When Construction Failure Becomes a Healthcare Risk 

The danger of treating procurement as the point of certainty

Once a project has been procured, there can be a natural tendency to regard uncertainty as something that has largely been dealt with. A contractor has been selected, a price has been agreed and responsibilities have been written into a contract. From a governance perspective, however, contractual agreement is not the same thing as resolution of risk.
Fixed-price contracting illustrates the distinction particularly well. Custance acknowledges that fixed-price PPP and PFI-style contracts played a role in the failures of Jarvis, John Laing’s former construction business and Carillion.

At the same time, however, he does not argue that NHS clients should abandon fixed-price arrangements. This argument is based on a longstanding principle of contracting: risk should be allocated to the party best able to manage it. A fixed-price arrangement can do precisely that where the initial specification is sufficiently developed and the contractor has enough information to understand and price the risks involved.
That historical context matters.  Contractors originally pursued PPP and PFI-style contracts because the higher risk margins could be attractive, while government clients also valued the greater cost certainty they promised after major overruns on traditionally procured projects.

The difficulty arises when projects reach the market before that distinction is clear. Incomplete design information, unclear scope or untested assumptions can leave contractors pricing (or holding) uncertainty. What appears to have been transferred through the contract may therefore remain unresolved.  It is also the case that, sometimes, contractors can low-ball bids to keep cash coming in, worsening the problem in the long term.
In a live clinical environment, that has practical consequences. Construction within or alongside operational healthcare facilities involves access restrictions, infection prevention requirements, patient and staff movements, emergency routes, decant sequencing and critical infrastructure. Clinical services also must continue while the project is being delivered.

Those constraints need to be tested before they are locked into the contract. Early contractor and subcontractor engagement provides one way to do that. Buildability can be examined, specialist packages can be challenged and programme assumptions can be tested against the practical realities of construction. Such involvement does not remove risk, but it can make uncertainty visible while there is still an opportunity to address it. 

Changing the procurement model, however, does not necessarily solve the underlying problem. Custance’s experience in Australia during the introduction of alliance contracting illustrates some of the limitations. Alliance contracts allow participants to benefit from gainshare on underruns. But, particularly in early alliance contracts, value engineering sometimes went further than intended, with elements such as landscaping and cycling paths removed. 

Alliance contracting therefore deserves consideration without being treated as an automatic answer to the shortcomings of fixed-price contracting. Each model creates its own allocation of risk and commercial incentives, and clients still need to understand what those incentives mean in practice and whether the chosen arrangement suits the project being commissioned.

Why the lowest construction tender is not always best value

NHS organisations are rightly expected to demonstrate value for money. Capital is limited, business cases are closely scrutinised and every scheme must compete against wider system priorities. Unfortunately, value for money can become distorted when tender evaluation places too much weight on the lowest price or the most competitive overhead and profit figure. That approach may appear disciplined, but it can weaken the project’s foundations.

Price becomes more complicated when a bid appears unusually low. Custance’s advice is to be cautious about low-ball bids and examine what sits behind the number. He points out that probability suggests that half of all bids are underpriced.  As Matthew notes,

If we always pick the lowest bid, we are almost certainly picking a bid that is underpriced.  It may, of course, still be profitable, but a contractor working on a very narrow margin has less capacity to absorb unexpected costs

Design changes, incomplete information, labour pressures, specialist package costs or programme assumptions that prove unrealistic can all create additional pressure once construction is underway. Commercial tensions may then develop between the contractor, client and supply chain as each party attempts to protect its own position.

For that reason, healthcare leaders should closely examine the assumptions underpinning a tender rather than treating the headline figure as the primary measure of value. Significant differences between bids warrant a closer look. The cheapest bid is not always the best use of public money if it increases the likelihood of delay, claims, quality compromise or delivery failure. True value is found in the relationship between capital cost, programme reliability, clinical continuity, lifecycle performance, operational benefit and long-term adaptability.
That broader view of value needs to continue beyond procurement and into delivery. Matthew remains a supporter of the traditional clerk-of-works arrangement, particularly where it provides detailed assurance of build quality throughout construction. He argues that independent scrutiny allows problems to be identified while work is still progressing, rather than leaving the client to discover defects after completion. 

Understanding supply-chain risk in major NHS projects

Behind every main contractor is a massive network. Specialist subcontractors, consultants, manufacturers and suppliers may be responsible for critical elements of a project, even though they are not the organisation named on the main contract. 

Understanding those relationships gives NHS clients another way to assess the resilience of a project. It is not enough to know that a main contractor has been appointed. A main contractor may appear financially stable while parts of its supply chain are experiencing capacity constraints, payment problems or commercial pressure. 

Specialist subcontractors can provide market intelligence that is difficult to obtain elsewhere. Their experience reveals which contractors pay reliably, where relationships are under strain, which packages are being priced too aggressively and where capacity is tightening. Their willingness to engage can therefore be an early indicator of a contractor’s position; reluctance among well-regarded subcontractors may signal underlying pressure instead of a routine delivery issue. 

If subcontractor behaviour can reveal pressure before it becomes visible elsewhere, then supply-chain visibility should be part of project governance rather than left solely to the main contractor after appointment. NHS clients need confidence in the key subcontractors, the risks identified, the assumptions tested, the management of payment flows, the evidence required for progress payments and the contingency options available if the main contractor becomes distressed. 

That said, they do not need to bypass the main contractor or alter the contractual structure to maintain that oversight. What matters is having enough visibility to recognise when something within the supply chain is changing. That can give the client an opportunity to respond before pressure on the contractor begins to affect the wider project.

Information becomes critical when confidence breaks down

The same principle applies to project information. During normal delivery, drawings, meeting minutes, RFIs, change logs, procurement schedules and decision records may look like routine administration. In practice, they are the record of what has been designed, agreed, changed and delivered.
If confidence in the contractor breaks down, that record becomes central to recovery. The client needs current design information, approved changes, payment records, material ownership, warranties, outstanding decisions and an accurate account of the works to understand what has been completed and what remains to be done.
Where that information is incomplete or dispersed, recovery becomes slower and more expensive. Consequently, the client is forced to reconstruct the project’s history, while replacement contractors are likely to price uncertainty into the remaining programme. A controlled information record reduces that exposure by giving the client, design team, contractor and supply chain a common account of progress and decisions. 

For NHS organisations, information control should therefore be treated as a basic requirement of capital governance. Records need to be structured, accessible and maintained from the outset, not dispersed across contractor systems, personal inboxes or fragmented document trails. Resistance to that visibility should be considered a warning sign. In a crisis, recovery rests on the people who understand the project and the records that establish its position.