Posts Tagged 'Recession'

Partnering, is it working?

Let me tell you what I think of partnering, or collaboration as some may put it on projects.

And then you tell me if you agree with my views.

Working together in sweet harmony just isn’t working in the construction industry in my humble opinion, no matter hard all of us may try. It’s always been the lowest price that wins no matter what.

Why?

Well I believe every stakeholder, no matter who they are, has a commercial interest somewhere along the line in the outcome of any given project.

Don’t they?……….Think about it.

Forget about shared goals and fluffy stuff like that, at the moment its hard nosed business attitudes that prevail. Isn’t it?

And depending upon which end of the collaboration chain you’re on will depend upon how you view it to be working.

Wikipedia defines collaboration as: ‘working together to achieve a goal….’

Constructing excellence has a definition of partnering as: “Partnering is a management approach used by two or more organisations to achieve specific business objectives by maximising the effectiveness of each participant’s resources. It requires that the parties work together in an open and trusting relationship based on mutual objectives, an agreed method of problem resolution and an active search for continuous measurable improvements.”

So, the next project you are asked to work in collaboration with a client, design team, contractor, subcontractor, supplier are you all going to have the same goal? Well that depends on the goal doesn’t it I hear you say. Getting the building handed over on time, to the right quality and to budget are the normal acceptable goals aren’t they.

But making a decent return out of it too? Working on a cost-reimbursable, target cost, open book with a percentage addition for on-cost and profit?

Is that part of it? Yes, it should be.

So my point is, it’s a commercial world, everyone is looking after their own business interests at the end of it all. So to see true collaboration some big barriers have got to be broken down, and a truly trusting partnership formed between all parties.

Will that ever happen?

 No, not at the moment……but wait until BIM really comes into its own, then you will see the cultural change that this will demand, that in my opinion will change the way we work in this industry in a very significant way.

Double Dip Time?

Here we go then….the Construction Products Association is saying we are in for a rough ride again this year and next year too. They predict that this year output will fall by 0.8% and next year by 2%. This will make it the most miserable time for many of us if that’s true.

‘The Mail’ on line even predicts the same (but don’t they always) stating that construction output in the three months to end of February fell a massive 18.3%, fuelling fears that things are about to get even tougher as this is all before the government’s austerity measures kick in.

The IMF has also downgraded it’s 2011 growth forecast for the UK to 1.75% (it’s third downgrade this year)

Yet here is some contradictory evidence.

Take a look at this from the Train4TradeSkills News section. They quote from the Markit/CIPS UK Construction PMI Index ‘UK construction companies reported a strong end to the first quarter, with activity rising at a similar pace to the eight month high recorded in February’.

So what’s going on?

What do you think?

Is it all doom and gloom out there or are there chinks of light for you and your business?

I’d be really interested to hear your views on this. 

I know for us it’s one hell of a rollercoaster ride, one moment you are really busy and the next you are in the doldrums, but then that’s the joys of being in this game isn’t it?

And on a lighter note perhaps we should all go to Brazil and build Lego towers instead…

Tender lists, who cares?

Now this might start as a strange story, so bear with me, you’ll get the drift of my theme I’m sure.

Why is it, that assuming exactly the same product is available, if you went to buy it from say, Harrods as opposed to any other high street retailer such as Argos and the like, you’d expect to pay more for it at where?

Well Harrods of course, everyone agrees on that.

So far so good.

Then why is it that a current trend I’m picking up on is to line up the likes of Harrods and Argos against each other and expect Harrods to give you the cheapest deal? Now substitute those names with any diverging set of Contractors or Subcontractors or Suppliers you care to name. Oh and then also have a very extensive list too, don’t just go to Harrods and Argos. Now I can hear you all groan as you say we’ll never win that project with ‘X’ on the tender list they are ‘buying’ work all over, what an unfair listing.

Sound familiar?

What damage is this practice doing to the industry as a whole?

Well here’s my take on a bit of that.

Part of our State of the Economy Survey we carried out recently contained a question ‘Whats the single biggest likely area for costs to increase this year for you?’ We had the usual expected answers of fuel, steel, concrete and the like, see the recent building article we are living  in a materials world for more on that….…but, one of the other top answers was ‘the increasing cost of putting together a bid to win a project.’

Interesting.

Well we know for sure about that in a small way for our contribution of providing bills of quantities to contractors bidding on design and dump, errr sorry, design and build projects these days. Let alone the pqq’s that go before that, the subsequent bid team that is needed and the various documents that everyone seems to require for the bid and then no longer refer to for the duration of the project. As after all who considers those when ‘X’ has put in a bid so much cheaper than anyone else………you go with ‘X’ don’t you……… it’s such a bargain you cannot refuse it.

Now where does everyone think these costs end up?

Well on the face of it with the contracting party.

But in the long run?

Well the end user of course.

 What a waste of time, money and effort.

Who advises clients on this?

Well professional advisers naturally. So come on guys instead of lining up Harrods with Argos, make the competition realistic and keep the numbers bidding to a sensible list. Stand up to Clients who insist on having you compile unbalanced tender lists. You’ll be surprised about the outcome.

