Talent-pinching and building information modelling are top risks for UK construction market

Describe the construction market in UK

The construction market in the UK suffered badly during the recession but is now recovering and is expected to perform relatively well in the coming five years, expanding at an average annual rate of 4.2% in real terms. Residential construction is the largest market in the construction industry, accounting for around 40% of its total value and is expected to thrive. Infrastructure and commercial (increasing demand for office space especially in London) are likely to be major sectors for growth.

What construction projects to do you currently manage and what is your role in these projects?

Shepherd Group is involved in projects across private and public sectors, including health, education, commercial, leisure, retail, industrial and research laboratories. The company also specialises through its subsidiary Portakabin in offsite manufacture supply and installation of bespoke designed, permanent modular buildings across a diverse range of sectors especially health and education.

My role is to support management at all stages, from reviewing contract terms at tender stage, ensuring the insurance cover in place complies with the requirements of the contract and protects the business, helping to minimise the risk of incidents on site such as fire, theft and accidents in general. I deal with these risks when they happen and provide our safety professionals with support and advice. I also facilitate the updating of risk registers at subsidiary level and report to our group board every quarter to present to them a clear picture of the key risks we face at a strategic level.

Does ERM have a place in the construction market or is project risk management a more effective method in construction?

ERM absolutely has a place. Companies need to have the right risk aware culture whereby if things are starting to go wrong on a project, there are no barriers to the risk being identified and elevated through the business. It is no good having the best risk management processes at project level unless that process is truly embedded, i.e. it becomes part of what project teams do on a daily basis and employees identify with the company’s overall vision and understand why risk management is so important. Assessment of the consequences arising from strategic decisions related to target markets, control of cash and robust approval processes are all key to the overall management of risk, as is the ability to spot new risks on the horizon.

What are the top three risks facing the construction industry today and why?

Ensuring health and safety risks are properly controlled is an essential core value and is also fundamental to achieving business excellence. Second, the ability to attract and retain key personnel who have the ability to manage and work collaboratively, especially as the construction market heats up and the risk increases of top performers being poached by competitors.

Third is the risk of poor project delivery. One or two poorly performing contracts have the potential to wipe out the margins made by the profitable ones.

What are the main emerging risks set to challenge construction firms in the next few years?

In the short term, some contractors need to mitigate the losses arising out of those contracts taken on at low margins during the recession. In the medium term, building information modelling (BIM) represents a major opportunity as well as a risk. There is increasing pressure from clients and government to use BIM by which a federated 3D model is created, which can be accessed by all professionals on a contract throughout the construction process. If used properly, it has great potential in my view to reduce risk through better collaboration, identification of problems/design clashes earlier, reduced waste and faster project delivery.

How are these risks being prevented and mitigated?

Although accident frequency rates are falling at major UK contractors, we can never be complacent as demonstrated by the many initiatives in place, especially behavioural. There is an increasing focus on graduate and apprenticeships to attract new talent and ensuring appropriate remuneration and incentive packages to retain key people. A wide range of operational controls are needed at project level supplemented by training, clear accountabilities and oversights to ensure projects are delivered successfully.

Are there barriers that prevent or slow down risk prevention?

The industry still suffers in certain areas from an old-fashioned confrontational approach between clients, contractors and their supply chain. The most successful contractors will be the ones who can demonstrate their technical expertise and ability to deliver projects without compromise and which meet or exceed client expectations. This will lead to negotiated repeat business and genuine partnerships focused on value and not just lowest price, which risks low margins.

I also feel that the industry could be better at publicising its successes. In recent years, many high-profile projects have been completed very successfully and others are underway, which would help in attracting people into the industry and address the risk of serious skills shortages in the mid- to long-term.

Is the insurance industry offering adequate protection and/or is their gaps in cover? What are your expectations of the insurer/broker?

Insurance is crucial not only in providing the protection construction companies need to protect their balance sheet but also to satisfy the requirements of government and funders.

Capacity in the insurance market is plentiful and as a result premiums are competitive, especially on large projects, and cover is broad. Where the insurance market could do more is in areas which could be of interest to contractors if there was better capacity, wider wordings and, perhaps most importantly of all, a sense that insurers are prepared to invest in relevant expertise outside their traditional areas to understand the uninsured risks contractors are exposed to. Examples include weather-related risks, sub-contractor default and integrated project insurance which have all existed for years in some form but have not yet seen significant take up by UK contractors.

Nigel Hitchborn, group risk and insurance manager, Shepherd Group