Maturing nicely

The business market is much improved, as is the SME consultant’s approach to risk, the latest Infrastructure Intelligence/Griffiths & Armour round table group agreed when it met at its regular haunt, London’s Gherkin building. But they warned that the new culture might only be skin deep. Jackie Whitelaw reports.

Jackie Whitelaw
09 November 2015

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Challenges of a growing market

For our panel, the answer to the question what is the biggest challenge in a growing market, was saying no to new work. That could be finding the confidence to turn work away or finding a way to do it without offending clients that you want to provide services for at another point when you have the spare capacity.

Max Fordham senior partner Henry Pipe summed up the situation. “The challenge is in trying to stave off work to another time. We are keen to retain relationships with people who are very generously offering work that we would love to take on. And we can stretch to a point – an anticipated immediate start often gets delayed for three or four months down the line which gives us time to manage resources. But sometimes you have to say no. It is naïve to think we can keep taking on work and maintain relationships if we don’t have the resources to deliver.” 

The panel

Michael Coombs, managing director, Alan Baxter

Steve Wooler, managing director, BWB

Paul Wood, partner, Elliott Wood Partnership

Simon Seaton-Smith, director, Couch Perry Wilkes

Michael Lawson, senior partner, CampbellReith

Ruth Lawrence, head of insurance, Hill Dickinson

Henry Pipe, senior partner, Max Fordham

Simon Offredy, director, Sweett Group

Paul Berg, director, Griffiths & Armour

Carl Evans, director, Griffiths & Armour

Peter Campbell, senior policy manager, ACE

Antony Oliver, editor, Infrastructure Intelligence

Jackie Whitelaw, associate editor, Infrastructure Intelligence

For Alan Baxter managing director Michael Coombs, the market is not so buoyant that workload is unmanageable; rather it is the level of risk firms are being asked to take on that is a concern. “There was a time when the market turned that we were very worried about being totally swamped,” he said. “But I don’t think workload has actually held up at such a high level. What we won’t do is take on jobs where the risks are completely unacceptable. Some clients and project managers seem to think that consultants are there to take on risk and don’t understand the risk-reward equation. But that has to be correct and fair.”

Being selective on which projects you choose is the way forward for CampbellReith, according to its senior partner Michael Lawson.

“We have moved more into civils rather than pure buildings and structures because we have far greater control over the work and the design. The clients tend to be public sector, and we are lead consultant. On building structures we are tier two or three. Design and build contractors in particular are trying to force far greater risk on us and we are trying to avoid it – especially novation.”

The private sector is proving more attractive than the public sector for BWB chief executive Steve Wooler. “We are increasingly going back to working for more private sector developers in this market,” he said. “The public sector work we had was mostly sourced via contractor frameworks which can be an aggressive environment – ‘though not always. Often it’s difficult to get paid, some demand unreasonable terms, and many are difficult to negotiate with, meaning sometimes you have to think carefully whether to take on  a project. As the market has become more buoyant we have started turning work away if the terms are unreasonable. 

“Most private sector clients are commercially savvy and we can have grown up conversations on what risk we will accept, sensible payment terms and, if appropriate, risk sharing – we are often willing to speculate effort in return for an enhanced fee”

The overwhelming impression from the conversation was that firms were being very careful with what work they took on as industry picks up, something confirmed by the indemnity insurance experts at Griffiths & Armour. “People are looking at projects and making ‘go’ or ‘no go’ decisions,” said director Paul Berg. “There is a definite assessment process and our team is working increasingly with firms on particular aspects of contract terms as well.”

Couch Perry Wilkes director Simon Seaton-Smith agreed that there was more method than madness in this recovery compared to the past. His M&E consultancy does 60% of its work in the health and education sectors and manages the blend of activity to dilute the risk. “Things go in cycles so we look after our clients who would be there for us in another downturn. But sometimes we can’t deliver or act for them due to unrealistic timescales or excessive risk and would rather say no than let them down. One recently offered a large project but it needed us to have £20M of professional indemnity insurance and we couldn’t do that. We keep our contractor workload balanced at around 20% of our turnover, deliberately because we like to maintain very close and direct contact with end users.” 

Paul Wood, director at Elliott Wood Partnership, explained that the strategy at his firm was to try to get fees up, which was having the additional effect of helping to control workload. “We are trying to get our fees up,” he said, “and when we are competing that very often means we lose the job anyway. So you could say we have our own way of turning work away!”

