Innovation will drive productivity and find better value for money solutions. But compared with other industries, construction in the UK has been resistant to change. What can be done to promote innovation and embrace change?
It is possible to find innovation through lowest-cost tendering: bidders may present novel solutions on the basis that these allow them to provide a project for a lower price. However, there are a number of problems with innovation as part of lowest-cost tendering.
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First, if the novel solution has some real value, why put forward that innovation as one of many bidders? Many tender documents include provisions agreeing which parts of the bids are to be treated as confidential, but there is a real risk to the innovator that the solution will become known in the market.
Equally, if an innovative solution is contracted for, contractual provisions must be in place to limit the distribution and use of the innovation so that the innovator retains the value of its development.
The innovator may have invested money in time and people, and so will need some reward for the innovation. Even if it was stumbled upon, for the market to encourage innovation there should be some financial reward. Lowest-cost tendering does not recognise this and, when the price relates to the capital cost, neither does it recognise that the value of the innovation may be in the long-term life of the asset, rather than just during the construction phase.
The bidder for a project may not itself be the innovator. Rather than main contractor, it is often the designers, subcontractors and product manufacturers which have the specialist skills that allow them to innovate. Getting those specialists to share their innovative solutions in a bid scenario is difficult when there is little guarantee of winning the project.
Equally, a main contractor has little incentive to speculatively pay for engagement with specialists as part of a single-stage, lowest-cost tender.
All these issues would suggest that a two-stage tender process, where a preferred bidder is engaged and paid under a conditional appointment during the pre-construction phase, might better seek out innovation. Establishing long-term arrangements focusing on whole-life cost, rather than single-project contracts, might promote investment that might encourage innovative solutions.
However, even if an innovative solution is successfully found, there is still a question as to whether it is worth the risk of using such innovation on a project: it is a very human reaction to want to stick with familiar methods.
Balancing risk and reward
Those employers accepting innovative bids will want to know that, should the novel solution fail, the risk has been covered as far as possible. Accepting an innovative bid should not mean taking entire responsibility for its failure.
As an example, while a contractor’s contractual proposals might include an innovative method or product, the employer’s contractual technical requirements might retain an output specification that assumes delivery of a working project. The employer will also want contractual duties of care from the contractor and each specialist and will want each to maintain insurance.
For the innovator, there will be a need to limit risk arising as a result of failure of the innovative solution, to avoid business failure. The contractor and any specialist will maintain professional indemnity and product liability insurance.
Clearly, each will need to engage with their insurers over novel activities but, as an example, the guidance issued by the Construction Industry Council in relation to building information modelling (BIM) suggests that professional indemnity insurers will accept insuring innovative solutions.
Ultimately, it might be acknowledged that the result of failure of an innovation should not be entire failure of a business and so liability of a contractor might be contractually capped, such that some risk is taken by an employer.
Assad Maqbool is a partner and Nicola Conway, who collaborated on this article, is an associate at Trowers & Hamlins
