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Is now the time for a change to “business as usual” in the construction industry?

24 June 2020

#Construction, Infrastructure & Projects, #Procurement, #COVID-19

Published by:

Carla Mazibuko

Is now the time for a change to “business as usual” in the construction industry?

There is a quote doing the rounds at the moment from US lifestyle guru, Dave Hollis, which reads:

“In the rush to return to normal, use this time to consider which parts of normal are worth rushing back to.”

While it was likely written as a more of a self-help, life-contemplating sentiment, it strikes as particularly relevant to businesses right now, especially to those in the construction and infrastructure industry. Rather than dwelling on what is no-doubt a rough time for many businesses, this train of thought leads more towards the future and how everyone might place themselves in a better position once it ends.

What was “business as usual” before COVID 19? Did it work for you then? Is “business as usual” working for you now? It seems like such a benign question, but business as usual is what business is and what it does, isn’t it? Times like these present a great opportunity to think outside the box and maybe consider options that have been shelved because they were too hard or too different. Of course, this is also a time that a lot of businesses are just trying to deal with the fallout of an economy in recession and large-scale shutdown of industries and livelihoods, so this idea of shaping our future might need to be taken with a grain of salt. However, for those with the opportunity to do so, maybe now is the time to consider whether what used to be ‘usual’ is still working for us or not (and this may apply to many facets of business, work or life generally).

In the construction and infrastructure industry, the opportunity to take a fresh look at what is ‘usual’ and whether it can be done better is already bringing renewed interest in the concept of relationship contracting. This extraordinary event we are all working through may just be the impetus needed to drive the shift away from the more traditional, adversarial forms of contracting, and towards a more collaborative form of contracting built on relationship principles.

Traditional procurement models are often preferred by project owners because they are fairly well understood, and in many cases allow for a significant level of risk transfer away from the project owner. That, according to industry, is one of the key problems (although there are many other causes why a project might go bad). This risk transfer tends to encourage an “every contractor for himself” approach to the project, with each company protecting its own patch, rather than focusing on what is best for the project. The result is often delays and cost overruns, poor performance, and ultimately, long and bitter disputes that distract everyone from the real business at hand. 

On the flip side, relationship contracting, also known as collaborative contracting, is defined in varying ways but is based on the fundamental principles of:

  • parties working together with aligned interests for the benefit of the project
  • shared risks (rather than transferring or unequal apportioning of risk)
  • shared skills and expertise to achieve the project scope. 

The goal is to optimise project outcomes with cohesiveness.

Of course, some principles of this relationship model can also exist in traditional forms of contracting. The best project and contract managers would employ relationship principles, such as mutual respect and trust, cooperation, and open and honest communication, in managing any contract. However, relationship contracting seeks to push that concept further, encouraging a mindset change which is established from the outset of the contracting process and with the aim of instilling and maintaining long-term relationships.  

With a relationship approach comes greater flexibility to deal with disruptive events, such as the current climate we all find ourselves in. Rather than parties scrambling to work out the strict contractual implications and arguing each opposing position to protect themselves, parties in relationship contracting are more driven to focus on collectively formulating the best way to deal with the event and progress the project.

In the rush to point fingers under current traditional contracts of who wears the risk, business might be better considering what would be the most balanced and progressive approach to the issue. An approach that might not encourage ongoing claims and disputes, but instead build relationships with regular contracting parties resulting in parties coming out the other side in a more positive and forward-thinking position sounds like it is at least worth investigating, doesn’t it? This period of change could cement those types of business relationships that stand through hardships, and see businesses build their reputation and goodwill. 

Maybe the industry right now does not have the capacity or resources needed to effect wholesale change, if it is even possible. Maybe we could take some small steps towards that change? Perhaps businesses could be calling upon some of those relationship contracting principles (trust, honest communication, etc.), that might not expressly be included in their contracts, but that could be integrated into the management of any contract in order to work through project issues arising now in the best interests of all parties and ultimately for the benefit of the project. 

Given the construction industry is likely to be integral to supporting the economy through this downturn, the focus must remain on getting projects progressed and completed, rather than letting them stagnate through unnecessary disputes. A step towards relationship contracting, even if only a slight cultural shift, may just be one way to instil the changes the construction industry needs to strengthen its resilience now and into the future.

Whether it was Albert Einstein that said it or not, these words are true: “The definition of insanity is doing the same thing over and over again and expecting a different result”.  Anyone up for a change?

Authors: Suzy Cairney & Carla Mazibuko

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Carla Mazibuko

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