Contractors mull whether to bid £1bn London towers job as firms worry fixed price will be too risky

Several would-be bidders are waiting to see how a huge towers scheme at Blackfriars will be let before deciding whether to price it or not because of worries over financial risk.

Approved by Southwark council last month, the scheme at 18 Blackfriars for US developer Hines will see the construction of a 45-storey office plus two residential buildings of 40 and 22 storeys all rising from a four-storey podium.

Lipton Rogers, the firm behind 22 Bishopsgate, is development manager on the project, which includes 100,000 sq m of office space and 433 homes, with others on the team so far including engineer Arup and QS T&T Alinea.

The job, designed by Foster & Partners, will be one of the biggest to come up for grabs in London in the coming years but contractors are worried that the sheer size of the project – with estimates that construction will cost at least £800m and is likely to be over £1bn – will mean it is too risky to price under a design and build contract.

One source said: “It’s too big for D&B. It’s half a firm’s turnover and nobody has the financial firepower to take on a contract like that. You can’t pass that risk over [to a contractor] on a job like that.”

Firms thought to be interested in the work include Mace, which today has been confirmed as winner of a retrofit scheme for Helical at 100 New Bridge Street near Ludgate Circus, and Multiplex.

Lendlease and Sir Robert McAlpine are also both thought to be interested but only if it was let as a CM deal.

One firm told Building: “The client is undecided yet on the procurement route but we’re interested on a CM basis. It’s a huge job, over £1bn, and that’s why we’ll only bid on a CM basis. You can’t afford to get this wrong.”

But another firm said: “Fixed price is fine if properly considered and procured fairly. We would be happy to take on fixed price at the right time in the design process and with the ability to give good clear scopes to the supply chain.

“If we provide the knowledge and functionality to connect the supply chain intelligently and efficiently, then they can work more efficiently and with certainty. If good information is available at the appropriate time, we can fix.”

Another source added: “I think Lipton Rogers are sympathetic to the idea of CM but it’s about convincing Hines. There has been rumours about breaking the job down into smaller D&B packages.”

The scheme will create more towers in the Blackfriars cluster which includes the 50-storey One Blackfriars residential scheme, built by Multiplex, and the mixed-use Bankside Yards job, currently being built by Multiplex for Native Land.

The work at 18 Blackfriars is expected to take around four years with construction possibly starting later this year.

Lipton Rogers has been contacted for comment.

News of potential bidders’ concerns come as a series of recent reports has suggested contractors overall are being more careful about what they bid in the wake of recent high-profile collapses.  

Last month, Gleeds’ spring sentiment survey found that 90% of respondents had said they or their supply chain had refused to price a scheme in the previous three months.

Onerous contract terms and capacity issues were blamed for the issues and follow recent concerns flagged by London cost consultants including Exigere who said facade contractors “are generally opting not to bid for projects which have insufficiently developed designs or involve main contractors with ‘shakier’ credit ratings – too many have been caught out taking these risks before”.

Kelly Boorman, the head of construction at restructuring firm RSM, which is handling the administration of Osborne, said “a large number of businesses [are] scaling down their operations either through a reduction of contracts or an exit from large-scale, complex agreements knowing they can protect margins through the careful selection of projects”.