And a final thought, what practice came about as a result of extensive tender lists and contractors not wishing to decline a tender opportunity………..

So where is the future for us?

Let’s start with Professor Brain Cox and his wonderful programme on Sunday evenings Wonders of  the Solar System, all burnt up in the sun is the most likely outcome but that’s billions and billions and billions (or whatever he says)…….of years away.

By the way is it just me or does he send you to sleep too, and you have to watch the programme again to understand it?

Well enough of that, we did our annual State of The Economy Survey again this year and one of the questions we posed was where do you think the work is going to come from this year?

And without giving names of anyone away, I thought you all might like to see the most popular answers we received and whether you agree with them or not, so here goes…..

1. High End Residential –and/or high income private clients with money to invest
2. Refurbishment – all sectors
3. Retail
4. Schools, including Free schools
5. Student accommodation
6. Hotels
7. New office developments
8. Health
9. Regeneration of brownfiled sites
10. Infrastructure – power, rail, utilities

Now if any of these rock your boat or are in an area you were or were not thinking about you’ve got some like minded people out there. The wittiest comment of them all however I liked was ‘Finding oil!’

All I can say is the very best of luck for what is going to be another challenging time ahead for everyone associated with the construction sector

If you missed the link above full details are on our website www.gf-partnership.co.uk/news/

Something might turn up…

Now this is a word of warning for those of a nervous disposition……don’t read this! Why?

Well I could be writing about anyone you know in construction right now…..

I read the article The Eye Test in last Fridays ‘building’ magazine, page 42/43 if you happen to get a paper copy, or here’s the link if you subscribe.

It’s a message for all company directors out there, don’t take risks at the expense of the support of your creditors.

The gist of the case was about a property company continuing to trade beyond the point any reasonable person would, on the blind belief ‘that something might turn up’ and the consequences this had.

The thing is it really is quite a difficult call to make, as if you are certain you’ve got a deal that will make you a fortune, and you’ve got all your eggs in that basket, and bang! All of a sudden things don’t quite fall into place. Suddenly you could be in a very cold and lonely place! And who wouldn’t think…..something might turn up……..as invariably if you put the effort in, make a few calls, ask a few favours ………..it does. But be warned it might not, and there are consequences…..

The judgment in the case itself is a message to company directors, but the key principles apply to anyone involved in running a business these days when they get to that point of no return.

So the messages from the article that came out to me were:

  • Look after you creditors and their interests – surprising that to some people you might think
  • Monitor your cash flow intensely, identify any irregularities that highlight the company cannot make its payments by the due dates – basic common sense isn’t it?
  • Investigate all available options for putting the company back on track – and don’t delay in doing so, it takes time
  • Hold regular board meetings, and keep notes of why you have decided to act in that way, what facts did you have that made you take a particular decision – you’ll never remember in time to come.
  • Consider the need to keep all stakeholders in the business informed at the appropriate times – everyone has an interest in keeping the business alive
  • Don’t place orders for work when there is no prospect of you paying for that work – common sense again!
  • Don’t put personal or any other interests before those of the company – difficult one to judge but don’t go for short term greed

And………….don’t continue to trade on the basis that ‘something might turn up’…..

For anyone interested to read more on this, the case is Roberts vs Frohlich and if you do read it, it has some great insights into the way or industry works with developers and contractors jostling in the formation of contracts. It also has around paragraph 43 a great quote from the letter of intent and the problems of naming individuals in any such letter. Fancy naming the Chairman of an organization as the only person you could negotiate commercial matters with!

Couldn’t resist this one either……….there’s also a Spanner in the works too!

Time for a Construction Revolution?

I read an article in The Times the other weekend about how the uprising began in Tunisia with a simple story about a fruit and veg man being badly treated and how that subsequently spread to the events we all saw in Egypt, and now other countries too.  It got me thinking (dangerous I know…)

The thing about being an SME, or at the lower end of the food chain, is that it’s a very hard and lonely place to be right now.

You’ve got the big companies holding on to your cash for longer. Getting paid after 60 or 90 days is not uncommon now and, really, for no other reason than to fund the way they are pricing their work. It looks good to their backers as it appears they’ve cash in hand at the bank. Everyone knows the game.

You’ve got your own banks telling you to get your cash in earlier otherwise they’ll, well, you know what… to you.

You’ve got the Government fiddling with red tape and employment laws making it even harder for you to know what’s best for your business. Can someone tell me what the new retirement changes will mean to an SME for instance?

And in the end all that happens is any little profit you may be making is squeezed out of you when you get hit by, yes… a bad debt!

Sounds like I’m speaking from experience here and, well, I am… I’d love to give you a few real case studies here, but I’ll keep quiet. Maybe that’s another blog….

So what to do?

Building did try and get a campaign going last year before the election with their Charter 284 Manifesto… Remember that? It had the great statistic that every £1 spent in Construction is worth £2.84 to the Economy. That’s a fantastic statistic and makes our industry one of the most important to the Economy.

