Legal Innovation Challenge: The night is darkest before the dawn

30 Jun 2017

Context

 

Having quickly emerged from the longest deepest recession for nearly fifty years, the UK is currently in a stagnated mid-Brexit economy whereby the only certainty is uncertainty.

Severe damage to our sector was done in a recession that was twice as long as any other and saw our sector shrink by over 2%. Bank lending in our sector dipped by an average of 38% whereas other sectors saw only a 5% fall. Trade credit (borrowing through delayed payment) accounted for 24% of construction assets and its use tripled as a source of non-chargeable corporate finance. £30bn was stated to be the amount owed in our sector for late payments with interest charges of £180m.

The UK is a globalised economy which provides intellectual capability to the insatiable appetite from emerging economies with exponential wealth. However, for many, this has produced, for some, a feeling of loss of identity which has four times since the recession through the electoral system expressed its emotive dissatisfaction with the establishment and the system.

Regardless of the colour of politics there are a few certainties the built-environment sector faces:

  • margins are thin

  • the sector lags approximately 16 months behind the front end of the economy so was only just emerging from recession as the national economy reached growth.

  • national infrastructure (grid, transport, hydro-carbons, water, waste etc.) is in dire need of an upgrade.

  • UK housing is at a constant shortage

  • most LMI indicates a built-environment skills crisis in the short to mid-term

  • there appears to be a chiasmic gap in the north south divide

  • for the UK to perform on a global stage it needs a functional high performance built environment to sustain long-term industrial growth and social cohesion.

Further, the UK built-environment sector is: enormously introverted with only 6% of contractors exporting, highly fragmented (280,000 businesses 99% of which are SMEs) and highly disaggregated (supply chains average 70 packages over 4-5 tiers deep).

 

Challenge

Against this highly negative backdrop, the challenge for the UK built-environment sector is to become fit for purpose in a globally competitive environment.

The only way to increase productivity, reliability, lower risk, waste, displace skills and increase profitability is through the UK built-environment sector embracing the 4th industrial revolution, i.e. digital transformation.

 

Nature of the challenge

UK built-environment sector is predicated on the 10:80:10 whole-life cost principle, i.e. the built-environment sector delivers not just the construction of assets (10% cost), but is then predominant in the operational performance (80% cost) of that asset.

At the last Process Innovation Forum legal innovation workshop we saw clear conclusions around:

  • construction needs to be fully integrated with the need to deliver whole life high performance in UK buildings and infrastructure

  • the commercial models of construction and asset operation must be integrated.

  • delivery vehicles must be paid fully, and on time in order to recruit, invest, innovate and grow.

It would be wrong in the current climate not to acknowledge the awful tragedies surrounding Grenfell and they remind us of how the built-environment really does matter as a key enabler of society and commerce. Perhaps now we should also look to how digital transformation can also safeguard design and product integrity, built-asset safety and streamline procurement, tendering, contract award and management to ensure the overall performance satisfaction of the built-asset.

Our intelligence informs us that the Government will be considering a Sector Deal in the wake of the Industrial Strategy consultation – which could focus on:

  • whole-life performance

  • digital

  • manufacturing

The deal could broadly envisage three key enablers:

  • skills

  • innovation – in materials, manufacturing and asset usage data

  • performance based procurement encompassing:

  • whole-life cost based procurement - mandate lifetime performance as a component of tender value.

  • payment stability

  • user feedback – end user rating system

  • collation of intelligent procurement techniques

 

Now is therefore time to automate and innovate in the tendering, pre-qualification, procurement, contract and contract/cost management arenas!

 

Rob Driscoll

 

 

This Workshop is part of the Co-Creation Programme.

   

 

 

 

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