients and investors who are nervous about the robustness of main contractors, or where speed to market and an overall lower cost of delivery is important enough to offset the need for a single point of responsibility.
  • Construction management enables earlier procurement of initial works packages allowing a fast start on site. Construction and design phases can be overlapped and programme length can be improved by up to 50% compared with traditional procurement routes.
  • Specialist trade contractors prefer to be employed directly by a client organisation rather than via a main contractor as it usually guarantees payment. This gives the client, designers and the construction manager access to buildability advice, innovation and specialist expertise at an early stage.
  • Construction management fosters collaboration and integration of the supply chain for the benefit of the project. In addition, high levels of ESG compliance and social impact can be assured using a CM model.

If all of that sounds too good to be true, it’s not… however clients that use CM should be aware that they play a greater role in the whole construction process and retain much of the risk normally passed to the main contractor. As such, the client organisation needs the skills and resources to deliver their role.

John Setra is executive chairman of construction management specialists K2CM, part of the K2 Consultancy family.

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