Avoiding the Mañana Mentality

Laura Hannan – Associate Director

“Setting it up right from the start…”

Commercial must do’s when working with Main Contractors.

The construction industry often consists of many small and medium sized businesses relying on work from the major players. Working for these large contractors on multi-million-pound projects can be a great catalyst for growth among subcontractors. However, it can also result in an over‑reliance on a single client or source of work. Keeping all your eggs in one basket can leave you vulnerable, should that single client collapse.

The problems surrounding Carillion are now infamous; the fallout from the failure of the behemoth construction company has created more awareness of the fragility that can exist, even in such large entities. Just a few months before entering administration, Carillion was delivering and winning projects despite the profit warnings and the rumours circulating in the industry. We now know how quickly it fell apart and the extent to which the small and medium sized businesses bore the brunt of the aftermath.

How can the supply chain better protect itself when working in such climates?

It goes without saying that those with the most money outstanding will feel the impacts of a collapse the hardest. Whilst the common-sense approach would be to assert full entitlements in interim applications, difficult elements such as loss and expense and disruption are often left until the final account. A key lesson is that each interim application should include the full entitlement able to be claimed, presented in a robust way. It makes no sense to do anything else.

However, this involves expertise and a change of approach. One of the most dangerous mindsets prevalent in the industry is what we call the ‘Mañana Mentality’ – the tendency to put off until tomorrow what could be done today. All too often preparing the interim application is left to the last minute and anything difficult is put off until later. Isn’t it about time we tried something different?

  1. Data Management: Plan to keep records that can substantiate the work completed, and evidence additional costs associated with variations.
  2. Good Practice: Implement a process of contemporaneous analysis to identify potential claims before they arise. This approach could even mitigate the problem – a benefit to both parties.
  3. Maintenance: Keep up to date with the accurate assessment and presentation of interim applications as the project progresses, rather than leaving it all until the end of the project.
  4. Consistency: A consistent approach requires a more robust attitude. Listening to overt promises of future negotiations or certifications of applications rings hollow if the payer subsequently goes bust.

There are many simple things that organisations can do to help protect themselves and keep the gap between application amount and certified value small and less impactful.

  1. The preparation of proper interim applications is vital. Cutting corners reduces entitlement and weakens your position. It is as simple as that.
  2. Maintaining a monthly CVR so that current and future project costs are compared against value.
  3. Early dispute identification (a whole subject in itself) is important; forewarned is forearmed.
  4. Take advice. It doesn’t need to be costly, especially when it is requested early and particularly when compared to the sums you are trying to recover.
  5. Always ensure that contracts are properly concluded.
  6. Identify and record errors during post contract reviews, ensure areas for improvement are communicated and learn from mistakes. All too often trust is put before business preservation. Repeating mistakes will result in more costs to the business.

Someone once said that the definition of insanity is doing the same thing over and over again and expecting different results. Working with Main Contractors will require a concerted business effort to implement best practice from the start to avoid mistakes, to deliver effectively and, where possible, protect against collapse.