Whether clients, contractors, consultants, investors, or other stakeholders, there can be no doubt that we have moved from creating certainty of outcomes in the long term to navigating uncertainty in the short term within the built environment and within the larger economic climate.
We know there are project challenges around price volatility, increased materials input costs, longer lead-in times for materials and shortage of labour, at times putting project viability into question. Yet we also know that projects need to continue as the demand and need for quality buildings continues.
RLB recently launched a global survey to establish the impact of geopolitical issues, such as the war in Ukraine, the ensuing energy price volatility, Brexit, the legacy of covid and other global, European, and domestic challenges.
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It is no surprise our first responses have come back with comments such as “project procurement strategies are being reviewed and project viabilities possibly at risk”, “we are now facing a new world order as a new normal” and “contractors are requesting contractual mechanisms to allow for price adjustment such is the price volatility of materials”.
To the futurists among us, there are often three influences on how the future will shape up: continuation (that tomorrow will be a repeat of yesterday); cycles (tomorrow will follow cyclical patterns of the past); and derailers (unforeseen events that impact the course of the future, covid-19 is a good example).
There is no doubt that for the last 80 years the future has followed both continuation and cyclical paths. What is becoming clearer is that the future is now becoming much more influenced by derailers – things that we are less prepared for, or at least ill-equipped to deal with in the short term.
What is also clear is that scenario planning is needed to help navigate the uncertainty we find ourselves in today and we predict this will continue for the next three-to-five years. Looking at the best-, mid- and worst-case scenario will give us the ability to test those scenarios and undertake mitigation planning.
Using value-based decision tools
However, for us to continue to build and for the long-term future of the built environment to flourish, we need to think of some of the longer-term elements we are facing as an industry as well as some of the short-term challenges. For example, both the recently launched Value Toolkit and the Construction Playbook, aimed at the public sector, but equally relevant to private sector projects, advocate value-based decision-making beyond cost, time, quality and considering other factors such as social value, environmental impact, whole-life performance and risk.
Using these resources to offset cost risk/inflation, together with project risk analysis, can optimise value in the long term and help to mitigate wider project risk that can positively impact the business case. Working across private and public sector projects, we have also seen a different approach to procurement and an evolving response to the current market situation.
Private versus public sector strategies
Where private sector projects often prioritise financial outcomes coupled with further development criteria, such as sustainability credentials and social value, the public sector is driven by necessity, the need to build a new hospital or school. In the public sector, there remains a consistent focus on value for the public purse – ensuring public finance expended achieves the outcome needed.
“At this stage of the game, certainty in answers may be limited, but our industry has a strong heritage in bringing these great foundations and we have the imagination, skills and resolve to navigate all issues that are presented to us.”
There is also a wider level of shared risk and liability across client and contractors in the public sector. Fixed-price contracts are not a prerequisite and there is a high use of the collaborative NEC form of contract where it is accepted that the contractor is entitled to defined cost plus fee and there are secondary option clauses to tailor your contract to project drivers and risks, such as price adjustment for inflation.
This differs in the private sector where many contracts are often driven by certainty of cost to drive development viability and return. There might be risk and contingency built in, but this risk is often defined, known and capped, rather than unknown.
So, should our industry look to move to a more contractor/client/developer/funder risk share model? What we believe is that transparency, collaboration and openness is more important than ever. To be an industry that works together, in real-time to understand project need plus clients, contractors, supply chain and professional teams' needs, internal and external influences and drivers will be critical to navigate these uncertain times.
Being open to different solutions
Being open to different solutions to help us meet our design, procurement and build requirements will also be key during these uncertain times. There is an opportunity to mitigate material and labour availability challenges through the adoption of DfMA (design for manufacture and assembly) and MMC (modern methods of construction) strategies, by early ordering or retaining materials offsite.
Likewise, at construction stage, it could be wise to consider project bank accounts to mitigate increased insolvency risk and adopt claims avoidance strategies to mitigate increased contractor claims due to project duress on input costs.
What we do know is that the certainty of outcome is absolute, to create buildings and places that form the foundation of our society. Of course, at this stage of the game, certainty in answers may be limited, but our industry has a strong heritage in bringing these great foundations and we certainly have the imagination, skills and resolve to navigate all issues that are presented to us.
The time horizon for validity of data may be shorter than ever before. but through collaboration, operating as one industry working together to navigate the uncertainty in the short term, we will achieve certainty of outcomes in the long term.
Andy Reynolds is chief executive for UK and Europe and global chair at RLB