So what happened to that? Well all we’ve had since then is cuts in spending and more cuts in spending. Why wasn’t our voice heard? I don’t trust the new way in which the Economy statistics are being produced either at the moment. Who feels like our industry grew by 8% in the fourth quarter of 2010 compared to 2009?!

Surely it’s time for a Construction Revolution of our own?

The RICS has tried again to kick things off in it’s own way with a call for a reduction in the VAT rate on the repair and maintenance of homes to 5%, which they calculate this could lead to £17bn of benefits to the Economy by 2019. But is anyone at the Government really listening to us? I think not…

It’s time for some action from us in the industry to make the Government truly understand how important this industry is to UKplc.

So what to do? I wish I knew but if there were enough of us ordinary everyday people in the industry who could get together and start a campaign for some action to kick start things then I’d be up for the revolution!

The Cash Flow is Your Friend

Ah, the power of social media! This week I have a guest post from Stuart Petrie-Tootell, who approached me on Twitter after reading my blog! You can follow Stuart on Twitter here and read his own blog here.

Stuart is a Chartered Quantity Surveyor, and has spent the last 10 years working in the Consulting side of the business. He has spent the last 3 years working in the United Arab Emirates, mostly on projects in the property sector. During his free time he has his hands pretty full with looking after his three children and enjoying all that the UAE has to offer; beaches, malls and 4×4 driving in the desert.

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We’ve all seen the standard shallow “S” curve, the one you find located somewhere at the back of your monthly cost report, and if you’re lucky you receive an “updated” cash flow with each contractors payment application, which shows a variance so wide between “forecast” and “actual” that you would be forgiven for thinking that you were looking at the spend profile of two different projects. Sound familiar?

It shouldn’t be like this, in my view the cash flow forecast should be the most important tool in the PQS’s kitbag and should be looked at with the same level of scrutiny and frequency as a Project Manager does with the programme, after all – isn’t this what it is based on? Too many times I have received a contractor’s cash flow, which comprises a single line item; construction works, and when challenged on how it is built up you get a feeble “it’s just based on a standard “s” curve”. Not good enough guys, as this is the barometer for performance.

These days with pretty much every contractor and probably most sub-contractors having access to software such as Primavera and the like, there shouldn’t be any reason why a project programme can’t be resource and/or cost loaded. Then, it should only be a matter of a few clicks and a nice bit of wizardry in your spread sheet to produce a nice curve, ok so it may be a typical “S” curve – but at least now there is some detail behind it that you can get into and interrogate and you should be confident that the two documents; programme and cash flow are actually talking the same language.

Detail is another key…..I’m not saying we need a cash flow that details right down to every last screw, but let’s at least have the cash flow broken down into the same level of “elemental” or “works package” detail that the programme is; in fact let’s make it a key deliverable under the Contract, detail the requirements in the preliminaries and make it an item for the pre-start meeting agenda.

What I want is not so much a “cash out” schedule, making allowances for payment duration times, retention deductions, advance payment recovery etc (although I acknowledge how useful this is for the Client trying to work out his bank draw down requirements etc), what I want is a tool where I can sit down with the PM, Construction Manager, Architect and say “look guys, in 3 months time we’re due to spend $m on floor finishes; has the “equal or approved” stone type been selected? Has the sample mock-up been signed off? Have we resolved the RFI over screed thickness?”, or “we start to spend on internal doors next month, it’s half way through this month, so why can’t I see any door materials on site? Are you having supplier procurement issues?” etc etc, you get the picture.

Very quickly you can see that it moves away from being something that gets updated once a month when the valuation has been agreed just to show you just how much you missed the months spend target by, to a tool where you as the PQS or PM can actually have a pro-active involvement in steering the Contractor towards the common end goal. Sure, there can be a few difficult details to work out, like; do variations get put below the line or loaded back in to the elements/trades – my view is that it depends on the extent of the scope of the variation – whether a figure has been agreed and an idea of timescale has been considered prior to the VO being signed off, but the main focus is on being able to manage the base contract works.

So to wrap up, the cash flow forecast is something that you should be looking at on a weekly, if not daily basis. Get in there with the Contractor’s QS, find out whether all approvals have been obtained, find out whether orders have been placed, and be looking 3 months ahead to what is going to be needed to complete the project. It is something that sadly some of my PQS colleagues in the past have been less than enthusiastic to embrace – believing that programme and progress is purely the territory of the PM….. (just wait to see the Contract Managers reaction in the next progress meeting when he’s telling you all that the design, procurement, deliveries and physical progress are all in tip-top shape and then you pull out your cash flow which shows things differently!).


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About Me

I’m now the Managing Director of Mynott Associates Limited my own specialist measurement business. I’ve been in the industry all of my life since I left school. My first job was with Bovis Construction as a management trainee where I trained to become a quantity surveyor. I’ve worked for contractors all through my career, I am FRICS, FCIOB and MCIHT qualified and act as an RICS assessor. I’m also a keen Arsenal supporter having followed them from a young boy

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