Sweett Group director Simon Offredy said his company also found itself offered onerous conditions. “We will spend time with receptive clients to agree alternative terms as a way round the problem,” he said.

Terms and conditions

The consultants all reported themselves much more aware of the potential impact on their businesses of onerous conditions and were more proactive in making sure they were not over exposed in a growing market when deals done in the sun could come back to haunt them in a future downturn. Gateway processes and review committees were common to all. And when in doubt, they checked with a lawyer which meant most were spending more on legal fees.

“Things go in cycles so we look after our clients who would be there for us in another downturn. But sometimes we can’t deliver or act for them due to unrealistic timescales or excessive risk and would rather say no than let them down.” Simon Seaton Smith

Lawyer Ruth Lawrence, head of insurance at Hill Dickinson, confirmed the trend.

“We are getting more queries, whether through Griffiths & Armour or directly regarding standard terms and conditions. The feedback I have is that people have a lot of work but are looking at T&Cs and are prepared to challenge them to make sure the jobs are set up correctly,” she said.

Griffiths & Armour’s Berg concurred. “The number of agreements we review in a month has gone up from 500 to 650 at the last count,” he said. “They are all bespoke and the vast, vast majority contain no limitations on the extent of liability. The level of knowledge of risk is far greater than it was but successful consultants will base decisions on informed risk advice.”

How was everyone dealing with the demands? By pushing back was the general answer.

“We negotiate fair and reasonable arrangements,” said Alan Baxter’s Coombs. “Sometimes it takes a bit of time and if we can’t, we walk away.”

“One of the problems is that costs are going up and contractors prices are coming in way higher than they were supposed to be on the cost plan. That can stall the job" Paul Wood

If you find yourself in a standoff during a contract there is benefit in toughing it out, said BWB’s Wooler. “If you stand your ground and invoke the contractual terms, that gains you respect from the contractor,” he said. “And that invariably improves working relationships.”

“I agree entirely,” said Wood. “It all comes down to the original appointment. You have to say exactly what you will do, and for everything else you charge. We keep sending vague appointment terms back.”

Firms can be put under pressure by the client or contractor saying “well everyone else has signed”. But as G&A managing director Carl Evans said: “None of us believe that, do we? Of course, there are also consultants who make certain commercial decisions without the benefit of an informed risk perspective but that does not then automatically make the contractual risk equitable or acceptable for others.”

Within this environment, can companies push fees up?

“You certainly can price accordingly,” said Pipe “and start to undo the squeeze. We have seen fees starting to drift back up. It’s a very positive move.”

“But it’s still very difficult, even in this climate and it is not happening very much,” Wood responded. “One of the problems is that costs are going up and contractors prices are coming in way higher than they were supposed to be on the cost plan. That can stall the job so you find yourself hanging around waiting to decide on progress. There’s no benefit there.”

Lawrence sounded a warning that although the people round the table may have a more mature attitude to risk and opportunity, drill deep and it may not have reached other members of staff. “We work for the full range of consultants and big or small, the reasons why they claim on their PI are the same. People take a chance on something outside their expertise, or for the person dealing with the job, it’s outside their expertise; or people don’t have time; or they accept unreasonable demands from the client. So far I haven’t seen a change to that.”

Key to collaboration

Government and private sector clients are signed up to the idea that better collaboration in the industry will increase productivity and save money. The challenge of course is to change the culture of an industry that has evolved on an adversarial model. 

“You can’t change attitudes when you get to the point of dealing with what is wrong,” said Hill Dickinson head of insurance Ruth Lawrence. “We have to change things at the beginning. But even so, things will go awry and people will still look for someone to blame, so we need something like Integrated Project Insurance to deal with that.”

Integrated Project Insurance has been invented by Griffiths & Armour to insure the project and all its parties to encourage resolution to problems rather than litigation. It is one of the Cabinet Office trial schemes to improve efficiency in construction.

“It is clients who have to decide if they truly want to collaborate,” said Griffiths & Armour managing director Carl Evans. “The problem at this point in time is clients want to but they (or their advisors) are not prepared to amend the contractual agreements to reflect that. That is where IPI can contribute to a more balanced future as it fundamentally changes the concept of how project risk is insured; in the meantime, the need for effective, robust and proven PI solutions are greater than ever.”