Contractors top consultants risk registers

Contractors are top of the risk register for consultants who are anticipating increased claims from their industry colleagues, attracted by growing margins and booming workload in consultancy as the economy recovers, according to Infrastructure Intelligence research.

The issues were revealed at the latest Infrastructure Intelligence/Griffiths & Armour breakfast debate on consultancy risk management.

“When the cost of a brickie has doubled on jobs bid 18 months ago, what was a marginal cost (for contractors) has gone through the roof for example. At the same time consultancy is doing well. We expect more claims"

Root of consultants concern is evidence from some poor financial results across the sector that contractors which had put in cut price bids in recession to hang on to cash flow are now finding themselves in trouble as an unexpectedly quick recovery leaves them locked into fixed price deals just when materials and labour costs are on the rise.

One remedy for contractors facing problems is to put in claims against consultants which contractors can see are earning well in a newly busy industry.           

“When the cost of a brickie has doubled on jobs bid 18 months ago, what was a marginal cost (for contractors) has gone through the roof for example. At the same time consultancy is doing well. We expect more claims, said BLM partner Keith Lonsdale.

And claims are likely to be dug up from a long time ago. “We are noticing that there is a long lead time,” he said. Issues from 2009/10 are just coming to light now and from even earlier.”

“What we are tending to see when companies do a lot of work for contractors is that the claims come to them more quickly than if they were working directly for a client,” said Tony Gee director Richard Prosser. “We have also seen an increase in the quantity of claims, a lot of them spurious, during the recovery in the last two years.”

“There is no doubt that if a contractor is losing money we are going to feel some pain too,” said regional and divisional managing director for Buro Happold Neil Squibbs.

For Arup director Alison Norrish this was all to be expected from the current procurement cycle where the popularity of design and build in various guises, a form of contract which she enjoys, means jobs are mostly contractor led– including for example Crossrail, HS2 and Thames Tideway Tunnel. “For consultants that’s high risk territory and likely to be a bigger challenge than anything else.”

Consultants need to include a focus on risk management even when they are stretched because there is suddenly so much work, said Griffiths & Armour chief executive Stephen Bamforth. “There is now money available so you will start to see claims coming back to life. And you have to make the effort to protect yourselves now because by the time the claims come through the insurance market will have hardened and will likely coincide with the next recession which would be a double whammy for consultants.”

Businesses admitted to becoming more hard nosed and more selective about who they worked for. “It’s my job to get a grip on our projects and ensure our teams become more cogniscent of risks,” said Ramboll head of project management Chris Rhodes. “We are focused on a stringent decision gate process and we are prepared to tell a director that perhaps this isn’t the client for us when this is perhaps the third job on which we’ve worked with that company and we’ve lost money.”

Bamforth said that the lessons to be learned are the same ones that have been there for years – get the documentation right and keep it up to date; understand the contract and work to it; and don’t cut corners with insufficient resources.

More from the meeting can be found in the January issue of Infrastructure Intelligence magazine due out on line and on paper next week.




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