Last week, following extensive chats with developers, contractors and suppliers, it was clear that most of the industry is renegotiating contracts to better suit the current market conditions.
Now, even though this may seem like the best option (and it probably is) to kick-start the construction industry, a couple of things that Besix's Philippe Dessoy and Arabtec's Tom Barry pointed out, painted a different picture.
When Dessoy first called renegotiations "unfair," I thought he may have been over-reacting a little, but as he explained how these so called ‘renegotiations' were taking place, in a market where the bargaining power lay closer with the clients, the sensibility of the trend did in fact begin to look a little unfair. Contractors are owed millions of dollars in unpaid wages and are even struggling for work. In such a situation, renegotiations aren't as fairly balanced as they might appear to be.
Barry on the other hand, used the past to make his point. During the boom time when material prices were ridiculously high, most clients didn't think twice about dismissing calls for the inclusion of ‘escalation clauses' in contracts. But now, when the markets have fallen and construction costs have dropped by almost 40%, some clients are expecting a ‘reasonable' approach to the market. Let's hope the favour is returned if and when the market picks up again.
Barry also chose to call it ‘repositioning' rather than ‘renegotiating' because clients, according to him, also often ask contractors to work towards lowering construction costs rather than signing a new contract. In this case there are no contractual changes, only lowered costs.
Repositioning or renegotiating - tomah-to tomay-to! It's all the same. As long as the industry's best interests are at heart and no one is getting bullied, successful renegotiations could actually be beneficial to clients, contractors and suppliers, by reducing the possibility of disputes within the industry, or the need to go down the legal path.
Conrad Egbert is the editor of Construction Week.