Collaborative working: Going nowhere fast

Andrew Wolstenholme’s 2009 report on industry reform was called Never Waste a Good Crisis. But we did. Now with Cameron back at Number 10 and Osborne next door, the industry may reasonably assume that both public and private demand for construction will remain high over the next few years. But can the industry deliver, efficiently and effectively? Probably not. Not unless it embraces collaborative working.

The reports of Latham, Wolstenholme and Egan shine like beacons in the distance, across a bog of unexpected ground conditions. Pockets of collaboration have resulted and clients sometimes actually ask contractors how they might build things before they launch a tender. But mostly the industry is highly fragmented and full of lazy risk transfer, adversarial practice, obsolete technology and archaic processes. It is trapped, like a frog in a well.

But there is a way out. You can’t get out of a well on your own, but you can if you collaborate. Horizontal joint ventures between clients, consultants or contractors designed to strengthen market position; vertical joint ventures between clients, contractors and subcontractors to embrace the sharing of risk and reward; and linear joint ventures that present a comprehensive solution over the lifecycle of the asset. Each presents its own way of scaling those slippery walls.

And all the signs point to an explosion in the number of joint ventures because of a particular conflux of market conditions and a growing awareness that collaborative working benefits all parties. These include:

• Huge investment programmes which clients increasingly recognise require long-term relationships to deliver, in road, rail and nuclear for example. To drive long-term efficiency clients need the industry to invest, but the industry can’t invest on a 1% average margin, minimal cashflow from operations and perpetual competition.
• Rising demand, which means construction firms can afford to think longer term: why take on high risk lump sum contracts where more attractive long-term relationship offers exist? The latter provide organisations with stronger forward order books and promise greater reward for incentivised and proven capabilities.
• Public finances remain stretched, so innovative funding and financing packages are attractive and joint-venture structures provide a platform for project financing.
• Foreign investment, particularly from China, is rising, with over half of the recent £30bn China-UK investment agreements targeted at infrastructure. Cross-border joint ventures are likely to become more prevalent, in part as new Chinese contractors will need the experience of established operators to enter the UK market.
• UK firms are also increasingly looking abroad and a joint venture is usually the lowest risk route to entering a foreign market - navigating local regulatory and compliance requirements, accessing resources, and managing local relationships.
• A rapid adoption of new technology in the industry will disrupt long-established supply chain hierarchies while improvements in data analytics create a platform for stronger partnerships based on more transparent data.
• The BS11000 standard for collaborative business relationships is gaining traction in the industry and has been embraced by a significant proportion of both clients and the supply chain.  
• The challenge is in the sector’s relative lack of maturity in establishing, operating and optimising successful joint ventures. A recent KPMG survey identified that while an overwhelming majority of 82% expected to see greater client/contractor collaboration over the next five years, only 32% of clients had a high level of trust in their contractors. 

But there are examples of success. The ConnectPlus joint venture for the M25 has driven innovation, notably a new technique for the replacement of life-expired concrete, which is reducing the delays experienced by drivers by 80%. And Network Rail’s “deep alliance” solution for the works at Staffordshire as a part of the West Coast mainline upgrade is proving highly successful. Crucially, payment is linked to behaviours as well as delivery of the works.

The challenge is in the sector’s relative lack of maturity in establishing, operating and optimising successful joint ventures

The scene is set for a fundamental transformation of our industry, but what should our industry do now, not just to prepare for managing the risks associated with this change, but to positively embrace it?

First, clients must take the lead, starting with a full redesign of the tender process, and the development of collaborative models which align supply chain incentives, promote “best for project” behaviour, and reduce complexity.

Second, clients should develop a standardised approach to successfully deliver through joint ventures, underpinned by a programme of behavioural and cultural change. Senior sponsorship is critical.

Third, contractors should look beyond short-term competitive instinct and embrace new ways of sharing knowledge and aligning risk and reward.

For once in a generation everything is now in place for the industry to succeed - a strong economy, new technologies and smarter clients. Only the industry itself can waste the opportunity. You are the frog. Collaborate, or drown.  

Richard Threlfall is head of infrastructure, building and construction at KPMG