Build Magazine August 2015

Build Magazine 14 discussion with managing directors, commercial directors, finance di- rectors and heads of internal audit from across the construction sector, common themes emerge that go some way to explaining why these issues may have occurred; • Stagnation in the sector during the recession, together with a reluctance from businesses to lose valued skills and expertise through redundancy, resulted in contractors effectively bidding for projects at low, or in some instances, no margin. • Many project bid models included optimistic assumptions around cost and the ability to generate margins through squeezing subcontractors or achieving unrealistic savings through value engineering. • Contractors agreed to commercial terms that were not favora- ble or exposed them to risk that was not adequately understood or evaluated. • The risk of inflation on commodities such as bricks and steels was not adequately factored into cost assumptions and bid mod- els at the outset which has resulted in significantly higher costs being incurred. All of the above points can be caused or exacerbated by a poorly con- trolled and ineffective bid management processes and/or an inability to apply learnings from previous projects. Many organisations make the mistake in thinking that having a bid management process in itself must mean the process is controlled well. Experience suggests that organisations with the fewest ‘problem child’ projects are those with robust governance arrangements, clear lines of accountability, transparent and open communication channels and an inclusive and collaborative culture, in addition to a robust bid chal- lenge, review and sign off process. In this instance the ‘soft’ controls are just as important as the ‘hard’ controls. Given the importance of the bid management process, the amount of