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Thin Margins, High Risk: Lessons from Roberts Co's Victoria Collapse
42 Plays1 month ago
Join Jason and guest host Sam Hanisch as they examine three noteworthy construction and infrastructure topics:
🚄 Lyon-Turin High-Speed Rail: The hosts analyze the Lyon-Turin high-speed rail's timeline challenges and what makes this Alpine project significant despite obstacles.
🏗️ Major Australian Builder's Collapse: Jason and Sam explore Robert's Co Victorian Arm entering administration and what this reveals about construction's precarious business model.
⚖️ $14M Legal Fees for $5M Victory: The duo examines a revealing Colorado highway dispute, using it to explore construction's litigation culture and industry priorities.
#Construction #Infrastructure #ConstructionRisk
Timestamps:
00:00 - Introduction
06:42 - Lyon-Turin High Speed Rail Project
14:31 - Roberts Co Victorian Arm Collapse
26:50 - Legal Costs in Construction Disputes
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Transcript
00:00:00
Speaker
It's worth noting that this is going to be the world's longest wolongest tunnel, ah beating the prior one by just 200 meters, which I think is in the Alps as well from memory. 100% someone got a nudge then. just like Yeah, let's start in a slightly more complicated area so we could do a bit more tunneling, please.
Introduction to Topics: EU Rail & Australian Collapse
00:00:26
Speaker
Welcome back to the Offsite Podcast. I'm Jason Lansini, joined this week again, two weeks in a row by co-host Sam Hanisch. And this week, we are looking at Europe's most ambitious RAL project that faces a 13-year connection limbo crisis.
00:00:45
Speaker
In Australia, Roberts Co, Victorian arm collapses, leaving billions in projects in limbo and a legal victory in the US s that has cost three times more than the win.
00:00:58
Speaker
All coming up. Sam, glad to have you back a second week in a row. Although if we're being completely honest, mate, it's the day after the Briar recording or we could pretend. Let's pretend I'm in London. It's a week in the future.
00:01:10
Speaker
How's your week been since we last spoke? Yeah, it's been ah it's been a busy 24 hours. No, it's good good to be back. Interesting topics. um Yeah, good mix. I ah particularly like the last one, so looking forward to getting into it.
00:01:25
Speaker
Yeah, awesome. the ah Do you reckon you'll be up for a third day in a row? A third day in a row? Absolutely not. no No chance. It's Friday tomorrow for those playing at home.
00:01:37
Speaker
So, yeah. Yeah, yeah, definitely not. um the we won' do We won't do weather chats then because the weather's the same as it was yesterday. My weather's great. Yours no good.
00:01:48
Speaker
Same as yesterday. Oh, I'm in London now, i remember? Oh, right. Yeah. Do you know one of the benefits of being a two-time co-host is you get to choose the intro music now? Yeah.
00:02:00
Speaker
now ah So after this, Ollie will ask you, you get to choose your favorite song. um As long as it's i got no copyright breach, you're in charge of intro music.
00:02:11
Speaker
I don't know if you're shitting me. I've never listened to the podcast. So shitting me
00:02:17
Speaker
ah so yeah, you should have that song ready. That was in the, that would
AI in Construction: Adoption Challenges
00:02:22
Speaker
have been in the prep. No, it's not. one of the interesting One of the cool things was a few weeks ago, ah we talked about how um both Carlos and I would use construction would use AI if we were in construction today, like back on the tools.
00:02:38
Speaker
And I got somewhere between five and 10 people message showing examples of you know, what they were doing, um, like text messages and stuff. Uh, and a couple of people asked to jump on, uh, phone calls, everyone's heard about it in the news and no one's like using it in any practical way.
00:02:54
Speaker
so it was interesting. I think we might try and see if we can like tap into that a bit more and show more practical examples. so You're big AI guy. uh, I'm like, I think I classify myself as a bit of like a Luddite, a bit late to these sorts of things, but um it's great. It just blew me away. Like I think with everyone the first time you use it, I think people's expectation that just completely get blown out of the water by what it can do.
00:03:21
Speaker
wow But you reckon you reckon people are late to it. I reckon there's lots of people in the background right now that are busily building amazing construction-based tools out of AI.
00:03:33
Speaker
Oh, I think there's, yeah, there's there's undoubtedly like ah ah a crazy amount of apps and things that people are building. It's unclear, like the the the the ground is shifting so rapidly. it's You never know if like you're sitting on the next best thing or something that becomes a feature of Chatty Petty or something the next day. yeah But I think that folks that are on projects are still, you know, largely just living in a, I i see Microsoft has this co-pilot thing that doesn't seem to get anything right whenever I ask it a question.
