CBI and Ash Contracting agree tender process too risky, recommend greater diligence
The Confederation of British Industry’s February 2020 report, titled Fine Margins: Delivering Financial Sustainability in UK Construction, sought to investigate why the operating environment is as precarious as it is and the role of risk management in the industry.
With regard to de-risking tendering processes, the report echoes some of the concerns that one firm had already highlighted in The Parliamentary Review.
In the report, the CBI recommended a number of points for industry, government and clients alike to reduce risk in the tendering process, which included advice that businesses “should be prepared to challenge or walk away from contracts when bidding”, adding that business leaders and boards “should think strategically about the long-term planning and shareholder management required for such an approach.”
Furthermore, the report recommends that public and private sector clients should “refrain from amending standard risk clauses in construction contracts” and goes on to advise major public and private sector clients to “produce a clear and robust evaluation of whole-life benefits of a project and share this with suppliers before tendering begins, so that contractors are able to price risk management costs transparently against the asset’s whole-life value.”
The report outlines that the use of single-stage procurements are to be “discouraged” in major construction projects above a specific value. The CBI suggested £10 million as a threshold, noting that it would “consult with industry on this proposal”.
Notably, these recommendations from the CBI echoed the concerns of Kent and Surrey based construction firm, Ash Contracting.
Managing director Dean Cooper wrote in The Parliamentary Review: “As a strategy, we have learnt through painful experience that we must risk assess tenders.
“The questions to ask include: Is the client someone we wish to work for? Where is the work? What are the payment terms? Is the work within our skillset? Do we have a supply chain that can resource the work? Do we like the work and the client – what is our gut reaction?
"To a degree”, Cooper adds, “this is counter-intuitive in the construction industry.
“This is because, as builders, we do not ask too many questions: We simply price it, and if we win it, we build it."
However, Cooper believes that such an approach is fundamentally misguided.
Instead, Cooper recommends that operators adopt the Ash Contracting approach of greater diligence in such processes.
Cooper explained: “We instead risk assess the project. We score the project, and if we win it, we look for the reasons why we won it.
“After then having reassessed the project, we commence if that is appropriate. Tendering can be very unsatisfactory in the final analysis for the tenderer – a client and a project won at a loss can have a huge effect on a company’s viability and longevity."