Why the lowest price isn't sustainable - Revision history

Designing Buildings at 07:28, 19 January 2021

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	--[[User:The_Institution_of_Civil_Engineers\|The Institution of Civil Engineers]]		--[[User:The_Institution_of_Civil_Engineers\|The Institution of Civil Engineers]]

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Designing Buildings at 06:38, 18 October 2019

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	= Introduction =		= Introduction =

Editor: Protected "Why the lowest price isn't sustainable" ([edit=sysop] (expires 12:24, 17 November 2019 (UTC)) [move=sysop] (expires 12:24, 17 November 2019 (UTC)))

2019-10-17T11:24:15Z

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	= About this article =		= About this article =

−	This article was written by [mailto:editor@ice.org.uk Phil Joyce], The Orange Partnership and is based on the author's briefing article in the ~~latest issue~~ [https://www.icevirtuallibrary.com/toc/jcien/172/4 (172 CE4)] of the ICE Civil Engineering Journal. The article previously appeared on the ICE website in October 2019 and can be accessed [https://www.ice.org.uk/news-and-insight/the-civil-engineer/october-2019/why-the-lowest-price-isn-t-sustainable HERE].	+	This article was written by [mailto:editor@ice.org.uk Phil Joyce], The Orange Partnership and is based on the author's briefing article in the [https://www.icevirtuallibrary.com/toc/jcien/172/4 172 CE4] issue of the ICE Civil Engineering Journal. The article previously appeared on the ICE website in October 2019 and can be accessed [https://www.ice.org.uk/news-and-insight/the-civil-engineer/october-2019/why-the-lowest-price-isn-t-sustainable HERE].

	More articles by ICA on Designing Buildings Wiki can be accessed [[ICE_articles_on_Designing_Buildings_Wiki\|HERE.]]		More articles by ICA on Designing Buildings Wiki can be accessed [[ICE_articles_on_Designing_Buildings_Wiki\|HERE.]]

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	The Institute of Chartered Accountants in England and Wales (ICAEW) warned in its [http://www.icaew.com/technical/audit-and-assurance/audit-insights Audit Insight report into construction] earlier this year that the ‘race to the bottom’ in construction contracting could lead to more major firms collapsing. It will also damage their supply chains, forcing more smaller firms out of business.<br />		The Institute of Chartered Accountants in England and Wales (ICAEW) warned in its [http://www.icaew.com/technical/audit-and-assurance/audit-insights Audit Insight report into construction] earlier this year that the ‘race to the bottom’ in construction contracting could lead to more major firms collapsing. It will also damage their supply chains, forcing more smaller firms out of business.<br />
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	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =
		+
		+	* Auction theory.
		+	* Best value.
		+	* Bid writer.
		+	* Competitive tender.
		+	* E-tendering.
		+	* Estimator.
		+	* Form of tender.
		+	* Game theory.
		+	* Initial cost appraisal.
		+	* Invitation to tender.
		+	* Pre-tender estimate.
		+	* Procurement route.
		+	* Relationship management.
		+	* Tender documentation.
		+	* Tender evaluation.
		+	* Tender process.
		+	* Winning work in the construction industry.
		+	* Zone of possible agreement.

	--[[User:The_Institution_of_Civil_Engineers\|The Institution of Civil Engineers]]		--[[User:The_Institution_of_Civil_Engineers\|The Institution of Civil Engineers]]

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The Institute of Chartered Accountants in England and Wales (ICAEW) warned in its [http://www.icaew.com/technical/audit-and-assurance/audit-insights Audit Insight report into construction] earlier this year that the ‘race to the bottom’ in construction contracting could lead to more major firms collapsing. It will also damage their supply chains, forcing more smaller firms out of business. 
 
In preparing its report, ICAEW collaborated with auditors with many years' experience of independently examining and auditing construction firms. These included KPMG, PwC, EY, Deloitte and The Orange Partnership. 
 
The construction sector is a key driver of growth for the UK economy, but it is a fragile one with low margins and high risks. 
 
When construction companies and clients get it right − through project selection based on their ability to deliver, responsible tendering, diligent monitoring, and a proactive attitude to deal with issues such as cost and timetable overruns – they create contracts that are more profitable and provide more enduring value. 
 
The report examines four key areas that need to be addressed by construction firms if they are to run sound, well-managed businesses.

= Bidding for lasting value =

If construction businesses want to generate sustainable profits, they need to get the price right at the tendering stage. 
 
Some companies have become better at pricing their services realistically to reflect their true cost. But we are also seeing businesses bidding at too low a price for large complex contracts in the expectation that they will improve their profit margins because some aspect of the project will change. This is a risky strategy as unforeseen changes can quickly turn small profits into losses, and make it difficult to return to profitability.

= Delivering for success =

In construction, it is especially important that financial rigour is applied to key estimates and judgements throughout a project’s lifecycle. Competition is so fierce and margins so thin that reliable financial information and analysis can determine a project’s success. One way to achieve this objective is to form strong delivery teams where project managers work closely with finance and commercial teams. We do not see enough evidence of this in practice and urge firms to remedy any lack of collaboration.

= Increasing transparency =

The UK construction sector continues to suffer from a reputation that it lacks enough transparency, particularly on cost and performance. In many cases, poor or unexpected results are caused by a lack of internal transparency. 
 
Executive management and boards need to ensure the tone from the top encourages and supports employees early reporting when problems occur. Without early reporting, projects are less likely to remain on track and management may be unaware of a problem until it becomes significant.

= Getting fit for the future =

The highly fragmented nature of the sector and lack of training and innovation have been contributing to low productivity. Government can help to build confidence in the construction sector by showing more ambition and urgency in facilitating a commitment to a reliable pipeline of major infrastructure projects with guaranteed timings. 
 
Businesses need to form partnerships with their local schools, colleges and universities to educate young men and women about the wide range of career opportunities available, creating a pipeline of future young talent.The stereotype of the hard hat-wearing construction worker needs to be retired and replaced with the image of the planner, architect, surveyor, engineer and skilled trades person.

= About this article =

This article was written by [mailto:editor@ice.org.uk Phil Joyce], The Orange Partnership and is based on the author's briefing article in the latest issue [https://www.icevirtuallibrary.com/toc/jcien/172/4 (172 CE4)] of the ICE Civil Engineering Journal. The article previously appeared on the ICE website in October 2019 and can be accessed [https://www.ice.org.uk/news-and-insight/the-civil-engineer/october-2019/why-the-lowest-price-isn-t-sustainable HERE].

More articles by ICA on Designing Buildings Wiki can be accessed [[ICE_articles_on_Designing_Buildings_Wiki|HERE.]]

= Related articles on Designing Buildings Wiki =

--[[User:The_Institution_of_Civil_Engineers|The Institution of Civil Engineers]]

[[Category:Client_procedures]] [[Category:Construction_management]] [[Category:Contracts_/_payment]] [[Category:Procurement]]