00:04:03
Speaker
you know oh yeah way behind they're like yeah yeah yeah that's what yeah that that was the interesting the people that reached out are all from like on projects they're like oh shit i didn't know it could do that like show me how show me how to do this that or the other because yeah if you if your only experience with it is like uh playing with chat gpt once or twice or ah using microsoft's like what did mark benioff call it uh modern day clippy um savage savage yeah i think yeah I think there's a there's a big eye-opening that can happen to people ah in in the industry.
00:04:40
Speaker
I think someone's going to work out something very useful. There was that ah toolkit. I forgot the name of the product. It was like like a toolkit for an engineer. But I think there'll be something like that, that sort of like helper that's drawing down on AI and it's assisting you as an engineer, a construction engineer, with all your menial tasks through the day.
00:05:02
Speaker
I reckon something like that will really take off. Someone can work out. There's like this behavioral shift that you have to make. And one of the folks I spoke to after that episode was like blown away by what we looked at.
00:05:15
Speaker
Um, and then the conversation was like, yeah, how do you know when you can use it when you shouldn't use it? Like in terms of what things it can do, because you end up in this spot where you basically have to train yourself to be like, when I'm thinking about doing something first, go, can AI do it for me?
00:05:33
Speaker
You have to like flip to like, from, I solve the problem to can AI do it. And then I just have to kind of fill in the gaps. yeah And so that's probably like, I'd say that's the hardest shift to kind of make.
00:05:47
Speaker
And you can see these construction companies are going have ah terrible, like they're going to a horrible time from a governance perspective navigating. Because the whole idea of them, like any sort of decision making by their you know their engineering teams is just...
00:06:03
Speaker
for the amount of risk they carry that is unacceptable. Like the concept of AI punching out some calculation for some crane lift somewhere is just not feasible to them. Yeah, like in reality, it probably starts on the consumer side where like, you know, the maybe the Google AI summary and thing evolves enough that's actually useful and people chat back and like you kind of like train a behavior a little bit from the consumer side that then comes in. Yeah.
00:06:31
Speaker
Cause yeah, even no matter how good it is, I think there's just in the B2B space, it's like really hard to get behavioral change rolling. Anyway, that's a topic for another podcast. Yeah.
EU Rail Project Timeline Disconnect
00:06:42
Speaker
Cool. So jumping into topic one, the European union, uh, France and Italy are building a 25 billion Euro Leon's Turin rail link.
00:06:55
Speaker
It's being dubbed as like Europe's most ambitious rail infrastructure project. The project itself is ah facing a critical timeline disconnect. The main tunnel, which is being built at the moment, could sit underutilized for an extended period of time because the connections on ah specifically the French side might be delayed.
00:07:16
Speaker
So Sam, your French will be my better than better than mine. you want to you have a crack first at pronouncing the ah the tunnel? Mondambin.
00:07:26
Speaker
Mondambin base tunnel. Yep, we'll take that. ah So this is this world's longest railway tunnel. It's supposed to stretch 57.5 kilometers through the Alps and is due to be completed in 2032.
00:07:39
Speaker
The goal of the project is to transform freight and passenger transport transport between France and Italy, which currently has to go over a 150 year old mountain crossing that requires triple locomotives to navigate up to 30 degree gradients.
00:07:55
Speaker
um which I'm no train, but I struggle with 30 degree gradients. um I'd imagine if I was hauling a whole bunch of freight or or people going skiing or whatever, that I would struggle even more.
00:08:08
Speaker
At the moment, there are seven tunnel boring machines that are currently cutting through 14 different types of ground conditions um to create effectively 162 kilometers of tunnels ah when you include the boat directions, the safety bypasses and all the access shafts.
00:08:24
Speaker
But I think in the in a sort of breakdown that our team did in the ah recent offsite newsletter, they've broken down that effectively this there's this disconnect where the tunnels are scheduled for completion in 2032. The French access routes might not be ready until 2045.
00:08:40
Speaker
forty five And there's a whole bunch of interesting stuff in there about the history of the project, what's caused that, political elements as with every piece of an infrastructure project.
00:08:52
Speaker
So Sam, there's a bunch of pieces to this that were interesting. There's like the engineering technical bit, there's like the overall infrastructure and the goal of it. And then there's, I guess, the politics that have led to the torrent state of play.
00:09:05
Speaker
Pick your poison, what was what jumped out to you? I just like, there's a bunch of things, but the thing just as you're doing the intro, um He's getting the point now when you say, it's like it's the world's longest tunnel. It's not really a flex, is it?
