Managing risk through business development
October 2, 2018 by David Bowcott
It used to be that the construction business was relatively straightforward for contractors. You staffed your operations with estimators, project managers and superintendents, and then pursued business through a tendering process in which the low bid would win the job. The procurement model was invariably design-bid-build and the owner often ran the bidding process, going so far as to simply appoint the design firm.
That times have changed goes without saying.
The design-bid-build model still exists, but it’s used far less as owners, designers and contractors experiment with other methods in hopes of improving the rather abysmal results of the traditional model when it comes to delivering on-time and on-budget results.
Several models have been brought forward over the past 20 years that challenged the status quo, including design-build, Construction Management Agency, Construction Management at Risk and Integrated Project Delivery. Other new models, such as design-build-finance-operate-maintain, have even expanded contractors’ responsibility into the financing and operations realms.
As these procurement models have moved from the experimentation phase into what is now considered “normal,” contractors have evolved their own operations to better manage risks and profitability. Builders pushing the envelope have begun hiring staff outside the traditional estimator, project manager and superintendent roles. The following are just some of the new positions that have cropped up within contractors’ operations:
Legal – In the past contractors would hire outside counsel for legal advice and actions. As contracts evolved, firms began seeing it as advantageous to hire on-staff lawyers who understood the risk tolerances and culture of the company.
Risk management – With greater complexity around an array of contract delivery models came greater risk. Several contractors over the last 10 years have either hired dedicated staff to better manage risk or expanded the role of existing staff.
Design – Shouldering more design responsibility as a result of new delivery methods, several contractors have hired staff to vet design for potential problems before the construction phase begins.
Specialty trades – As prime contractors take on more risk, several have brought on expertise typically left to subcontractors. Firms are turning to workers within the mechanical, electrical and structural disciplines to identify problems before they are able to arise during construction.
Quality assurance/control – Exposed to greater risk at the design and operations phases, contractors have enlisted more talent around QA/QC practices by expanding existing roles or bringing on dedicated teams within their organizations.
Technology – Titles such as chief technology officer and chief information officer are among the newest in the construction sector. New technologies that can impact productivity, risk and profitability, have convinced companies they need somebody to help them adapt to the massive rate of change.
Business development – As the open market, low-bid model became less dominant, contractors saw they required a team that would engage owners much earlier in order to ensure success. To do this, several firms developed a role that never evolved naturally out of the low-bid model – one that focused on building relationships.
Many of these new postings are absolutely necessary for contractors that play in new procurement arenas that have developed over the past 20 years, but perhaps none are more important to managing risk than the more recently created role of business development.
I know what you’re thinking: “Why is this guy saying investing in sales is an ideal way to manage risk, versus the investments I could make in areas like legal, risk management, or technology?”
Well, though business development is about identifying new revenue opportunities for your company, in essence, it’s about creating relationships with your customers. Investing in people who can create a more trusting relationship between you and your customers is perhaps the best investment your company can make.
With the groundwork in place, members of your team and your customers can engage in honest dialogues about all aspects of risk. Both parties will also be in a better position to avoid painful outcomes because they can fall back on the established relationship during tough times.
Some of the best-managed construction companies I’ve worked with have direct relationships with the top levels of their most important customers. This is not to say these companies are getting sole source contracts with their customers – though that does occasionally happen – but to simply point out the opportunities created by developing relationships beyond a project-to-project basis. Even in a low-bid marketplace having strong relationships with the owner can help both contractors and owners better manage risks at all phases of a construction project’s life.
David Bowcott is Global Director – Growth, Innovation & Insight, Global Construction and Infrastructure Group at Aon Risk Solutions. Please send comments to firstname.lastname@example.org.
This article first appeared in the October 2018 issue of On-Site. You can check out the full issue here.