The relationship between construction owners and the contractors they hire for projects is as important as it is fickle. Each stage of a job offers ample opportunity for miscommunication and dissatisfaction.
Contractors and owners know that a strong working relationship is beneficial to both parties. So why do so few owners have a high level of trust in their contractors? And what can be done to improve that relationship?
Global advisory firm KPMG released its 2015 Global Construction Survey last month, which surveyed owners and decision makers of large construction firms. KPMG spoke with more than 100 executives at public, private and governmental organizations with annual capital expenditures ranging between $10 million and more than $5 billion.
These big industry players discussed issues hurting their projects, variations in bidding processes, and plans for the future. One of the most significant aspects of the report, however, was a section involving the relationships between contractors and construction owners.
While this section may have been a small part at the end of a major report, it reflected the industry trend—and what many consider a liability—of a lack of trust between owners and the contractors they hire for projects.
Kevin Max, managing director of major projects advisory at KPMG’s New York office, said that to his knowledge, this report represented the first time the firm asked construction owners about their trust in contractors. KPMG sources said they typically do this survey every other year, but the types of survey respondents often vary between contractors and owners.
In the 2015 survey, only 31% of respondents reported having a high level of trust in their contractors; 60% reported moderate, and 9% said low. In fact, 69% said poor contractor performance was the single biggest reason for project underperformance. 61% of respondents in the U.S. reported at least one project failed or underperformed in 2014.
That underperformance can often prove costly to owners. In the report, respondents said only 31% of projects came within 10% of their budgets in the last three years, and 25% of projects were completed within 10% of their original deadlines. Those are overruns both owners and contractors actively seek to avoid, as they cut into their bottom lines.
History of tense relations
Max said he believes the strained relationship is the product of a “historical lack of trust.”
“There’s a sense that the contractors have the upper hand and will use whatever means are necessary to optimize their advantage,” he said.
The survey respondents were some of KPMG’s clients, and Max focused on the way they view the relationship. "I think it’s a legacy that our project owners are trying to move past into a collaborative frame. But they haven’t quite gotten there yet."
Brian Turmail, senior executive director of public affairs for the Associated General Contractors of America, said he receives constant feedback from his contractor members about relationships and project practices.
“There are some traditional barriers that certainly need to be broken down, the divide between architect and owner and designer and builder,” he said.
Failure to successfully collaborate
Turmail acknowledged a significant problem in the planning process: a lack of collaboration.
“We’re seeing in successful projects, the key ingredient, going beyond the skill of construction, is the skill of getting people to work together,” he said.
That open communication needs to be established on day one, according to industry experts.
Construction lawyer and adviser Chris Hallam, of Pinsent Masons in the UK, told Out-Law.com that both owners and contractors hold the responsibility of ensuring collaboration at all stages of a project. “All too often, problems are met with finger pointing and the adversarial blame game. The more enlightened contractors and employers actively engage with each other to spend their time trying to solve those problems, rather than working out how to blame the other side for it,” he said.
Turmail said a successful contractor-owner collaboration needs the same factors as any other positive interaction. "Any relationship that doesn’t have broken down barriers and a full sense of collaboration is ripe for misunderstanding and mistrust," he said.
Turmail added that trust is pertinent to the success of all construction projects, regardless of size. "The scope may be larger but the challenges are the same."
Despite the unsatisfactory level between parties, 82% of respondents in the KPMG survey said they expect to see increased collaboration in the next five years. Only 3% predicted less collaboration.
Max emphasized the need for both owners and contractors to be clear on expectations and risks from day one.
“There’s a lot that can be done in the form of contract by sharing the risks appropriately. You can use the contract vehicle as a means to allocate the risk to the party who’s best prepared and best able to bear that risk. So better contracting and contract administration is certainly one way to enhance the level of trust,” he said.
72% of survey respondents reported using a bidding or competitive means of contracting. In all those cases, according to Max, prior contractor performance and history was a factor when deciding who was allowed to bid. However, the practice of using the same contractor repeatedly can have negative effects as well.
“There’s some trepidation in the part of owners that familiarity breeds contempt. If there’s a long history or legacy of a contractor doing work for an owner, that relationship may become too familial and create the opportunity for the contractor to have an upper hand by knowing the inner workings of the owner,” he said.
Steps for improvement
Both Max and Turmail agreed that many have already taken measures to increase the level of collaboration on projects.
Max said: “There’s definitely a movement afoot towards more collaboration and more involvement of the contractors during the planning and designing stage of the project. Contractors feel, and I think rightly so, that they can make significant inputs during the planning and design stages, which garners good will and fosters collaboration and teamwork.”
Hallam emphasized the importance to avoid blaming one party over another. "Of course, it is easy to pin the blame on underperformance at the feet of contractors and a lack of collaboration, but collaboration works both ways and employers need to do their bit," he said.
The use of building information modeling, or BIM, and advancements in other technologies have also helped project relations, as they allow for real-time updates and communication for all parties involved, according to Turmail.
Max agreed, adding, "A lot of the technology that’s now available providing real-time information regarding progress, schedule, and cost is available to the owner." With the new possibilities, all team members have more "visibility and transparency" of the project, he said.
Despite all these hopes for change, Max doesn't think improvement will happen quickly. "If we surveyed owners next year, I think we’d probably come out about the same. It’s an industry that evolves and moves rather slowly. And I think that also plays into why the levels of trust aren’t where we’d like them to be," he said.
Turmail, however, expressed a more positive outlook: "We’re contractors. We’re optimists at heart. Of course we think it’s going to get better. We’re not just hoping. We’re actually taking steps to make that happen."