PRESENT: Richard Slater
Lancashire Business View (chair) Nick Gerrard
Blackpool Council
Jess Barrow HPA Architects
Jennie Jones Brabners
Norman Tenray OBAS
There is value engineering, which is very difficult at times. We’re taking sections of work out and using inferior products.
NT: You’re being hit from every angle because the customer base wants you to absorb the costings and suppliers just want to keep increasing them. So, it’s really, really hard.
We’ve had to manager our customers because of the limited level of supplies in the UK. It’s trying to convince them they don’t need to bulk order and add to the problem of supply constraints.
So, we’ve focused very much on agility, working closely with people, good communication and building on that respect, trust and confidence.
We looked at gathering as much data as we can. If you’re trying to forecast what people you need, what turnover you’re going to do, what products you’re going to buy, what data you need, because the last two years are tainted.
Trying to predict how you’re going to meet targets, especially with all the unknown entities of the rising costs of living and fuel, is really challenging.
CE: We’re engaged when projects go wrong. We look at the time, the costs, and the technical issues. Volatility is where disputes occur. Price fluctuations historically have not been that volatile, but construction prices have rocketed since we’ve come out of Covid.
They have now dropped and started reversing at the end of last year. All the reasons why those spikes occurred are outside our control. Covid into the energy crisis, into what happened in Ukraine, interest rates, all the industrial action, all of that’s going to feed into inflation potentially.
So it’s more uncertain for me now than it was six months ago. What’s going to happen in the next 12 months? We don’t really know.
JJ: We are seeing a rise in contract negotiations at the front end where we’re looking at fluctuation provisions which have always been unpopular because it’s cost uncertainty and employers want fixed price, lump sum contracts.
Andrew Cross Carefoot
Ian Parkinson HKA
Zowi Whittaker Fox Group
We’re also starting to see some activity with fluctuation provisions in relation to specific material costs. Plasterboard seems to be a big issue at the moment.
You can look at things like ‘extension of time’ provisions relating to certain materials not being available, certain labour shortages in respect of aspects of the work. Basically, parties are free to negotiate whatever they like and we’re seeing more negotiation of those kind of terms.
Also, it’s interesting looking at it from an insolvency angle. There’s been a huge increase of property construction firms becoming insolvent, including subcontractors.
We’re finding that there’s more collaboration and more willingness by employers to avoid insolvency throughout the supply chain by a renegotiating terms partway through a project, just to avoid that happening. It means you don’t have the situation where you’re having to find a new supply chain and all the delays and costs resulting from that.
It’s not just about having good lawyers to negotiate your contracts, it’s about really understanding what you’ve signed up to and not just signing up to a contract, putting it in a drawer and bringing it out once a dispute arises.
NT: There are so many external influences that you’ve got to be much more informed, educated and forward thinking, otherwise you are exposed to a whole load of issues.
JB: We work with a lot of local authorities. We’re delivering schemes that are government grant funded and it’s a collaboration. People are really nervous. People aren’t signing up to the grant funds because they don’t know what the prices are going to be.
We go through a really laborious tender process and by the time I’ve got to the other end, my prices have gone. So, it’s really difficult to know what you’re going to spend.
Then you start value engineering it and in some instances the architects are entirely left out of those decisions, but we find ourselves to blame. So, it’s really difficult to manage expectations.
It all comes down to communication and sitting with people and making them understand why your specifications say exactly this and what that means if we change. I might be in breach of legislation. I might be in breach of permissions. It’s a really hard juggling act.
NG: Funding pots also have an end date. That reduces your flexibility when it comes to timescales and when you might delay things.
How is the sector coping with the volatility when it comes to contracts?
IP: We’re seeing clients still wanting to fix the prices. Behind the clients are the funders who want that certainty. Both parties need to see the bigger picture. It is about being creative and collaborative risk sharing.
They need to look at where the areas of volatility are, because there are some costs that you can stand and you can fix. It should be the others that are subject to fluctuations. Everyone needs to realise some parties are willing to walk away from these schemes if the fluctuations sit with them solely. Then nothing gets built.
NG: Everybody has been trying to crystal ball gaze what’s going to happen to material prices. My question, to which there is absolutely no answer, is, are we disadvantaging ourselves by fixing the prices of all the materials now when they won’t be delivered for 18 months or so? We could actually be shooting ourselves in the foot but we don’t know that.
IP: Recently we’ve seen steel and rebar prices drop. Put yourself back six months ago, would you have fixed them? You’d have probably lost out with all these price drops in the first quarter of 2023.
ZW: The increase in costs has affected us in various ways. We’re hauliers, we’re earthworks, we’ve got our own tips, our own quarries. For all those different things, we’ve been hit over the past 12 months quite significantly. We do a lot of tendering with local authorities.
That tends to be where we come unstuck because we don’t get that level of flexibility in
Continued on page 62 LANCASHIREBUSINES SV
IEW.CO.UK Chris Everett Capital Consulting Internationa
Zoe Pond Brabners
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