Innovative ways contractors can manage cash flow, reduce costs and win more work during a recession (pt 3)

PART 3 OF 4: HOW GOOD DESIGN MANAGEMENT CAN HELP CONTRACTORS REDUCE CONSTRUCTION COSTS DURING A RECESSION

Before we get stuck in, let’s have a quick recap…

WHAT DOES THE FUTURE HOLD FOR CONSTRUCTION?

The truth is no one knows the future, but there is some guidance to help assist in commercial decision-making.

2022: Despite the uptick in insolvencies, 2022 saw construction output increase by 5.6% (compared to 2021). This rise was driven by new work (+3.8%) and repair and maintenance work (+8.5%).

2023: This year will be harder. The CPA (Construction Products Association) predicts that construction output will decrease by 4.7% this year.

Despite this slowdown, JP Morgan and others believe the wider UK economy will avoid recession but will still see slow/negative growth in the first two quarters of 2023.

2024: The CPA also predicts that construction output will recover by 0.6% in 2024.

WHAT’S THE PLAN?

The outlook doesn’t look great, but it doesn’t look apocalyptic either.

The plan for most construction businesses will be to weather 2023 and make the necessary business adjustments to take advantage of the 2024 recovery.

WHAT CAN CONTRACTORS DO TO PROTECT THEIR BUSINESSES DURING THE DOWNTURN?

Despite the UK technically avoiding a recession, 2023 may still feel like one.

By all accounts, 2023 will be nothing like 2008 and will be further distinguished by the fact that goods, services and energy will remain expensive despite a decline in demand.

This means that traditional ‘belt-tightening’ and cost cutting won’t work. At least not in isolation.

In this series of blogs, we’ll be looking at innovative ways that construction businesses can reduce cashflow bottlenecks, reduce cost and position themselves to grow faster than ever in 2024.

We’ve identified 3 areas/practices which can help contractors achieve this.

• Free Issuing
• Good Design Management
• Diversify + Win New Business

This blog is going to focus on good design management.

WHAT IS GOOD DESIGN MANAGEMENT?

Not to be confused with CDM (although they are interconnected). Good Design Management, from a contractor’s perspective, starts during the tender stage and is the most cost-effective way of reducing construction risk, and unintended construction costs.

Put simply, design management means managing the design process in a way that reduces risk to the project and contractor. It takes many forms but tends to focus on the following areas:

• Site risk: Managing how the design of the project interacts with a particular site.
• Procurement risk: This covers everything from subcontractor selection to specification.
• Construction risk: This covers everything from constructability to third-party agreements and health and safety.
• Change control: This is the management of post-contract design changes (common during a recession).

HOW DOES GOOD DESIGN MANAGEMENT HELP DURING A RECESSION?

A significant proportion of additional construction cost is created by poor design management. The ability to manage the design and its associated risk pays dividends in several ways:

• Contractors are able to avoid ‘problem projects’ that are likely to overrun and possibly cost you money.
• Contractors are able to win more tenders by demonstrating mastery of the project information. FYI: We wrote a 4-part blog series on how to gain an edge during the tender process, here.
• React more quickly to changes in the client’s investment/development strategy, e.g., extreme value engineering, or programme acceleration.

GDM helps contractors avoid problem projects  

Problem projects pressurise cashflow, divert resources and strain relationships at the best of times. They can be commercially fatal during a construction downturn.

Knowing how to avoid them is a matter of life and death and key preserving project resources for the right project.

Good Design Managers tend to look for the following red flags in a tender request:

• Check whether the client is notorious for not paying their bills on time (or at all). Contacting their past construction partners will give you a good insight.
• Be wary of tenders from clients with no online presence. It’s not uncommon in the construction and property world but it’s worth paying attention to.
• Understand where the client is getting their equity from. This is particularly important for large projects. If a very large project is being financed by foreign money, check whether that region or country is stable. E.g. A client who is drawing equity from Russia may be having trouble now.
• Pay attention to the level of resolution in the site drawings. Poorly recorded site constraints can cause significant and expensive problems.

GDM helps contractors win more tenders/work 

During a downturn winning the projects you actually want to work on is essential.

We wrote a whole blog series on how to gain an edge during the tendering process. You can read that, here.

Good Design Management can provide a competitive edge because it allows a contractor to demonstrate a full understanding of the brief and the associated risks.

During a downturn, there is a strong temptation for clients to take the lowest bid. 9/10 times contractors don’t want to win on price alone. A contractor who can demonstrate that they are lower risk and reasonably priced will win. The construction stage always feels like the largest risk to a client, this feeling only increases during a downturn.

GDM helps contractors react more efficiently to design changes 

In a declining economic environment time is money. It’s essential for a contractor to be able to deliver a built product to market ASAP (before it loses value).

GDM enables this.

It enables the contractor to understand, not just how long it will take to complete the project, but which parts of the project can be amended to reduce cost (value engineering) and accelerate the programme.

A contractor that knows (ahead of the request) how to reduce cost and speed up construction is well placed to profit from this (almost) inevitable request.

GDM coupled with the ability to accelerate and cut cost protects the contractor without causing conflict.

HOW IS C-LINK HELPING CONTRACTORS COPE WITH THE DOWNTURN?

C-Link is working with leading construction businesses to streamline their most resource-intensive, time-consuming activity, estimation and sub-contract tendering.

On average C-Link is saving main contractors up to 900-man-hours per project. (300-man hours during competitive tender and 600-man hours during sub-contractor tendering and management.)

If you’d like to discuss how C-Link can help you do the same drop us a note here.

If you’re not ready but if you’re intrigued, why not check out our platform?

About Martin Prince-Parrott

Martin is an ESG Real Estate Developer and former Award-Winning Architect. He’s spent the last decade designing and developing a billion-pounds worth of mixed-use institutional-scale real estate. He’s worked with and for market-leading companies such as Gensler, Microsoft, Barratt Homes, Legal & General and Barclays Bank.