After much marketing, prequalification and hard work, you are finally invited to tender for that major scheme you have been researching over the last year or two. Everything in the garden seems rosy. Winning the project could provide a significant amount of profitable work, allow the company to improve its financial position and be the start of a long and fruitful relationship with a new client who could provide further work long into the future. What could possibly go wrong?
Most construction projects start off on an optimistic footing, and rightly so, but as we all know, construction is a high-risk industry and the potential for failure is significant. It only takes one bad project and a successful business can be seriously affected. Remember John Laing and the Cardiff Millennium Stadium? As The Construction Index reported “…it was losses on the Cardiff Millennium Stadium that led to the fall of the old John Laing Construction”. Not all the problems associated with the Millenium Stadium were obvious at tender stage, but the diligent contractor will want to go into any project with eyes wide open, aware of the risks at the start and how these should be managed. If you have any reservations about a project at the start, it is highly likely that these will compound as the job progresses. So what should you look out for even before you’ve started the tendering process? The following provides some thoughts based on Hawk’s many years of experience, which you may want to take into consideration.
Do you due diligence on the Employer (or main contractor if you are a subcontractor). This is particularly so if you have never worked for them before. Your prior marketing and business development work should already have carried out a thorough review of the company when identifying them as a potential client, however things move quickly in construction and companies are always worth reviewing. Check up to date financials (Companies House, Dun and Bradstreet etc), look at other projects they have procured, how have they worked out? What type of issues have other contractors had? Do they have a good payment record? Do they have a claims reputation and are they involved in any ongoing proceedings? All companies have an ethos, a culture in which they behave, so try to get a feel for this and see if they are a good fit for your business. Some matches are not made in heaven.
Although it sounds obvious, carefully consider the type of project. Again, much of this should have been identified in advance, but sometimes tenders come out of the blue and you may not have much in the way of prior warning (this in itself may cause you to ask why.) Ensure that the type of work is a match for your company. If you are a new build specialist, then refurbishment work may present a whole host of new challenges. Similarly, if you are a traditional general construction company, be wary of work which may fall outside your main area of expertise, for example works with a higher than usual civils content or specialist works. Your existing workforce may not have the technical experience to adequately manage specialist works, so you may need to consider resourcing options.
Be very wary of the “sprat to catch a mackerel”, or “loss leader” scenarios. If you are being thrown one of these or think this may be a way forward for your company, then consider the risks very carefully. Firstly, why is the Employer offering you chance of the work? Whose benefit is this really for? Usually, contractors think these approaches are the chance to get in with a new client, but, based on a number of practical experiences, the projects offered can be those no one really wants. They can be difficult, bitty and with little opportunity for a contractor to come away with anything but a significant loss and an unhappy experience. Maybe they are being thrown your way precisely because their usual contractors realise they are too risky.
Consider the type of work if it is outside of your usual sector experience. Moving into specialist sectors can be enticing but is filled with risk. It was not just John Laing that suffered when contractors entered the stadium construction market. Consider the litigation around the rebuilding of Wembley and the costs overruns at the new Tottenham Hotspur stadium. Branching out can be good for business but the risks involved and the timing of entering a specialist market have to be carefully considered.
The type of procurement route should be given due consideration. If you are not familiar with, for example, design and build, tread carefully as the risk profile is far different from a traditional build. Riskier still are the novel, less tried approaches. Although these can bring new advances any procurement route that is still immature and poorly understood is filled with risk for those willing to proceed.
Other practical project issues to consider include:
- Location: Are you able to provide staff and management resources to the area? Consider the motivational effects on trusted staff of long travelling times.
- Region: Is the work outside of your usual geographical region? Do you have a network of suppliers and labour that you can call on if needed in the area?
- Staff and resources: do you have enough labour for the project? Do your staff have the right experience?
- Site management: Do you have enough available site management resources to adequately manage the project. Delays and productivity issues frequently arise from a lack of adequate management and supervision.
- Type of Contract: Are you familiar with the type of contract being used? When the NEC form was first introduced, many contractors treated this in the same way as a JCT form, looking to claim extensions of time and additional costs as separate submissions from compensation events. Hawk is aware of many projects where contractors have lost entitlements through lack of experience with administering the contract correctly.
Finally, carefully consider your company motivation for wanting the work. There should be a completely different mindset and approach if you are in the unfortunate position of needing to win the project to keep cash flowing as opposed to the job being part of the planned portfolio. Similarly, be wary of “buying” your way into a new market or the favour of a new client. Such approaches are often laden with risk so you need to be sure that these are identified and can be managed effectively.
The type of projects you are invited to tender on should ultimately be a result of effective company management, planning and foresight. Careful research, marketing and business development should all have led to the invitation to tender. As such you should not be surprised as to the type of work you are being offered. Similarly, your company should be geared up and ready to carry out such work. The invitation to tender should effectively be the culmination of a process which has been well defined and structured so that there are very few surprises with the type of work you are offered. Problems unfortunately seem to occur when companies either voluntarily or are forced to veer from their planned approach. The former can occur when they seek short term growth and look to effectively “buy” contracts regardless of the risks, the latter when they are forced to buy contracts simply to stay afloat. Although easy to say, the guiding principles should always be to set out a clear plan and vision as to the type of work that you want your company to carry out and focus your efforts accordingly. This way you’ll be working to your strengths and reducing the potential for risk. The right projects will come your way and the chance of heading into a potential disaster from the beginning will be reduced. Once you start to receive the right type of invitations to tender you then have to implement the tender process effectively, and that is a whole new story…