For those with tenders already in the market, a course correction is required. And for those about to undertake procurement, changing only what is required, as opposed to changing every aspect of your strategy, will be crucial in maintaining the momentum, whilst better managing the risks.
When we consider risk allocation, we generally consider the principle that the risk should be borne by the party best placed to bear it. While this is not always able to be fully applied, it is an appropriate yardstick when looking at the new risks triggered by COVID-19. They are unlike many current risks in that they can simultaneously relate to government regulation (global and local), physical health and economic contraction. Accordingly, these risks are difficult (or near impossible) for either party to efficiently price and generally fall into the bucket of shared risks.
In addition, these risks have a high likelihood of being realised in some form, so it is necessary to clearly define from the outset how they will be treated.
Based on our current experience and recent government guidance regarding COVID-19 claims management, we offer the following actions to consider when forming your procurement approach to market for construction services:
As with contractors, your procurement of project advisors should be considering the impacts of COVID-19. Some areas requiring attention include:
Aurecon is working with a variety of clients to ensure their procurement regimes consider COVID-19 impacts and balance the desire for certainty, with ability of the market to economically price risk.
This thinking paper is part of a collection of insights and expertise from Aurecon as it explores leading through and beyond the COVID-19 disruption. Explore our insights here.
Norm Castles leads the NZ Infrastructure Advisory team, he has extensive experience in leading procurement, contract administration, project controls and claims management in both Australia and New Zealand.
Trevor Manners is a Manager in Infrastructure Advisory, he has worked across the lifecycle of project development from portfolio strategic planning through to design and construction. He has a particular focus on procurement and capital project delivery having worked on large infrastructure transactions in both Australia and New Zealand.
This article was originally published by Norm Castles and Trevor Manners on LinkedIn titled, "Pandemic Procurement Managing Construction Risk".