00:09:18
Speaker
It's like, oh, shit, we have to spend the money to build the world's longest tunnel. Yeah, yeah, yeah. Just to get through this ridiculous mountain. Also worth noting, because i think we I think we talked about, you know, there's always like the world's tallest building and then they try to beat, they stick like a spike on the top to beat the previous one by like 200 millimeters.
00:09:36
Speaker
ah It's worth noting that this is going to be the world's longest tunnel. longest tunnel ah beating the prior one by just 200 meters, which I think is in the Alps as well from memory. 100% someone got a nudge then. just like Yeah, yeah. Let's start in a slightly more complicated area so we could do a bit more tunneling, please.
00:09:56
Speaker
um No, it's ah it's ah another one of these projects with wild statistics. I think there was there was a section in the the video i watched about it where they just talk about the ventilation shafts. They have to go straight up for you know smoke to evacuate out.
00:10:10
Speaker
yeah It's taller than... um that, you know, the building in Shanghai that looks like the bottle opener, like the tallest building in there, just in a ventilation shaft, pretty incredible stuff.
00:10:21
Speaker
I think the thing that fascinated me the most was the the model of building it. um It might be a normal thing in Europe, but I've never heard of a job where you've got two governments contributing to a to a portion of the work. I don't know, you're over there now. Is that the usual state of play that in the Eurozone, the governments are kicking in for this sort of work? I think we've, we when we talked about previous projects like Rail Baltica and stuff, in those projects,
00:10:49
Speaker
It's not uncommon, like things like the channel tunnel and all sorts of things were were funded in a somewhat similar way. But I think every mega project that we we've looked at, talked about, or or worked with on the Apex side, there's always the like politics of mega projects.
00:11:09
Speaker
which are hard enough when you just have one country involved. um yeah Once you you stick multiple and and then like maybe the European Union on top um ah is a whole other level.
00:11:23
Speaker
A bit of Italian-French rivalry to... Yeah, yeah, yeah. In the video, all the all the big players were there. was like Ifar, Jvansi on the French side, WeBuild on the Italian side.
00:11:36
Speaker
Pretty impressive that they're, you know, how far into it they are and what they've completed. But yeah, you'd probably be a bit disappointed by, I think the French decision around like the delay is technically around connecting into Lyon. I think they're running to Dijon and they're,
00:11:52
Speaker
they're looking at how they're actually going to connect it to Leon. But having taken that train route before from Leon up into the ski valleys, yeah, I couldn't imagine taking it all the way across to Turin. So, you know, two hours to make that journey perfect.
00:12:10
Speaker
Yeah, pretty good for a tourism perspective. The current route, I've never done this, never been through this specific route, but I was shocked by the impact ah that this project could have.
00:12:23
Speaker
The current crossing, like the 30 degree gradient gets to like a thousand something, 1,500 or 1,600 meters in vertical elevation that they have to climb. Yeah.
00:12:36
Speaker
um The new route effectively reduces the gradients by half and lowers the crossing height to like 750 meters total. It is expected to carry 40 million tons of goods each year. year Currently in this route, um which is largely trafficked by trucks, there are 3 million heavy vehicles that cross that um crossing every year.
00:13:06
Speaker
And so this has the ability to like move a whole bunch of that over to rail. It's expected to reduce, I think, carbon emissions by like 3 million tons annually.
00:13:17
Speaker
it's ah It's kind of like yeah you can see why the EU has to kind of step in to contribute. There's also this weird thing where there's like this super expensive tunnel in the middle. Then there's like a French stretch. There's an Italian stretch.
00:13:30
Speaker
But there's like global, there's like EU wide benefits. It's part of the overall footprint like this project to connect. I think in the video I saw Hungary to Poland liking rail network, which, you know, they they can already do it over the mountain, but yeah, it saves a couple of hours on that trip. so there's in It sits in the context of all of these like rail-focused trade network things that are but being built around the world.
00:13:58
Speaker
There's like a whole bunch of ones that are Russia are trying to connect down to the Middle East. And then you've got like China trying to correct connect across the Eastern Europe. And then Europe's trying to do this like global rail and network.
00:14:12
Speaker
It's by far the like most efficient way to transport goods. But yeah, when you get individual projects that have this kind of, there there especially when you add like the Alps in the middle of it, yeah, there's some interesting engineering challenges.
00:14:24
Speaker
So yeah, super interesting project. Also that newsletter is well worth a read for anyone that hasn't, head to the offsite Substack page.
Roberts Co. Collapse and Industry Parallels
00:14:32
Speaker
Jumping onto like the second topic, Sam, we were talking the other day about this recent news where Roberts Co, which is an Australian commercial and large builder, um have put their Victorian operations into voluntary administration and halted eight, I think, major projects worth billions of dollars.
