Rough Seas Ahead

This week Boskalis published their financial result for the first 6 months of the year.  The headline – almost 95million euros of operating losses, significantly worse than the same period last year.

Their CEO explained that a “change in the attitude of clients (has caused) a sharp increase in disputes and claims”.  Strong words!

It seems they have major disputes on a couple of contracts and as a result have made a provision in their accounts of around 100million euros to cover expected losses, although strangely “we are confident we will recover a large portion of the claims in the future”

A few years ago I wrote this article about the supply chain having to make money, and our industry has to be mindful of that.  Boskalis (previously VBMS for cable installation) have been the market leaders for cable lay.  If they are struggling like this then what does that say about the rest of the industry….?

We (clients and contractors – the whole industry) need to do things differently.  There needs to be much closer cooperation, a much longer term view.  If you look at the project pipeline that companies like Oersted and Iberdrola have, then surely a longer term view can be taken, rather than each side feeling the need to win every single claim.  Although the project financing model, where every project is financially stand alone maybe causes some of the problem.

Part of the problem may be that the industry is becoming more competitive and costs are being driven lower.  As a result, could installers be bidding “too low” with the expectation of winning the project and then recovering margins through claims?  Unscrupulous?  Reality?  In this situation the Developers have a responsibility to ensure they are not awarding contracts at too low a price.

And does the contracting strategy work?  The goal of “lump sum” at all costs – is it right?  I worked with a contractor who would not take weather liability.  Their explanation was that they weren’t in the gambling industry.  If the client specifies the time of the year the work has to be done in, then should they expect the contractor to take responsibility for the weather?

Anyway, back to Boskalis.  They have an order book of 650million euros coming from offshore wind.  Whilst such a healthy order book should be good news, if their coming contracts are anything like their recent experience then there could be more trouble ahead.  And if Boskalis are feeling this pain then it is not a good sign for the whole industry.