What does Brexit bring for the commercial strategy in project business cases?

Although the UK now has a trade deal with the EU, it’s clear that it’s not frictionless and will catalyse changes to supply chains and the market for UK goods and services. It’s just as well the UK now has an enhanced ability to do business directly with the rest of the world and is well placed to leverage technology to help do so.

So why might this affect your business case? Well it depends what business you’re in and who your suppliers are.

Post EU membership, the UK will strengthen its traditional, international bonds, however new opportunities won't become apparent immediately. There will be facilitation work needed by the government to reduce risks to new market entrants, as well as the need for UK business to invest the time and effort directly for themselves, in finding new supply chains and areas of international expertise. And, in implementing the policy that tilts towards new technology development and meeting Manifesto commitments.

There's a lot of work to be done in both the public and private sectors on adjusting commercial strategy, procurement law and the accompanying tactics to facilitate these new opportunities as well. But the wider fallout from COVID-19 will force the need for ruthless supply chain efficiency to get the very most from reducing budgets. So, this won’t be a low profile or low priority activity, even for the strongest organisations.

The thing is, how well do you know and trust your existing suppliers to adapt, and how they operate their supply chains? There is the potential for EU based providers to exit the UK market as a result of trade ‘friction’, and new providers to enter it from elsewhere. It will become even more important to know and effectively engage with the potential market before starting formal commercial action; supported by contemporary thinking on requirements, bid assessment and quality. Maybe even taking a completely different procurement strategy thereafter, built entirely on nurturing innovation?

Strong relationships and supporting flexible, outcome-based contracts fed by consortiums of skills will endure through embracing the change. Standards based contracting with a traditional ‘prime’ will perhaps not so flexible and adaptable…or possibly durable.

New policy, standards and procedure

In response to a changing market and freedom the government will start to develop new sector specific policies and approaches. Some will be progressive, such as reaching carbon neutrality by 2050 - creating new infrastructure investment opportunities. Some might be regressive – ‘chlorinated’ chicken anyone?

The shift away from EU standards is likely to be pragmatic rather than strategic. This might well be influenced by 'user' expectations for quality (something ‘good enough’ in the context of less money). But does this matter? Well yes, if bid assessment can’t fairly compare compliant bids whilst this transition is going on it could open some interesting legal challenges.

And it also matters if it leads to a drop of bid quality where there is a critical requirement for a specific standard to be met. There’s nothing worse than none of your bidders being up to the job.

Some project delivery work will be brought back in-house. Procurement timelines have already lengthened substantially in recent years – could they suddenly get longer? And if so how do you keep this activity impacting the critical path?

Even where a contract already exists, things might not be plain sailing. Goods and services of all types may suddenly become unavailable, rapidly change in price, or substitutes might be needed. Projects that will continue to thrive are those that have already invested significant time in contingency planning and have worked effectively with their supply chain and commercial departments to define a response.

Fluctuation in prices will continue as market conditions change; and will eventually lead to a 'new normal' as existing players exit and new entrants arrive in that category. But past costs are no longer a reliable indicator of future ones. 

Market regulation

When it comes to trade and making money, folk don't always play nicely of course, and the appearance of cheap bids or goods might not just be due to more efficient means of delivery. Yet more ‘due diligence’ is likely to be necessary.

And there’s another angle. Getting the work done for half the expected cost may prove initially enticing, but not if it drives UK companies out of business, and therefore attracts the attention of the government’s market regulator. The government has a currently little known trade remedies investigations directorate which is likely to play a much bigger role in market regulation in the years ahead.  

Project delivery strategy

Does your organisation need, or will it take, an offensive or defensive approach to the coming change in the market? This may be driven in part by the organisation’s values, as much as those of its leaders. Whatever the strategic response, this will affect priorities for current and future projects. And of course, as a professional project manager (because you are reading this), you have a role in ensuring a suitably ethical approach to any strategic transformation.

To enable, or manage changes associated with the supply environment, the project relationship with 'functional experts' needs to continue to evolve, and these experts need to become key advisors in project teams.

Internally this means financial and commercial colleagues making increasingly early strategic input to project scoping decisions, and certainly informing a much wider and earlier consideration of possible procurement strategies as a strategic enabler.

But it will probably also mean more external engagement with lawyers and market specialists who know how to engage with organisations internationally, and who will increasingly advise on all the options for the project’s procurement strategy.  

Re-thinking your approach

Within the public sector, the fallout from the Carillion failure led to the Outsourcing Playbook which recommended many reforms of public sector contracting and contract management. 

This has already led to an acceleration of public sector commercial reform, but it is likely that similar approaches will be needed across the private sector to respond to Brexit, and some fundamental change to the commercial support to project delivery being sped up.

Conclusion

Brexit definitely brings new challenges to the project profession and the strategy for commercial activity and procurement. Business cases need to become nimbler – perhaps with an expectation of more regular updates, and a need to revisit the procurement strategy alongside delivery options at every delivery phase. This can help ensure the most innovative means of delivering best value are still borne out by the recommended option. We must be conscious about the likely changes to the market, bid quality, pricing, and the impact on supply chains once we have a contract – perhaps being more involved in supply chain risk management, and being willing to accept alternatives approaches, rather than delays. 

We'd love to know your thoughts about Brexit and projects. How are you preparing for the changes we'll face? Let us know on the APM Community.

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