00:14:52
Speaker
including, i think, Australia's largest automated warehouse facility for Amazon. um And this comes just three years after the company effectively rescued a previous builder called ProBuild who went into administration and took over a bunch of, or bought out a bunch of their projects.
00:15:09
Speaker
Just the last few weeks, Roberts Co announced accumulated losses of approximately 60 million in its Victorian operations um and forced work to stop across a bunch of those projects. The collapse not only affects the current developments, but um a whole bunch of completed projects and their warranties and stuff in limbo.
00:15:30
Speaker
What was interesting to me is I immediately had like connections in my head to the a semi-recent collapse of ISG in the UK, who was a similar did similar types of projects. They were the UK's sixth largest contractor.
00:15:45
Speaker
They had a lot more projects, 69 government projects and like 2,000 plus jobs. and that a bunch of their jobs have increasingly recently been taken over by other contract owner know contractors. I know Mason and others have picked up their projects.
00:15:59
Speaker
It touches on a whole bunch of, I guess, realities of of the industry of construction around, well, at a starting point, the idea that, It just takes one or two bad projects to totally blow up the good work of many prior ones.
00:16:16
Speaker
I don't know if you've, this is something we've all probably experienced. if you If you had that kind of like, you know, at a project or a company that you worked on before, there's that one project that seems to like unwind all of the all of the work and all of the success of of years or many, many, many projects.
00:16:33
Speaker
Yeah, i um I actually started my career with a company out of South Australia called York Civil, um and they probably – pretty successful builder reputationally out of the state, probably, you know, were probably the most renowned, um, still, I guess, family owned company in that tier two, tier three space, but we're JVing on big projects. They did deliver the, as a JV part of the first section of the South road, sorry, the second section after the super wave, South road upgrade with CBB.
00:17:09
Speaker
um And yeah, they were ah going through a sort of expansion and um they, you know, I think you do this thing as a company, you sort of have to buy your way in or you got to take your take you punches for the first few projects that you move into a new region. And yep um it took a couple of, there was some big projects over on the East Coast and um one I was working for in ah Western Australia, but this sort of combination of a few bad jobs, um moving into bigger projects and, you know, 25, 30 years of building up this, know, very, you reputation in a business and um they quickly spiralled into administration. So,
00:17:54
Speaker
It um it can happen can happen really quick. it's ah I'm sure and the time, you know they always say like past performance is not a measure of you know what's going to happen in the future. But yeah you know you're tendering all these jobs, you're probably thinking, oh, maybe we're not but going to lose a little bit here or it's going to get us a reputation.
00:18:14
Speaker
You're probably not considering in that moment the yeah yeah potentially sinking the company. Yeah, it's it's it's it's tough because it's like a it's a it's ah effectively low capitalized or capital light business model where you might deliver a $100 or $200 million dollars project, but you don't have $200 million dollars ah of assets or anything. your You're delivering a service where you're performing work and paying a bunch of costs to make What in the industry, if you look historically, are
00:18:48
Speaker
really like very low margins. I think if you looked across a bunch of different markets, the stats are that the net profit margins sit somewhere between two and 10%.
00:18:58
Speaker
And maybe on top of that, when you're pricing those projects, you're sticking what some would put somewhere between a 5% and 15% contingency in on that project. ah But you basically end up in a spot where, yeah, as ah as a business, you're taking on all this risk.
00:19:16
Speaker
You're ultimately trying to make some small margin on there. And especially if you go into a spot where you're trying to expand the business, you put yourself into a somewhat precarious position where if you're both in that expansion taking on more risk and you're stretching yourself kind of like financially to do that.
00:19:32
Speaker
Yeah. It, it takes one or two things that, uh, you know, if you have a ah five or 10% pro problem on a project, well, that's all of your margin and probably most of, or all of your contingency.
Construction Industry's Margin and Risk Issues
00:19:45
Speaker
And then it just adds on top of like, well, then you start getting into disputes. Then there's delayed payment and there's no like big balance sheet of assets to so like kind of wear through that.
00:20:00
Speaker
The potential to get gains on your project, like they come one in 10 compared to the amount of things you can do your ass on. like there's You're just constantly in the way of things that can cause you cost overrun and they're just the opportunities to gain you know the money back just disappear. And the further you go down that hole, they you know they become fewer and fewer available because...
