How to handle risk better, including a move away from focusing on just cost, was discussed at a recent ICE roundtable.
ICE yesterday hosted an industry insight roundtable bringing together directors from the built environment sector and government departments to discuss how approaches to handling risk in the built environment can be improved.
The roundtable followed publication of ICE’s briefing on improving approaches to risk that was issued in December. The briefing emphasised that infrastructure owners, the sector and government must pivot toward supporting innovative ideas, move from a transactional business model to an enterprise and evolve procurement, so that lowest upfront cost isn’t placed above long-term outcomes and social impact.
The difficulty of the current contracting environment
A recurring theme at the roundtable was the nature of the environment in which contractors and engineers work and the limitations of how contracts work.
There was general agreement that the UK was ahead of many international competitors when it came to contracts, with more flexible options available which meet the needs of clients and allow contractors scope to deliver.
However, the environment around the sector is more concerning. While behaviours continue to ‘drive price down’ there are restrictions placed on contractors on how much they can innovate or apply novel solutions for the problems they’re asked to address.
When asked to ‘design and build’ a project, too often contractors are actually being asked to ‘detail and build’ as many conditions are pre-set.
Aversion to risk is also considered a major restriction in the UK. Participants highlighted the effect of specifications and regulation in preventing the adoption of new methods. There’s an increasing need to rely on legal advice and a preference for ‘tried and tested’ methods which might have a known risk but stifle any effort to try and develop efficiencies.
The roundtable also considered the effect of a fixation on failure, with too much emphasis placed on what goes wrong but not that which goes right. A lack of market competition and clients or sponsors willing to take a chance on a new idea further undermines progress.
The need for a fresh approach
Changing this environment would mean challenging attitudes across the sector. Sponsors, politicians and contractors alike ‘anchor themselves’ too early to one fixed number for cost or fixed date for opening. A mistake 10 years out from delivery.
There’s a failure to consider benefits in the round or whole life planning and management and a culture which doesn’t ask how much it will cost to get a desired outcome, but how little can be spent to drive down prices.
Contracts are awarded on a cost and quality assessment – yet cost is usually the differential when choosing a winner of an open procurement process. With many contractors with like-for-like portfolios of work – quality – or an ability to deliver is often similar making this more a threshold test than a comparator test. If the lowest bid wins every time, an industry with low margins will face failures.
Steps for the future
There are improvements being made but they’re incremental. Design for Manufacture and Assembly (DfMA) and Building Information Modelling (BIM) are both showing promise, yet their adoption isn’t widespread.
Delaying work until design and exploration is complete would help reduce risk and make forecasts more accurate. What might seem a minor fix with a small extra cost to change in design is expensive to remedy retrospectively if material is already in the ground.
A project or programme model with integrated teams, working in a framework together with a two-stage bid has demonstrated an ability to maximise foresight and lower the need for changes to project scope. Yet the whole life benefits of a project – by its nature – can take decades to appear.
The challenge for the sector
Often government ministers want to know what single change is most effective to achieve improvements to managing risk. However, there's no one easily identifiable answer, and the sector also needs to step up and work with government to provide the solutions.
The built environment sector has also lost trust, in the governments’ mind, with prominent failures in the last few months and years. It must do more to unpick this and to create an environment in which better decisions can be made.
This could be through managing more projects through portfolios, which allows risk to be spread over a number of projects as Highways England does, or clients taking responsibility of more risk and improving their ability to manage it.
Alternatively, it could be another (as yet unknown) method that might come down to trial and error, but there remains a need for the sector to come together, take a joint view and tackle the issues head on.