Brexit: The winds of change?

There were signs that the industry was slowing down prior to the referendum vote in June and the resultant economic uncertainty immediately after the referendum was bound to cause waves. According to the press, there has now been the fastest fall in activity since the dark days of 2009. Is it possible, however, at this very early stage, to anticipate the emergence of any new trends in the industry?

Earlier this year, Building asked if the role of the construction manager was about to disappear or whether it was due to bounce back (“Last chance to see?”, 24 June 2016, page 22), and, post-referendum, it does seem that construction management is having a resurgence of popularity with developers. Before the referendum, they were struggling on the domestic project front to make projects stack cost and risk allocation with main contracting procurement, as construction costs spiralled and the balance of power swung towards the contractor. Then came the referendum result, with developers tightening their belts and trying to increase control over efficiency, costs and the fall in construction activity.

So why might construction management become flavour of the month?

Some developers have operated construction management successfully for years and found that it has given greater flexibility and costs savings

Construction management sees the employer entering into a direct trade contract (possibly via a framework) with all trade contractors for the packages necessary to deliver the project, be that demolition, piling, substructure, superstructure, cladding, lifts, finishes, and so on, and the employer appointing its professional team under consultant services agreements in the usual way.

The theory is that by cutting out the main contractor and procuring trade contractors directly, the employer has access to the same supply chain as a main contractor under a design and build or traditional arrangement, but can reduce the amount of overheads and profit it has to pay. Some developers have operated construction management successfully for years and found that it has given greater flexibility and costs savings. Unlike design and build main contracting, where an employer’s agent is engaged to manage the main contract and carry out administrative functions, under the construction management route the employer acts as construction manager itself or appoints an external construction manager to manage the procurement.

Apart from potential costs savings, what are the advantages of construction management? These can include: a shorter programme achieved by overlapping design and construction following early appointment of the consultant team and specialist trade contractors, proactive management of the design and construction process to minimise disruption, more flexibility to implement cost effective solutions to problems, and that the project is less likely to be derailed by insolvency of a trade contractor when compared with that of a main contractor.

What is there not to like? Construction management is not for everyone. There is no cost certainty until all trade packages are let

So what is there not to like? Construction management is not for everyone. There is no cost certainty until all trade packages are let and no single point responsibility – one of the main upsides of design and build. There is an increased administrative role for the employer, who is fully exposed to the risks associated with the performance of the construction manager and the rest of the team. Finally, certain funders may be nervous about construction management, although this could be less of an issue if trade contracts can place single point responsibility on the relevant contractor for design/performance as well as for workmanship.

The most important thing to remember, if considering construction management, is the significance of the construction manager. The construction manager will need to have a particular skill set in order to operate this form of procurement efficiently and for an employer to benefit from the advantages that may be available. The role of the construction manager goes beyond the scope of that of a main contractor or of an employer’s agent. The client needs to have the resources and expertise to be able to manage the procurement process effectively. Berkeley Group is a good example of a successful and informed client who has used construction management for years with great success. If an employer/client does not have that resource and the expertise in-house, the importance of appointing a construction manager who is both experienced in operating this type of procurement and has the specialist knowledge to ensure successful project delivery is crucial. Big build-to-rent outfit Essential Living has opted for this approach in its recently announced move away from main contracting to construction management.

Are the winds of change really blowing through the more traditional methods of main contracting procurement of developers? If so, it may not be a bad thing. But, as with all departures from any well-established practice, an element of not only sophistication but also caution is vital.

Stephanie Canham is head of construction at law firm Trowers & Hamlins