Construction industry faces shake up

With the closedown of major construction projects around the globe, the industry could be set for a long awaited revolution in how disruption is managed in the future, according to a report by the consultant McKinsey.

While construction accounts for 13 per cent of global GDP, it has been unable to successfully manage significant risks over the past two decades. Productivity growth has been almost static at 1 per cent annually, and time and cost overruns are commonplace.

“To survive and thrive, incumbents must respond,” says the report. “All of the players in the construction value chain will need to develop their strategies for dealing with or leading disruption.”

Defend, adjust, reinvent

This will especially be true for engineering and design, materials distribution and logistics, general contracting, and specialized subcontracting, it said, as those areas could face increased commoditization. 

“Companies can try to defend their positions and adjust to the changing environment, or reinvent themselves to take advantage of changes in the industry. All will need to invest in enablers like agile organizations,” it added.

In the shorter term, those in the construction business need to manage contract risk closely.

“In periods of heightened uncertainty and economic volatility, such as with the COVOD-19 pandemic, the potential for disputes naturally increases,” according to CMS International’s Construction Survey 2020. “Project failure stems in a large part from unforeseen circumstances and misaligned expectations.”

Value risk management

The report found that construction businesses increasingly valued the work of risk management in these areas, but that they found it difficult to keep abreast of issues that arose over the life time of the project.

“At the outset of the project, the legal/contract team will set up a meeting to explain to all project-related personnel about the points of contract and risk areas for the specific project,” one survey respondent said. “Having said that, it is often found difficult to keep these flags during the project operation and implement actual risk management.”

For those looking to limit or mitigate such risks almost 40 per cent of respondents singled out keeping better records as an area for improvement, followed by managing change better (e.g. recording and agreeing variations in line with contractual requirements), and earlier identification of risks during tender phase. Large numbers of survey participants also felt that improvements could be achieved in submitting notices within prescribed time limits, better management of supply chain/subcontractors and improving understanding of local market/region-specific factors prior to project execution. Managing design issues was also cited as an important factor.

IRM’s Infrastructure Special Interest Group recently held a webinar on the specific risks facing the sector, which you can view here

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