The Perils of a Buoyant market!30 November 2014
For the past 5-6 years most clients have been in the driving seat with regards to demanding a reduction in building costs and fee rates.
Throughout this challenging period contractors and consultants were competing on price not only to secure new business, but often to survive. Those who weathered the storm are now efficient and agile, and more importantly in the current market can be more selective with the projects and clients they choose to work with.
As a project management consultancy we are often the honest broker between the client driving costs down and contractors needing to make the required margin to survive. In recent months we have witnessed contractors and consultants walking away from difficult low margin projects - the real question to be asked is why are they walking? Is it simply because they have lost their appetite for risk or is it as a result of how they have been treated in recent times! One thing is for sure with inflation predicted at 5.1% and 5.3% in 2015 and 2016 respectively the market is heating up and strong relationships between clients and contractors are becoming increasingly important for clients.
We too have been subject to client's driving fees to levels that were simply unsustainable in the recessionary years, which was compounded by our competitors willingness to cut their own throats, whilst struggling to provide the required level of service. It is time for clients to recognise that the market has turned and that to secure the best teams they must be prepared to pay a premium.
This said the supply chain will be loyal to those clients who were reasonable through the difficult years, conversely, the future for those clients who were unreasonable will become increasingly less certain.