Can risk and innovation ever be reconciled within the construction industry?

I attended the recent West Midlands Forum for Growth where I listened to much discussion about what is needed to drive investment in the regional economy.  The clear message was that nothing would be possible without genuine public and private sector collaboration coupled with innovation.  Innovation in the way we procure, invest, develop, build and live in communities. It was inspiring and thought provoking. But is it really that simple?

What does innovation mean?

For some time the industry has been urged to “innovate”.  But what do we mean by “innovate” and how realistic is a drive for innovation in an industry still governed by risk apportionment and adversarial contracts?

“Innovation” is defined in the Cambridge English Dictionary as: “(the use of) a new idea or method”.

Clients are looking for new ways to achieve better projects in less time and for less money.  Contractors are looking to maximise margin and efficiencies. Professionals are expected to be innovative in their approach to design, risk, and cost whilst also meeting professional and regulatory standards.

Is the industry inherently too risky to innovate?

Can clients genuinely expect innovative approaches to materials, methods and challenges if they still expect the contractor to take all the risk, or to warrant the works to third parties as fit for purpose?  Conversely, can contractors expect clients to allow them to “test” their new ideas and methods on a project without taking some of the risk themselves? And how innovative can a professional truly be while remaining comfortably within their PI policy cover?

There is of course no short answer to the conundrum.

Effective risk management versus adversarial approach

Traditionally, contracts set out to define the risk profile – who has promised to do what, to what standard and for what reward.  The law when called upon to resolve a dispute will look at contractual liability and negligence – essentially who is to “blame” for the situation that has arisen. Whilst there are forms which have tried to move away from that adversarial approach to focus on the benefits of effective risk management, the number of non-standard amendments introduced during the negotiation process, typical of any significant project, often erodes the initial intent of the standard form drafting committee.

Those committees will point at the parties and their lawyers and say – “it’s your fault”.  The lawyers will say they are protecting their clients, and the clients will blame their funders and insurers.  Is it any wonder that innovation is difficult?

New buildings defy innovation-deniers

But innovation is happening despite the difficulties and risks.  Iconic buildings such as the Shard and the Gherkin and many other, less obvious, sustainable or novel projects mean that somewhere someone is getting the balance right.  The impetus behind modern methods of construction and the work being done by R&D departments across the industry and in the university sector – from new materials to driverless vehicles, modular build to robotic interventions – show that the technology exists and in many cases is already improving the project supply chain. But how can this attitude flourish and become the “norm”?

Collaborate, share, innovate

New forms of contracting are encouraging greater risk and innovation.  Alliancing for example, can fire innovation through collaborative decision-making and a shared payment reward/risk mechanism.  New models of insurance such as IPI can allow for greater risk taking by involving the insurer throughout the project as new solutions are considered and adopted. But what is really needed is a common desire by everyone involved in the industry, from the client down, to make a difference by adopting a fair and genuine approach to risk and reward.

What do you think?  How do you approach innovation and modern methods of construction? What challenges do you see in your business and where do you see the industry going in the future? Consider this the first step in the collaborative process – let’s create the debate and make a difference!

Author

Nichola Vine is a Construction Lawyer with Wright Hassall LLP

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