Written by: Griffiths & Armour on: 04 Jan 2022

The Case for Collaboration in the Construction Industry | Griffiths & Armour

The Case for Collaboration

January 2022 saw a number of important documents published by the Government, notably some key revisions to the Building Safety Act. One aspect of Michael Gove’s work that week that didn’t attract too many headlines was the publication of guidance designed to support collaborative procurement, with particular regard to its implementation for building work which will fall under the new regulatory regime of the Building Safety Bill.

For those who have missed it, the full report is available here.

The document puts forward a very compelling case as to why collaborative procurement leads to safer, better quality outcomes that deliver better value for money for clients. For those planning to work on new high-rise buildings, the guidance is designed to support the implantation of the three ‘gateways’ which will apply to these higher risk buildings.

There is a lot to like in the 75-page report, which breaks down collaborative procurement into four specific proposals:

  • Selection by value that avoids a race to the bottom
  • Early supply chain involvement that improves safety and reduces risks
  • Collaborative relationships that improve commitments and involve residents
  • A golden thread of information that integrates design, construction and operation.

Helpfully, it then explains in some detail the systems that need to be put into place in order to embrace a collaborative culture. There are also sections which cover how collaborative procurement can enhance increasingly important key performance measures, such as economic, social and environmental value.

From the point of view of construction PI insurance brokers, we clearly welcome the themes explored in the guidance, particularly that the construction team should be ‘selected according to their competence and value’, that they should be ‘paid promptly’ and ‘earn a fair profit’.

Equally, what’s not to like about team members being motivated to act in the ‘best interests of the project’ and not on ‘tactics that prepare the ground for later claims’. The avoidance of loss, cost minimisation and dispute avoidance messages that run through the document really is music to the ears of all
progressive parties.

Whether or not the detail in the guidance addresses the needs of the professions is not for us to judge, though we welcome the opportunity to listen to our clients about their practical experiences and thoughts so that, if nothing else, we can feedback your opinions in our engagements with government. Rather than let this document gather dust, it is the perfect opportunity to stimulate debate on what the future should hold.

If there is a point we would make, it relates (as you might expect) to insurance. Insurance is covered off all too briefly in the guidance at Section 9.5 and essentially confirms what we know: that PI insurance is a ‘significant challenge’. It then puts the problem of how to insure the PI risks associated with any project at the door of project-based insurance policies.

Three such policies are singled out: ‘Owner Controlled insurance programmes’, project insurance policies generally and Integrated Project Insurance (IPI).

IPI – revisited? 

Griffiths & Armour have a long history with IPI and we were the original developers of the product in collaboration with Integrated Project Initiatives. The Government paper is even good enough to reference the Advance II Dudley College project, for which we acted as the first IPI insurance broker and on 1 March 2016 were pleased to issue the first ever IPI insurance policy.

The reality is, however, we know of only three projects where IPI has been utilised.

Conceptually, IPI dovetails beautifully with collaborative working practices, where the identification of any one responsible individual within heavily integrated teams is technically difficult and philosophically unwelcome. It is technically difficult, because in highly integrated and collaborative environments, the myriad of decisions, suggestions and ideas that led to the design change or changes that caused problems is incredibly hard to pinpoint. It is philosophically unwelcome because doing so would destroy the collaboration and once again promote ‘back-covering’ as the chief goal. Having a policy that doesn’t put the question of individual culpability quite so ‘front and centre’ is therefore clearly attractive and in probability, necessary.

Despite the benefits, IPI remains today the answer to the question that few clients have asked. It has no critical mass with those procuring construction projects, as can be seen from the number of policies placed, and it is largely viewed with suspicion by the insurance market, if it is viewed at all. It certainly does not appear as part of any insurers current portfolio offering. Indeed, it took enormous effort to secure ‘buy in’ from insurers on Dudley, and if we wanted to try again today, we doubt we would succeed in finding insurance capacity to support it.

That leaves the authors concluding that owner-controlled policies or project insurance policies are the answer. Our experience suggests that in respect of the former, ‘owner controlled’ is simply an additional protection for the ‘owner’. They have the additional benefit of a ‘fail-safer’ insurance policy, though as now the construction and professional teams would still need their own PI insurance. All the problems the report briefly alludes to therefore remain.

Project policies were the province of the mega-projects – think enormous infrastructure jobs, airports and power stations. At this particular point in the insurance cycle, suggesting that project polices are going to cover off even very large high-rise construction projects in the next couple of years seems highly unlikely. In reality, there is essentially no market for project PI insurance policies for UK construction projects at the moment, nor has there been for many years. The reason? Insurers have been badly hit with very large claims and simply no longer regard it as a sustainable class of business. The belief that this problematic product will have the mothballs removed for use on high rise construction projects seems a triumph of hope over realistic expectation, certainly in the short to medium-term.

What is the solution?

It is undeniably a complex problem and therefore it is disappointing that the report didn’t grasp the nettle a little more firmly. We think it’s high time that the construction industry, Government and the insurance industry starting planning for the future and consider:

  1. The reason that PI insurance has become a problem is a multi-faceted issue, but it comes down to the increasing gap between the cover that can be provided and the liabilities that those buying the product are still required to sign up to. There needs to be a fundamental reappraisal of the environment for those designing and constructing our built environment. This is a message we have long delivered to anyone who will listen. Only when the liabilities associated with this work bear some resemblance to the fees which are generated by professionals can the insurance market begin to recover confidence that they are considering a solution for equitable risk allocation as opposed to effectively underwriting poor procurement practice. All roads lead back to rebalancing the legal, commercial and operational environment for contractors and consultants.

  2. If we were able to address some of these increasingly critical ‘environmental factors’; to slightly improve the contracts which contractors and consultants are required to sign; to modestly toning down the absurdly high PI limits required, but fundamentally to maintain the same adversarial status quo, it still will never address the different question of how insurance can be adapted to support the collaborative model.

    Those changes would still be enormously helpful, but they don’t ‘unlock’ an insurance solution to a collaborative future. If we want to grasp the nettle, then a fundamental overhaul of the environment for those designing and constructing the built environment is needed. This requires broad input from the government, insurance, legal and construction sectors, as well as buy in from the ultimate clients.

IPI – or a product very much like it – might well yet have its day, but it would seem that we are still insufficiently aligned to allow for its dawning.

First, we need to change the environment and that’s a project already underway which we’ll report more on in 2023.

If you have any questions about the contents of this update, please get in touch with your usual Griffiths & Armour contact or click below to submit your enquiry to Professional Risks Director, Craig Roberts, who will be happy to assist.

Craig Roberts | Griffiths & Armour