Silly Money
In the original contract BoQ we agreed to pay PCH nearly £1000 per tonne of reinforcement steel to procure and fix the steel. When PCH started having cash flow issues back in March, McAlpine started buying in the steel themselves and free issuing it to PCH. Since McAlpine were paying for the steel it was decided that they (and by that I mean me) should call it off too. An agreement was made with PCH that we would subtract how much we were paying for the steel from PCH’s BoQ rate and pay them the rest.
Then when PCH went into administration a couple of months ago we started paying the steel fixers directly too. So again, we deducted that amount from the BoQ rate and paid PCH the rest.
While initially that made sense: we couldn’t be sure we’d get the steel at the same rate as PCH so we minimised the risk by guaranteeing the combined rate for supply and installation. But now we’re in a position where we pay around £250 per tonne to buy the steel direct to the supplier. We then pay £500 per tonne direct to the sub-contractor to fix the steel. We then give the remaining £250 to PCH for what? Currently we’ve given PCH nearly £250 000 for doing nothing.
McAlpine chose to minimise their risk by ensuring they would never have to pay more than the original BoQ rate, but they missed an opportunity to pay less. It seems so obvious but a SWOT analysis of the situation probably would have identified the opportunity to make a saving, but no one did one. They simply identified a risk and dealt with that.
While I accept the risks are hugely important, I would suggest the SWO is important to and therefore before dealing with the risks we should first identify the other elements in order to make a fully informed decision.
Holdfast Training Services Trial Blog 
Paying for the material at time of supply i.e. buying it in OK; calling it off – bad! This is a large part of the risk that was tranferred so McAlpine have missed the effect of their actions, which should have been to also reclaim the cost of the risk that was no longer transferred. Second tranch of risk is in the retaining of steel fixers for an uncertain period of time to fix the steel to an acceptable standard so again not just wage bill but associated time/cost risk is brought back in house. Looks like the risk transfer protion is being paid out but all risk and work has been brought back in. If there are delays dur to weather will you also pay PCH for you fixers taking longer to fix your steel?
Richard – not sure I understand the risk of McAlpine calling off steel when required, please can you expand. What other options did McAlpine have if they wanted to keep the job going as I understand PCH seem to be avoiding paying for a lot of the problems their lack of cash flow has cause?
Guz – was £1000 the price submitted by PCH or the cost estimate that SRM had for that work package? In your cost deductions calculations have you allowed for plant to shift steel about, costs of staff time to order, check and manage delivery? Costs of steel supervisors, lifting plans, transport of material to site? I am sure that is all lumped into your £500 but there will also be some profit/overhead allowances.
The £1000(ish) per tonne of steel is as taken from the BoQ submitted as part of PCH tender documents against “procure and install reinforcement steel”.
Actually most of that is covered elsewhere in the BoQ under the prelims. The staff time to order would be included in the £500 and I guess the checking would too. Most of the rest wouldn’t.
I think the point Richard is making is that if the steel that arrives is correct to what was ordered but not to what is needed that it’s McAlpine who will pick up the cost of correcting it. And while that is true it’s happening anyway since PCH don’t have the cashflow to correct that sort of problem. Of which there are many I might add, as they got the cheapest detailers they could find to do the detailing and as a result it is less that perfect!
In terms of retaining the steel fixers, they are paid by the tonne fixed as opposed to how long they are here for, and since the steel getting fixed is rarely then removed, all the mistakes we’ve found are missing bars and we’ve caught it in time to not have to strip anything out. So it is a risk: we could miss something, they’d have to strip out and then we’d be paying them to fix the same steel twice, but it’s a risk we’ve taken and are getting away with so far.
Richard, I echo what Damo has said and am not sure I understand your point. All of our steel, RMD falsework, drainage, etc is procured and called-off when required.
Does my reply to Olly help?
Calling off clearly has two meanings! I was reading ‘calling off’ in the sense of ‘taking off’ i.e. to read off the drawing and confirm the schedule quatities and order steel accordingly i.e. carries a risk of error. The alternative osense would be ‘calling forward’ i.e. to request delivery of an amount potentially calculated by others i.e. a convenience and site mangement matter woiith limited financial risk beyond cash flow. I think the essential point is that with move of material and labour costs comes the transfer of risk, which has been missed by the bean counters.
In that sense the taking off is done by the company that does the concrete detailing design, a company imaginatively named CDD – Concrete detailing designers!
The calling forward is then done by me.
Guz, I’m currently tendering for reinforcement for the concrete collars of our shafts.
1. I am trying to convince rebar suppliers to schedule off a prelim drawing so I can forecast my cost code (under pressure from the PM).
2. The detailed design has not been completed so a ‘generic’ benchmarked dwg going off past similar projects is being used.
3. Our programme requires the collar to be in place 7 July so we can start the concrete collar pour and shaft excavation.
My rebar (or reo as the Aussies call it) requirement is nowhere near the scale as yours, but it does affect the programme. So what have I been told to do? Just get 3 quotes and go with whoever has the shortest lead time.
So we will be ordering rebar and constructing collars before the detailed designs are in. Okay, we are going off a solution that has worked on past projects. I can accept that. But why are we spending money on temporary works designers producing designs that follow the execution?!
You’re right that doesn’t seem to make sense. Is it that the design is running late or was that the original intention? In which case is it that the temp works designers are simply checking to see if the method is feasible?
Sorry about the delay in replying but my computer was having some issues with the PET bloggersphere last week. Your concerns regarding overpayment of PCH are completely correct; someone in the McAlpine commercial team should have nipped that in the bud at the earliest opportunity. Always let the insolvency administrator come and argue his case for money for a busted subby; they get a percentage of whatever they can get certified so it is always very entertaining when they pitch up on site for a meeting!
For what its worth I agree with Richard’s definition of ‘Calling Off’. The need to book manufacturing or bending time and dates with a rebar supplier using a preliminary drawings should be covered in the T&C’s that are part of the rebar suppliers contract to transfer the risk. If you are really up against it you can always bend the stuff on site of course.
Regards Greg