What are the challenges facing commercial managers & directors in construction?
There are early signs of increased output as clients slowly begin to release new tenders or press the button on tenders they sought at the back end of 2020.
There are early signs of increased output as clients slowly begin to release new tenders or press the button on tenders they sought at the back end of 2020. However, there is an ongoing uncertainty surrounding pipeline material price increases and general Brexit red tape. Current affairs always put significant pressure on commercial managers and directors in construction and many other factors.
Pricing variability has increased, which is to be expected in a market seeing more competition. A composite measure of building input costs increased by 1.1% over the year at Q4 2020. Almost all materials classifications increased in cost, reflecting firm demand and inflationary pressures from Brexit.
These unprecedented times could not but affect the construction industry in several different ways and subsequently affect the work of commercial managers & directors. The critical consequences include:
- Slow client decisions resulting in delayed tenders or appointment decisions
- Unknown competitive pricing landscape as some contractors push to secure turnover
- Longer construction programmes due to covid related operational issues
- Uncertainty over 2021/22 pipeline
- Uncertainty over material/labour price increases
Construction output fell by 40 per cent in the second quarter of 2020. It has recovered, although orders may not have bounced back as anticipated and whilst the forecasted rebound inactivity in 2021 does seem likely, the sector split may change, seeing greater reliance upon long term infrastructure work. Source: ONS / Arcadis
The resultant 1st quarter TPI figure shows a fall of -2.1% in the year from 1st quarter 2020*. The estimate is the consensus of the BCIS TPI Panel** based on the analysed Delphi survey results; it does not necessarily represent the views of individual participants. The average from the survey was down on the previous quarter.
Commenting on the results, the panel observed that the pipeline of projects is not strong at the moment, there is lots of potential work, but it is slow in converting to tenders and works on site.
Furthermore, the low volume of work makes it difficult to discern a pattern in pricing. Single-stage tenders, which are likely to proceed, are competitively priced.
Sectors with high demand and time scales are critical, such as health, have seen some price rises, and the housing sector moved ahead faster than commercial. Source BCIS. Predicted material price rises for 2021; (Source ONS / Arcadis)
The role of commercial managers & directors
Being a commercial manager is a very demanding role. It requires taking responsibility for the day-to-day financial management of multiple projects, tracking individual project cashflows, and negotiating and managing sub-contractor packages.
Commercial managers have to report back to commercial directors responsible for planning and implementing commercial strategies based on company goals and objectives. Their main concern is to help minimise the financial and project-related risks to the business.
It is therefore evident that with these responsibilities, they face many challenges. The most common can be:
- Lack of time due to managing multiple projects
- Internal pressures to ensure sound financial performance on each project
- Cashflow – ensuring a positive project cashflow
- Reducing financial risk on projects
CMs often manage above 5nr live projects; a lack of hours in the day often leads to rushed record-keeping and poor quality documentation out to the broader client team. Particularly in regards to change control and payment valuations.
These issues can often lead to delays in agreeing on variations and their instruction and raising payment notices, all of which can have a financial impact on the broader business.
How to overcome challenges
Given market uncertainty and reduced contractor profit margins, ensuring positive financial performance on every project is now more critical than ever. Having a software partner to help you be in control can be the solution you have been waiting for, and that is precisely what Intval, as a transformational software platform for commercial managers, can do to help organise variations, manage valuations and improve project profitability:
Here are a few key benefits:
- Save time – No more data entry. Import excel pricing schedules and automatically create monthly payment applications. (No formatting or formula errors)
- Internal Reporting Efficiency – Simplify and automate internal cost reporting
- Improve project financials – Track and agree on variations all in one place. Allow the professional team to approve & sign variations digitally
- Reduce risk – Custom dashboards that display the financials of all your live projects in one place, helping identify issues earlier as well as notifications for key payment dates.
- Standout from the competition – Standout as an innovative contractor embracing technology and the new ways of working
If you need more information or you are interested in our offering, click here to contact us.