How addressing contractor profits builds a stronger construction sector that can deliver better infrastructure outcomes for society.
Profit has long been a whispered word in government corridors as bloated project teams, commercially compromised evaluation ensembles and acquiescent steering committees wave their collective decisioning wands. With contracts awarded, there is almost a collective gasp that a contractor would dare to turn a profit on the public purse.
Contractor profit is an urgent discussion that must be addressed. With increasing insolvencies, swelling populations, mounting infrastructure demands, net-zero targets, stretched supply chains, and inflationary cost pressures, there has never been a more important time for government and industry to table ‘profit’ as a solution to resilient and sustainable outcomes. With so many construction and infrastructure contractors teetering on the verge of collapse, many are one bad project away from administration.
How is it that finance, service, material, healthcare and technology providers can turn huge profits, but the ‘builders’ of tomorrow are forced into high-risk contracts that stifle innovation and drive up risk positions? This is not an equitable system. How has such an unsustainable approach become an entrenched feature across so many building and infrastructure projects? How does society benefit from this limited approach? Where is the opportunity to shape something better? Reimagining partner ecosystems should focus on co-creation, novel profit pools, biophilic design principles and adaptable infrastructure assets. To connect infrastructure to future community needs, creative design, risk and profit should be shared to facilitate a truly inclusive, sustainable, and adaptive built environment.
To achieve such change, radical behavioral shifts will be required. Such behaviours need to facilitate new perspectives that go beyond political cycles, beyond 50/100/150-year time horizons, beyond standard contracts, beyond current risk frameworks, beyond constrained profit definitions and current project demarcations and design. Only then can new ways of working be unlocked and explored in their entirety. Yes, some approaches will fail, but to continue to do what has always been done is to accept the madness of today.
Boldness is needed to shift the status quo. To truly change, industry and government must seek to challenge each other to do better and test new ways of working. To find a better way is to deliver more to society, the environment and the long-term financial viability of builders and contractors. It is about ensuring that the agglomeration of businesses and enterprises that surround our infrastructure assets are enhanced and able to sustain the communities that surround them. Focus areas can include the following.
- Define profit pools in novel ways that support the financial health of contractors.
- Increase the commercial capability of procurement and commercial teams in order to innovate.
- Transition to collaborative contracts and early contractor involvement solutions.
- Embed whole of life 50/100/150-year time perspectives into design and evaluation processes.
- Actively review localization vs globalization supply chain enablement as future profit levers.
- Look for productivity efficiencies (people, process, technology) across the value chain.
- Promote innovative thinking over the fear of financial implementation repercussions.
Contractor profits currently exist on a very limited continuum. The challenge is to grow this continuum through new ways of working, novel financial/commercial models, broader perspectives, collaborative contracts and bold design. Ultimately, contractor health reflects, in part, the health of society, so it is incumbent on us to shape the destination and build the rest.
If you are facing challenges in this space, or you see the merit in tackling these topics, please reach out to us for a chat.
About the author
Paul Royds is a multi-disciplined procurement professional with over 16 years’ expertise in procurement, business consulting and project management. He has implemented numerous procurement models/transactions which have delivered cost savings and reduced risk with a focus on whole-of-life value generation.
“HKA is the leading global consultancy in risk mitigation, dispute resolution, expert witness, and litigation support services.”
Please visit the firm link to site
