Matthew Grellier, head of construction and engineering at Slater Heelis, assesses the “fundamental planning mistakes” made during the construction of the new Eastenders set that went £30m over budget
Fans of the BBC soap Eastenders can expect to see a revamped Albert Square on their screens in the coming months, after filming on the new set began in January. If construction had gone to plan, however, viewers should have had their first glimpse long ago. Originally due to be completed by 2018, the new Albert Square has been beset with problems from the start.
Now, four years later, and almost £30 million over budget, the set has come under fire from the National Audit Office for not delivering value for money, with the watchdog stating that the BBC could have addressed some of the issues it faced earlier on in the process. MPs on the House of Commons Public Accounts Select Committee have also levelled criticism at the broadcaster, saying that it made “fundamental planning mistakes”.
Plans for construction – known as the E20 project – were originally developed in 2013 to replace the existing set and make it bigger. It had been a long time coming – the original set was constructed in 1984 and was only ever intended to be used for two years.
In its report on the E20 project, the Public Accounts Select Committee highlighted inflation, the tender process, and unforeseen, adverse site conditions as three of the main reasons for the delays and overspending.
From a legal point of view, what can be done to avoid problems on construction projects like those encountered by the BBC?
Mitigating against inflation
The jump in project cost from the £59.7 million estimate in 2013 to the current forecast of £86.7 million was partly attributed by the BBC to inflation. The construction industry knows all too well how inflation in recent years has affected the sector, exacerbated by the pandemic and supply chain issues.
Some parts of the E20 construction commenced over a year later than originally scheduled. According to the broadcaster, there was a £9.2 million cost increase due to higher-than-expected inflation and demand for construction services.
Typically, a contractor will tender based on market prices at a particular date, but where the contract duration is lengthy – as in this case – prices can escalate. Indeed, they may do so dramatically where the project is delayed for a prolonged period. In the BBC’s case, the construction schedule clashed with a perfect storm of global events such as Brexit, the pandemic and the Suez Canal container ship crisis.
Careful consideration of how the construction contract will provide for the contractor to be compensated, if at all, for price changes during the project is required to properly manage costs.
It is prudent for the parties to discuss and agree on an appropriate “fluctuation” provision in the contract to deal with the effects of inflation and changes in the cost of materials, plant, labour and transport. We do not know how price fluctuations were agreed to be dealt with in the E20 case, but it is sensible for any party entering into a construction contract to agree upfront an appropriate mechanism for dealing with potential inflation.
Approach to the tender process
The BBC’s tender process for one element of the construction works – the biggest of 42 contracts awarded as part of E20 – also came under scrutiny from the Select Committee. After initially undergoing a single-stage open procurement process which attracted no suitable bidders, the BBC then began a two-stage tender process. This change in approach cost £2.3 million and delayed the project by six months.
Two-stage tendering is often used on large, high value or complex projects. During the first stage, the employer typically tenders the project on the basis of an incomplete design, price and programme. Stage one usually ends with the successful tendering contractor being appointed under a pre-construction services agreement (PCSA).
As part of stage two, the contractor typically carries out services under the PCSA such as advising on buildability of the design and project costs. This stage usually ends with the employer appointing the contractor to carry out and complete the works under a building contract.
While two-stage tendering is initially more time consuming and costly than conventional single stage procurement, increased contractor involvement during the pre-construction stage can bring benefits. Issues with design and buildability can be flushed out early on and the process can result in innovation and value engineering. A better understanding of the project also allows the contractor to price the project and prepare its programme more accurately.
All of this means that two-stage tendering could result in cost savings and reduce delays over the whole life cycle of the project. It’s worth bearing in mind, however, that a two-stage tendering process can also come with the risk of protracted negotiation of the PCSA and the Building Contract, and the contractor’s pricing may not be as competitive as if there was a single-stage tender.
This seemingly happened with the BBC as contract negotiations took 11 months — six months longer than planned, partly as a result of the BBC receiving a more expensive contract offer than it expected.
Obtaining professional procurement advice at the outset, including on the appropriate tender process, is crucial for anyone commissioning works as it sets the roadmap for the project.
Unforeseen site conditions
Another issue highlighted in the Select Committee’s report was a failure to manage the risks and contingencies of the project in 2015, when the original plans were revised and the expected completion date was pushed back to 2020.
Between then and now, the project has faced major problems in the form of unforeseen, adverse site conditions such as asbestos and obstructions in the ground – costing a total of approximately £1.8 million to resolve, and delaying works by about four months (as at the time of the Select Committee’s report).
Managing the risk of unforeseen site conditions is crucial when planning a construction project. Site conditions can be complex and uncertain in nature, extent and effect and, where unforeseen, can result in substantial delay and increased cost. Failure to properly allocate risk in the contract adds to the problem.
There is no universal definition of “site conditions”, and without a specific contract definition there is uncertainty and potential for disagreement. There is also considerable variation in terminology. Constructions contracts may refer to “ground conditions”, “site conditions” or “physical conditions”. The meanings may differ in context or if defined, so it’s vital that all parties have clarity on what exactly is meant.
Employers can mitigate risks regarding site conditions by commissioning specialist site surveys and investigations where possible at the pre-construction phase. They should also have a contingency fund to deal with the costs of unforeseen site conditions.
In turn, a prudent contractor will not simply rely on site surveys and investigations provided by others without making their own enquiries. They should also reflect the risk in their tender price and in the timescale for completion. To try and minimise adverse impact all round, both parties should take legal advice on contractual risk allocation regarding unforeseen site conditions.
Legal lessons
There are undoubtedly a lot of valuable legal lessons employers and contractors can learn from what has unfolded since the project kicked off in 2013.
There will nearly always be unpredictable elements that arise on a large-scale, complex construction project, whether that be encountering unforeseen, adverse site conditions or a global pandemic. However, there is one thing that is firmly within your control – building some protection against these scenarios into the project contract documents.
