There are, of course, many factors involved in the Carillion situation and we’ll know more about them in time. Received wisdom is that an aggressive pricing strategy led to them taking on contracts that didn’t generate enough (or any) margin to sustain their business model, or to cope with financial shocks of major project overruns.
We are definitely seeing more ‘risk aversion’ about at the moment. This is driven by both contractors and clients. Many contractors have healthy order books and are able to be selective. Clients also have a heightened appreciation of the risks of losing the main contractor mid project.
That’s not to say that procurement bodies are massively loosening the purse strings or that they are not still pursuing best value vigorously. Clients may be less inclined to automatically select the cheapest bid. But they still need positive and persuasive reasons for why they should pay more.
Quality vs Cost
Clients will hopefully focus more on differentiating through quality. To do this they will have to ask better and more searching questions about the value each potential contractor is offering to deliver.
Other differentiators, such as behaviours, also come into play. Most often collaborative behaviour is what clients want.
Forward-looking clients like Highways England and Network Rail are looking to get closer to the major contractor’s supply chains. Partnerships and frameworks appear to be the way forward.
In effect, they still want more for less. But to get it they are prepared to offer longer term visibility of projects coming down the line. Potential contractors then hopefully won’t have to go through mini-tendering processes along the way and can, in turn, offer more guarantees to their suppliers. This, in turn, enables investment in additional capacity and innovation due to the potential surety of work.
How to Succeed
While a clear pipeline of work is an outcome that most contractors would welcome it won’t be handed over lightly or for nothing. Contractors are finding themselves having to demonstrate that they can ‘think like a client’ when it comes to value and putting the needs of the project and end users first.
It’s also not enough to say that you work collaboratively or have aspirations to do so. Clients expect to see evidence of how you work with your supply chain and other partners to bring more value to the outcomes. None of this is easy, but the prize probably makes it worth the effort.
The perspective used in bids also needs to be broader than ‘this is the spec, this is how we’ll deliver it.’ What is crucial now is to be able to demonstrate clear understanding of the client’s real needs, combined with demonstrable evidence that the team you have proposed have the relevant experience of dealing with similar situations in the past. This is certainly an area where an external perspective and some coaching helps to address each client’s broader issues and ambitions.