04 May Samuel Okoronkwo on how to Prosper Within Supply Chain
The construction industry is engaged in the production process but without the commensurate manufacturing mentality. The supply chain concept encourages that mentality which drives more cohesive integration of the diverse professional skills, crafts operatives, plant, tools, equipment and materials required in the production process. This should lead to greater efficiency, shortened delivery times, reduced costs and increased quality of projects.
The problem is that the standard forms of contract and procurement methods used in the industry remain ad-hoc and cost-centric in nature with extreme imbalances in their risk distribution profiles. Given that disproportionate levels of risk are always borne by the subcontractors lower down the supply chain, what essential precautions must they take to prosper within the supply chain?
Contractual Risk Assessment It is prudent to assess the likely risks in any contractual relationship before entering that relationship rather than afterwards. Proper understanding of the proposed contract terms and conditions is therefore an essential first step. Although subcontractors are less cautious in recessionary times than during the recovery, there is never an excuse for inadequate understanding of the contractual risk burden.
According to Samuel Okoronkwo, the level of commercial risk in subcontracts are neither zero nor 100%. They are somewhere in between and the additional objective must include ascertaining the principal contractors financial, personnel and project management ability to deliver the project. Subcontractors must then price into the tender their level of tolerable of risk.
Subcontractors must also clearly identify the thresholds below which they cannot operate and must obtain proper advice on how to legally exit a subcontract that can no longer be performed.
Relationship Management Effective collaborative relationship between principal contractor and subcontractor is an essential ingredient of every successful project. Thus the onus is on both parties to cultivate a relationship based on trust, confidence and mutually shared delivery outcomes. It is imperative to eschew the blame culture although that remains the default position. Nothing destroys contractual relationships more than apportioning blame once a difficulty arises in the course of a project. Commit energy to solve the problem first and then the reckoning can follow. This minimises rather than maximises the impact of the initial problem on the overall project.
Work Package Boundaries Being in the supply chain involves a relationship not just with the principal contractor but also with other work package contractors. Consequently, programme pressures could require commencement of work before the site is ready, or to hand over areas before work has been completed and protected. Several subcontractors are also often required to work at the same time within confined areas. In such circumstances a constructive and co-operative approach in managing work package boundaries becomes essential. Vigilance to promptly notify any adverse impacts lest you are saddled with the consequences of implementing remedial measures also becomes important.
Information Flow Free and timely flow of information whether by drawings, schedules or specifications facilitates the success of construction projects. Production information are however rarely perfected before the operatives arrive on site, so managing information flow becomes a very important task. Inadequate information adversely impacts ordering of materials and could lead to crafts operatives spending more than allocated time which adversely impacts profits. The subcontractor must have an internal template for promptly requesting information as well as recording their timely receipt and should have no hesitation in highlighting possible delays that late information could cause.
Payment Terms The construction industry has a chronic late payment problem. See ‘Third of contractors face 60-day payment waits, survey reveals by Jack Sadler CN 10 September 2015’. However following my recommended practical remedies in ‘How to avoid becoming a late payment victim CN 16 July 2015’ should solve that problem for the subcontractor.
Taking these essential precautionary steps should assist the subcontractor’s prosperity within the supply chain.