How construction margins fail to make up for the risks

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  1. D&B contracts very complex in terms of risk management. Professional Clients will always pass on as much risk as possible to the contractor. The contractor needs to well education not only in financial, contractual but also risk management. How many contractors have there risk managements process as the first stage of the tender process? If taking on D&B contracts, Contractors should have fully trained staff not just at senior level but also the guys on site and the supply chain then perhaps contractors could achieve the margins they require.

  2. Sorry if I am confused, but I always thought that in a design and build contract, the contractor controlled the architect? Is it not the contractor’s skills and experience the customer is buying into?

    How many architects would accept additional responsibility when the contractor is using every effort to engineer the cost down to increase margins.

    Lack of margin is not a new phenomenon in construction. Tenders have always gone in too cheap to secure turnover with the expectation money can be made throughout the project by playing games with sub-contractors and making claims against all and sundry. Sometime it works but it will only be short term.

    It is time contractor’s stopped blagging their way through projects and looked at their own processes and controls.

  3. Reading the comment above I wish MC would price correctly, maybe if budgets handed to clients were realistic and contracts not so heavily amended that risk is disproportionately relocated then we could avoid an adversarial industry.

    The right price and the correct programme will not win projects, cheats and slight of hand do which is wrong and wastes so much time effort resource and money for all of us.

    So help us out PM/QS & clients stop accepting lowest price out of the tender return.

    Ask real questions and I interrogate to get the right price and programme.

  4. I’m confused, by the absence of definition of what is meant by “margin” above. In my book, true margin is the accounting net profit before tax, after all overhead costs (on and off site). Industry practice often applies a “margin” which includes overheads, so that a (too) common “margin” of 5% is false because overheads are often most of that.
    Secondly, “margin” added in bids should not be assumed to make some vague notional portion for risks. Again in my book, risks ought to be a separate line item separate from margin, calculated by identifiable undue risks (eg, inequitable amendments to standard form contracts, bad documents, tight programme, excessive LD’s, consultants and principal record, degree of difficulty of construction, design risk transfer, etc) each factored by chance of occurance. If principals wish to reduce risk premiums then this gives them opportunity to discuss improvements.
    The ball is in contractors’ court.

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