Carrie Arnold Bridge Insurance

COMMENT | Collaboration is key to rebuilding construction

Comments (3)

The recent demise of high-profile construction companies such as Pochins and Bardsley has had far-reaching effects in the property development sector, writes Carrie Arnold of Bridge Insurance Brokers Limited.

Aside from leaving residents without homes, developers without contractors and employees without jobs, large construction contractors folding means there is a shortage of good ones available.

At a time of ferocious development – especially in Manchester – demand can quite quickly outstrip supply, and this is having an impact on the rising price of labour. If developers don’t have in-house construction teams they are now facing a highest bidder situation which adds unscheduled increases to contract costs – or worse still, contractors dropping out in the final negotiations, leaving the developers back at the drawing board and re-starting the tender process. The result is an uncertain build schedule, and a long-term impact on the profitability of the project.

These rising labour costs are not just symptomatic of folding construction firms, however. They highlight a major flaw in the whole construction process.

At present, the system is fragmented, to say the least. Through the planning, permissions and tender processes, all parties are working in isolation. Even upon appointment and build start, the system is one of clients and suppliers, with each ‘supplier’ operating to its own timelines and priorities. Different parties are fiercely negotiating for terms that meet their needs – irrespective of the impact on the others involved.

This works, of course. It has for decades. But just because something works, doesn’t mean it can’t be improved.

What if we took a more collaborative approach? What if we thought of each other as partners, rather than clients and suppliers, and instead of thinking about best price wins, focus on working with people who understand the vision for the project and have a similar work ethic?

This would mean everyone – developers, planners, solicitors, legal advisors, surveyors, council representatives, insurers and brokers – around the table from the outset, thrashing out the details of the build and discussing what will be needed for all parties to get there. An honest and open approach and collaborative thinking will get any project off to a much better start and mean a much more joined up approach as it progresses. It means time of course, but the time dedicated to this at the inception will be saved further down the line if hiccups (and there are always hiccups) have been pre-empted and planned for. Fair prices can be negotiated, making the project more affordable. Less time is spent in communications as things have been discussed up front. Design disputes can be settled in the early stages, insurance requirements and risk improvements can be managed effectively, and all participants can be happy that it is a fair deal for all.

This collaborative, partner-led approach is epitomised in insurance broking. A joint liability owner controlled insurance programme brings the developer, contractor, insurer and broker to the table to discuss all elements of the build and view the bigger picture from the outset.

Apart from reducing paperwork, it ensures that there are no gaps in the cover, by encompassing not only the contract works cover and joint liabilities cover – but also advanced loss of profits, environmental impairment liability, terrorism, existing structures cover and non-negligent liabilities. And all at a controlled premium.

This helps the developer know that their assets are protected, but also that their future profits are too.  It holds benefits to the main contractor who can rest easy that there won’t be a blame game in the event of a project giving rise to a claim, and also benefit from reduced annual premiums on their annual policy if they correctly disclose it during their annual insurance declarations (a relief to most contractors, who are finding that the annual construction insurance markets are hardening and obtaining comprehensive covers at a reasonable cost is becoming harder and harder).

At Bridge Insurance Brokers, we encourage open communication with all participants creating this type of cover, from the solicitor drawing up the JCT clauses, to the surveyors and cost consultants who have key information for insurers with regards to the specifics of the build project. The sharing of information is critical in ensuring the project is insured effectively with the appropriate covers, limiting any un-necessary exclusions which can be combated with adjustments to risk management.

This same approach can and should work in the wider construction process. Everyone has the same end goal: a successful build that is sympathetic to the environment, swift on build and successful financially.

By committing to that bigger picture and collaborating with each other from the outset, the old client / supplier relationship could be eradicated and a partner-led approach could develop.

It is fundamentally challenging the status quo, yes; but open and honest collaboration between the parties can only work to the greater good.

Carrie Arnold is account executive at Bridge Insurance Brokers

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I think this approach assumes that all parties will be forthcoming with their margins in order to ensure that the project is “equitable to all”, including the lad-owner. I think that stumbling block is a tough one to overcome. The planning department would be on-board with this open-book type approach however as they could then see into the financials of the project (more decisively than a feasibility report) and then adjust their s106 and affordability criteria to enable greater claw-back…all without accounting for the risk of the market and leaving that to the others to bear. In my experience, the planning departments are responsible for a huge slice of build costs by the sheer weight of information they require (in may circumstances information they already have from other comparable projects nearby). In my 20+ years experience of development i have found fees to total approx 15% and approx %5 of this is non-essential/repeat information. Also the delays caused by planning departments lack of resources also adds a huge time cost onto projects which we have estimated adds between 5-7% of the build cost via holding costs and other costs and and increasing the time for return on investment, another cost. An overhaul of the planning system could bring cost efficiencies of 10% to the cost as well as speeding up delivery time.

By Not Sarah

I think contractors buying risky work at bargain basement prices is probably a more obvious root cause. Surprised this doesn’t even touch on that.

By AVW

How many times has the word ‘Partner’ been used over the last 20 years? its nothing more than ‘spin’. It is and always will be about cost, pure and simple. Having worked in Construction for 40 years i would say it is worst now than it has ever been.

By TB