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Industrialisation is an opportunity for construction supply chain collaboration

Out-Law Analysis | 23 Nov 2021 | 9:25 am | 4 min. read

Industrialisation is an opportunity to completely re-wire how project teams, contractors and the supply chain work together, reducing inefficiencies and increasing productivity through relational and collaborative working.

Construction and infrastructure have always presented a unique challenge for procurement. Each project tends to be a bespoke design, with professional teams and contractors and their supply chains rarely working together. Main contractors rarely self-deliver substantial elements of projects, technical expertise tends to sit at tier two of the supply chain and below and, historically, the supply chain has not participated fully in project incentives or collaboration.

A shift to an industrialised construction approach will require a rethink of how contracting is undertaken and will present an opportunity for closer collaboration.

The challenge

Delivering the benefits of industrialisation – decarbonisation, improved margins and increased productivity – will require new and innovative ways of working, with individual corporate interests subordinate to what is best for the project.

Blundell Nigel

Nigel Blundell

Partner

Collaboration is not about avoiding conflict, but about creating an environment in which ideas can be challenged positively and the most persuasive arguments adopted 

Successful collaboration requires trust between project stakeholders, and the creation of frameworks where frank discussion can be had that is open, honest and without blame. This is a significant shift in mindset from traditional contracting models where there is a disconnect between the team winning the work and those delivering it and where, if things go wrong, each party has its own position to defend.

Collaboration is not about avoiding conflict, but about creating an environment in which ideas can be challenged positively and the most persuasive arguments adopted, together with a willingness to make and implement decisions. High performing teams are not afraid of conflict. They are able to depersonalise these discussions and focus on issues rather than individuals, without being confrontational or apportioning blame.

Responsibility for creating this environment rests with the client. It requires consideration of what the project requires to succeed from the outset. There needs to be an emphasis on selecting the right individuals and organisations for the project, and on ensuring the team is developed from the bidding to the implementation phase.

Collaborative project management

For clients, the instinct, when dealing with a large, critical project, is to maintain control and ‘micro-manage’ the project. This is often coupled with contractual mechanisms which pass project risk entirely to the contractor and, in turn, to the supply chain.

However, in the 2018 NBS National Construction Contracts and Law Survey the most frequently cited matter impeding project progress was employer variations, by 68% of respondents, and the third was provision of employer information, by  39%  of respondents. These factors are likely to lead to the fourth and  sixth most frequently cited impediments: scheduling and construction programmes and  assessment of delay; and extension of time. It seems that client control and decisions are at the heart of project delays and cost overrun.

Counterintuitively, devolving project management to a project board made up of key stakeholders including the client is a means of improving a project’s changes of success. The board is accountable for delivering the strategic and financial objectives for the project and generally has to make decisions on a unanimous ‘best for project’ basis. The client’s day to day rights and obligations will usually be limited to issues which are fundamental to the functioning of its assets or operations, matters which are usually wider than the successful delivery of the project.

Since these structures and concepts are relatively new, both the board and the wider project may require coaching and advice. A requirement for unanimous decision-making comes with the potential for deadlock and the need to resolve it. An independent adviser to the board can be appointed to assist in decision-making in accordance with the project’s conditions and overall objectives. This person can feel freer than those directly involved in the project to be open and candid without being judgemental, as well as able to encourage all members of the team to be honest about their concerns and vulnerabilities.

Contracting for the long term

The benefits of industrialised construction can be reaped more significantly in the longer term by benefitting from economies of scale. Think replacing project-specific professional appointments with longer term framework agreements, allowing clients and professionals to develop longer term relationships; and integrating design work with manufacturing at the project planning stage so as to ensure design is compatible with the repetitive use of component.

In particular, if there is to be a change in emphasis of what constitutes success and value, the role and mindset of the  cost manager will need to alter, and may be usefully reduced. Aggressive cost control and disallowing of costs will not be conducive to creating a collaborative culture: instead, the  cost manager’s role will have to become more creative, by looking at issues around long-term asset value and life cycle costing. Similarly, the  cost manager’s  needs to be reviewed, particularly in respect of projects based on ‘target cost’ arrangements. The emphasis needs to change from driving down costs to focusing on successful outcomes against a range of measures, of which cost efficiency is a part.

Where similar projects are to be undertaken over a period of time, greater consideration needs to be given to design ownership. Traditionally, the designer owns the design and licenses the copyright for use on a particular project. Clients may wish to consider the design rights being vested in them, and perhaps retaining the consultant or paying a  royalty fee for repeat use.

Longer term relationships between contractors and their supply chain have the benefit of creating certainty of turnover, and can create an environment and culture of both innovation and continuous improvement. In addition, where industrialisation has elements of off-site manufacture and predictable volumes are important, creating relational contracting with the supply chain allows for factory production to be adjusted in a coordinated way.

From a client perspective, avoiding reliance on a single supplier is encouraged. Creating a supply chain for each discipline which has an element of competition is important to safeguard against supply chain failure and to promote competition and innovation.