Client Behaviour in the construction industry

Client Behavior

  • As with any transaction there is generally a process of negotiation and ultimately a meeting of the minds (consensus ad idem). The outcome of the transaction is often affected by the behaviour of the buyer and the seller.
  • If the buyer has not made comparisons with other outlets and service he is likely to be disappointed when later discovering he could have obtained better value for money elsewhere.  The buyer, or client, needs to ensure he is correctly advised or to educate himself regarding the best option available before making his purchase.   How do clients in the construction industry behave?  Do they deserve the results they get when dissatisfied? Are the clients in a continuous improvement cycle (as they should be – in accordance with ISO system requirements), or are they victims of ongoing repetition?  For example, is the lowest tender syndrome still prevalent? – which continues to condone mediocrity, often to the detriment of other requirements – often including life cycle costing impact.

The cost led client

  • The temptation for too many managers is the promotion of time and cost at the expense of quality and other deliverables.  This arises, in part, from the difficulty of measuring design quality and other softer criteria whereas time and cost are easy to evaluate.  Design quality, which is often misunderstood by too many in the industry and more understandably by many clients as “gold-plating the taps”, is properly about providing within the available resources added value over and above the merely adequate.  Those who do not strive for good design do so at their collective peril, while those who have experienced it know what good value they have added[1]
  • It is the collective responsibility of design professions to explain the design process and the critical role of ‘effective briefing’.  Good design is not necessarily expensive but it may be undermined by competitive tendering.   US experiences, in this regard, have on occasion been so bad that as far back as 1972, legislation was introduced outlawing competitive tendering for professional services.  Similar campaigns have been initiated in the UK often supported by legislation. It is recommended that Government and major stakeholders evaluate such innovative practices to improve their procurement systems.
  • The ‘lowest cost’ tender syndrome is another frailty within the industry which seems in particular to affect organs of State and SOE’s. There are many other criteria which need to be considered before price. Reference checking the bidders is a key practical consideration that often is not carried out. Further, over the passage of time, the capability of bidding contractors to deliver changes, analogous to that of a top football team. Just because a contractor has satisfied the pre-qualification criteria, this is not a guarantee that he will deliver.  Other issues also need to be considered, such as:-
  • Safety culture – a necessary
  • Liquidity – ‘a key determinant in the current market
  • Core personnel – with commitment to project duration
  • BBBEE – a valid and necessary attribute of successful companies in SA.
  • Management changes – often beset by acquisitions and take-overs
  • Over capacity – leading to under delivery
  • Litigation issues – detracting focus form primary objective “the project”
  • Commitment to training – top performers value and train “their people”
  • External issues – (hostile take-over, problematic projects, leadership changes). 

A key maxim in the engineering and construction industry states that a contractor is only as good as its last project. Continuous reference checking is a necessity.

Technical acceptance of the tender, after sales service, track record and financial stability of the tender are just a few of the tender evaluation practices required.   If there is substantial distortion, or range of bid prices, the client’s first concern should be the quality of its tender documentation. Yet how often is the lowest price tender accepted without further thought, then regretted afterwards when a termination results in the overall project programme being forced into jeopardy or the ultimate customer has to live with a substandard asset, often coupled with a plethora of claims.  The difference between tender prices is probably minuscule in comparison with the additional life cycle cost of poor quality and the ongoing burden of frustration.

The Occasional Client

  • The occasional client who reads about but is not in regular contact with the construction industry must be weary of the day it has to invest in a new building or process plant unless of course it can call on a trusted service provider who successfully carried out its last project. Even in these circumstances, shareholders will be questioning why the project was not administered on an open tender basis just in case the trusted supplier was no longer the cheapest or most innovative. Should the client use Turnkey, Design and Construct, Management Contractor or a Construction Manager?  Who should manage the work for him amongst the variety of professional advisors:  Engineer, Architect, Quantity Surveyor, Planner or Project Manager many of whom can offer only very limited liability for the outcome, often seeking to cap their liability at 10% of their respective contract value?
  • The occasional client is naturally reluctant to play a comprehensive management role as this is likely to be temporary and will generally have in-house project management personnel constraints.  Often, its limited understanding of the construction industry compels it to rely on professional advisors either through direct employment or on a contract basis.  With so many requirements (political, community based, environmental, structural, aesthetic, financial, etc.) to consider and, with the best will in the world from even the most capable of advisors, there is no substitute for experience. Without requisite experience and knowledge, the client will be stumble over problems as the project progresses.  Many of the lessons learned will be forgotten by the time the next project arises. It is important to note that, in most sophisticated client organisations there will be project close out reports and lessons learned logs to ensure continuous improvement is driven forward.  

The “Pass All Risk to the Contractor” Client

  • It is not illogical for a client to reason that as the construction industry is not his core business, why should he take any liability at all when he is employing an experienced contractor whose core business it is.  There are contractors around who will happily take on such a role knowing that if a risk arises which they feel they cannot contain, the small print will in all probability contain the necessary loopholes for them to seek to evade the full liability and/ or exploit the Client.  The client, in this instance has achieved the exact opposite of what he intended.
  • Whilst many such clients may reason that the additional cost of this approach is good value or insurance against project over-runs, would they be happy to know that if the risks which the contractor had to allow for never arose they have in fact paid for nothing. This forces up project costs and leads to an enhanced profit margin for contractors and on the whole is not good for the industry or the country. Better scope definition and/or collaborative gain/share contracting are good options to eliminate this cost creep.
  • The latest in this context is the client who requires that the contractor take on the risk of design done by the design professionals which the client has selected and appointed to prepare the project brief.   It is referred to as “novation”.   With a professional’s liability of duty being limited to reasonable skill and care, is it up to the contractor to allow for the gap between this and fitness for purpose in respect of a service which is not his core business either? This approach is fraught with risk. Furthermore, and often to the Clients detriment is the responsibility to manage the interface. Eskom has and continues to suffer this oversight at both Kusile and Medupi, where it is forced to manage the complex interfaces between boiler, turbine and balance of plant. The magnitude of this task is then escalated when one considers that interfaces have to managed for 12 turbines and 12 boilers. 
  • In the United States an attempt was made to shift more responsibility onto industry through the Total Package Procurement concept introduced in 1966.  This concept is based on concurrent development.  Projects with major problems are without exception those begun before development is complete and design is frozen[2].

The Book End Client

  • This type of Client prefers to be involved only at the beginning and end of a project and clearly prefers the hands off “Turn-key” approach.    In so doing he places total confidence in the original brief.   A one-shot brief for all but the most straight forward of projects must take some doing even by the most competent of scope draftsmen.  In an age of rapidly changing technology and other matters to which a project contractor is exposed, the book end client is likely to be disappointed when he arrives to collect his finished project.
  • It is often said that most Clients pay more than they should, believe there is far too much aggravation surrounding execution of their projects and claim they are less than perfectly happy with the outcome.   Is this true; is it justified and if so why?

[1] Robin Nicholson, RIBA  Director of Edward Cullinan Architects, and Vice Chairman of the UK Construction Industry Council, in a paper presented to the Latham Implementation Plan Conference, London, October 1995.

[2] Peter W. G. MorrisThe Management of Projects, The New Model,  Thomas Telford Services Ltd., London 1994

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