Fixed lump-sum design and construct procurement models, with typically short tender period windows, were the norm for some time.
With the challenges of COVID, rising construction costs, uncertainty in delivery schedules, logistics difficulties, and a growing list of contractor insolvencies, alternative procurement approaches such as ‘Early Contractor Involvement’ (ECI) have become more appealing. But is it right for your project? If you head down the ECI path, how can you achieve maximum benefit?
Getting the contractor involved early and leveraging their expertise may help identify and resolve buildability issues before they become costly, and could open the door for value engineering, better risk allocation, design optimisation and overall better bang for buck. The ECI approach might take longer at the very front end of the project but it could also compress the overall duration due to fewer pre-contract clarifications, less rework, and more opportunities to overlap some activities.
However, ECI doesn’t suit every project. For less-complex projects, a more traditional procurement approach may maintain a greater degree of competitive tension and result in a better price. Competitive tension must run through the procurement channels, including the main contractor and their respective subcontractors.
Top 5 considerations to make ECI work for you and your project
1 – MAINTAIN COMPETITIVE TENSION
The visibility and certainty afforded by ECI are attractive for contractors, but a key challenge for developers is the risk that adopting ECI could reduce competitive tension in the tendering process, resulting in higher contractor pricing. The significance of this risk needs to be weighed against the higher margins that a contractor may price into a traditional tender to cover their risk.
Some competitive tension can be created by timing tenders according to the level of availability or saturation in the sector so that more contractors can compete – and by building a level of competition into later stages of phased tenders. For example, the developer may inform the market that the first stage of ECI (including the high-level methodology, programme and pricing) is awarded to a preferred contractor, but that the design and construction tender remains open to all. Developers can manage their risk by including several gateways and review phases before final submission, and by reserving the right to not accept the final price from their preferred contractor.
2 – FOSTER COLLABORATION AND COMMUNICATION
An ECI process is more than a transaction. It’s a relationship. Healthy relationships need communication, transparency and willingness to compromise – all of which contribute to a culture of trust and effective collaboration. In a large construction project, the relationships extend beyond developer and head contractor to designers, subcontractors, suppliers and other stakeholders.
The project will be strengthened if everyone’s priorities, constraints and targets are understood and aligned, all expertise and input are encouraged and integrated, and everyone is willing to commit to a realistic, best-for-project strategy that allows the project to stack up and reach successful completion. Every group should have a seat at the table and be part of the consultation process. On design and construction issues, no single group should be given priority above others. Challenges and opportunities need to be worked through.
3 – ALLOCATE AND MANAGE RISK
Very few projects can boast that they didn’t encounter unknowns and unforeseens. A well-defined risk framework will better protect the project and its stakeholders when surprises inevitably occur. To manage risks and avoid or minimise disputes, delays and cost overruns, you need a carefully structured contract that clearly defines scope, schedules, deliverables, fee structure, roles and responsibilities, and expectations. In the ECI approach, the investment of time and energy into identifying and fairly allocating risk is a shared process, providing greater certainty and confidence for all parties.
4 – KEEP COST CONTROL AT THE FOREFRONT
The most frequent issues that derail projects are changes in scope, unforeseen site or construction challenges, unrealistic budgets and inadequate cost control – and none of these factors exist in isolation. Efforts to clarify the scope and thoroughly investigate variables are important mitigations, but realistic cost expectations and rigorous cost control throughout the project are just as critical. Ongoing cost-cutting under time pressure, especially during construction, can undermine the quality of the outcome.
Cost control often requires compromises – so it will help to call on experienced, independent cost professionals to help you set appropriate cost expectations from the start, assess issues and alternatives as they arise, and provide independent modelling and review. Quantity surveyors will bring an independent view and a wide knowledge of relevant industry data and trends.
5 – SEEK EXPERIENCED ADVICE AND SUPPORT
Ultimately, ECI isn’t the only solution for any project, but it can bring new opportunities to unlock value, derisk the overall procurement journey and build long-term, productive relationships among project participants. Expert support and advice based on the industry’s experience to date will help you get the best from the approach. A trusted cost management or quantity surveying partner in the team can give you honest and informed strategic advice and market insight, helping you find the best tenderers and conduct a positive, collaborative process that keeps your project on track for success.
About the authors
Stewart Lyons is an Associate Director at WT based in Geelong, where he leads our local office. Having successfully delivered challenging projects for clients across Australia, Asia and the Pacific region, Stewart brings a broad range of experience and an insightful approach to procurement and construction cost management, essential in securing successful project outcomes. He has worked across many industry sectors including infrastructure, aviation, marine, healthcare, commercial, residential and civic projects, as well as diplomatic missions. Stewart specialises in delivering new and redevelopment projects in ‘live-operational’ sites and in remote delivery locations.
David Thomas is National Director at WT, based in Melbourne. David has diverse industry knowledge and specialist expertise in the delivery of major precinct and urban renewal projects. He brings nearly 30 years of experience across all major industry sectors including commercial, hospitality, retail, residential and civic projects. His experience spans from feasibility studies and master planning through to cost planning and cost control to tax depreciation schedules, replacement cost, and repairs and maintenance advice.
