Navigating uncertainty in the short term

Whether here in the UK, or across the world in Oceania, there can be no doubt that those in the built environment have moved from advising clients on certainty of outcomes in the long term to navigating uncertainty in the short term.

Across the world, there are project challenges around volatility of prices, increased price of materials input costs, increased lead-in times for materials and shortage of labour, at times putting project viability into question. Yet we also know that projects need to continue as the demand and need for quality buildings remains.

To the futurists among us, there are often three influences on how the future will shape up –

• continuation – tomorrow will be a repeat of yesterday,
• cycles – tomorrow will follow cyclical patterns of the past, and
• de-railers unforeseen events that impact the course of the future, with COVID-19 being a good example. 

There is no doubt that for the last 80 years the future has followed both continuation and cyclical paths. What is becoming clearer is that the future is now becoming much more influenced by de-railers – things that we are less prepared for or at least ill-equipped to deal with, in the short term.

What is also clear is that scenario planning is needed to help navigate the uncertainty we find ourselves in today and we predict this will continue for the next three to five years. Looking at the best, mid and worst-case scenario will give us the ability to test those scenarios and undertake mitigation planning.

Using value-based decision tools

However, for us to continue to build and for the long-term future of the built environment to flourish, we need to think of some of the longer-term elements we are facing as an industry as well as some of the short-term challenges. For example, in the UK there has been government guidance and governance recently launched in the form of the Value Toolkit and the Construction Playbook. This guidance is aimed at the public sector, but equally relevant to private sector projects and advocates value-based decision making beyond cost, time, quality and brings together other factors such as social value, environmental impact, whole life performance and risk. Using these tools to offset cost risk/inflation and project risk analysis can optimise value in the long term, helping to mitigate wider project risk that can positively impact the business case. 

Private vs public sector strategies

Working across private and public sector projects we have also seen a different approach to procurement and an evolving response to the current market situation. Where private sector projects often prioritise financial outcomes coupled with further development criteria such as sustainability credentials and social value added, the public sector is driven by necessity, for example, the need to build a new hospital or school. 

In the public sector, there remains a consistent focus on value for the public purse – ensuring public finance expended achieves necessity of outcome needed. There is also a wider level of shared risk and liability across client and contractors. Fixed price contracts are not a prerequisite and there is a high use of the collaborative form of contract where it is accepted that the contractor is entitled to defined cost plus fee and there are secondary option clauses to tailor your contract to project drivers and risks such as price adjustment for inflation. 

This often differs in the private sector where many contracts are driven by certainty of cost to drive development viability and return. There might be risk and contingency built in, but this risk is often defined, known and capped, rather than unknown.

So, should our industry look to move to a more contractor/client/developer/funder risk share model? We believe that transparency, collaboration, and openness is more important than ever. To be an industry that works together, in real time to understand project need plus clients, contractors, supply chain and professional teams’ needs, internal and external influences and drivers will be critical to navigate these uncertain times.

Being open to different solutions

Being open to different solutions to help us meet our design, procurement and build requirements will also be key. There is an opportunity to mitigate material and labour availability challenges through the adoption of DFMA (design for manufacture and assembly) and MMC (modern methods of construction) strategies, or by early ordering or retaining materials off site. Likewise at construction stage, it could be wise to consider project bank accounts to mitigate increased insolvency risk and claims avoidance strategies to avoid increased contractor claims due to project duress on input costs.

What we do know is that the certainty of outcome is absolute, to create buildings and places that form the foundation of our society. Of course, at this stage of the game, certainty in answers may be limited but our industry has a strong heritage in finding solutions and we certainly have the imagination, skills and resolve to navigate all issues that are presented to us.

The time horizon for validity of data may be shorter than ever before, but through collaboration, operating as one industry working together to navigate the uncertainty in the short term, we will achieve certainty of outcomes in the long-term.