00:20:23
Speaker
you know you're square you're trying to squeeze time you're cutting corners like you're trying to do everything to make up this ground that you can never make up like you're never going to make 40 on a project like these you know massive projects they're never going to make it but you could very you can lose it you could lose 40 um easy and it's it makes me think about uh like having worked in victoria uh uh this type of contracting that they do there through the the government through the like the major road projects they've got um you know panel work and there's sort of like this target cost and pretty much you're in this position as a contractor that you're guaranteed you're going to get an amount of margin between you know whatever it is two and
00:21:07
Speaker
12, But hey, that's like, that's pretty good when considering, you know, you yeah if you can lose 20%. Yeah, if you take off the table that you can lose 40%, it opens up a whole bunch of other options ah for the, kind like we've talked a lot previously about um local contractors being bought by international contractors in in a lot of markets.
00:21:32
Speaker
And when you overlay this idea, it makes a lot of sense why there's why the international conglomerates have all of this leverage because they've got the broader business that they've diversified. They often have other parts of the business like an energy business or ah you know they own roads or whatever.
00:21:51
Speaker
yeah And so when you get into that spot, they've got the balance sheet to wear through. it's the The loss of 40% on a project goes from ah bad year. Instead of being like a company ending issue, it just goes to like a bad year.
00:22:07
Speaker
Yeah, well, you look at John Holland just released, I think, whatever it was, their quarterly or released their earnings for the last year and they dropped $60 million. um They made $180 last year, but so they had a bit over $200 million swing.
00:22:22
Speaker
yeah Like a lot of companies, that's yeah you're gone. that' You're gone. sink yeah yeah um And you're you're in an administration well before that. So ah what do you think, though, ah sort of following that,
00:22:35
Speaker
Do you think it's a good state of affairs that this is the position that's going down, you've got a Roberts go that's, um you know, folding up in an area the state, less competition, maybe someone in comes in and, you know, buys another level of their work. Like, is that a good overall result for just looking at, you know, Victoria?
00:22:56
Speaker
I don't think it's a good overall result. That's, I think, I don't think anyone would argue it's a good overall result. I think there'd be a fucking shitload argument on what the solution is because I think there's like a pie in the sky of like,
00:23:11
Speaker
somehow people could price risk appropriately and know what the risks they're taking and and or there's better collaborative there'll be people talking about collaborative contracting models But like practically, I just don't see how any of that changes.
00:23:25
Speaker
It's probably likely in this event, it's all tied back to you know the bad debt that they brought in for taking over ProBuilds work, which was an non you know a big part of the coronavirus and the pandemic and the you know massive escalation in costs. like People obviously still feeling that. Pretty pretty scary to see. think odd employees yeah I think it goes a long way to describing why the industry in construction, why the culture in the construction industry is the way that it is. Like people always smash the construction industry of like, oh, they're slow to adopt technology. They're like Luddites. They're like laggards in ah both adopting and digital and their productivity.
00:24:10
Speaker
yeah But if you look inside the business, you know maybe they're making 5% or 6% if they're lucky. Is the best use of our time and our energy to try and squeeze that up to 7% or are we better off trying to stop the company ending project, like distressed project that could kill the company?
00:24:31
Speaker
um And I think that the overwhelming answer is like, can we stop can we avoid or stop you know at any point in time across our portfolio of projects, we could be sitting on the ticking time bond that could kill the company.
00:24:45
Speaker
um And so the risk adverseness is not like, i don't think a cultural thing. I think it's like a factor of the, you know, the structure of the business that we as a construction industry are in. I don't think it's the people, it's the business.
00:24:58
Speaker
You see those curves where it talks about like how much you can impact the outcome of a project the further you go along. Yeah, yeah, yeah. The most impact you can have is before you've actually signed up to that job.
00:25:09
Speaker
And it's like, do we want to take this job? I think there was a period there where winning jobs was great. It was just like we win a job, you know, that's great. It's always a great result. um And nowadays, just the way the risk gets handed down from owners, clients, the expectation on the private industry to carry that through, especially these big companies, like they have the ability to do it.
00:25:32
Speaker
You know, scary, you know, you want some pretty good players in the room vetting these contracts, vetting the scope, negotiating the risk transfer, who owns what, because, you know seven-year contract, you've got to look ahead and you've got to be predicting all these things.
00:25:48
Speaker
Yeah, 100%. I think, yeah, like just looking like selfishly at it from a software vendor perspective, and this is like applicable to not only like other people in the industry, but but even like within our team,
00:26:01
Speaker
People will go, oh we you know, this project, it's saving an engineer six hours a week or 10, whatever it is. Like, everyone's like, oh, this is such a great win. But if you zoom out and you put yourself in the contractor, she's like, cool, save that engineer seven hours. I'm just trying to stop the, like, project that might end the company that we've had for 100 years rolling. Yeah.
00:26:21
Speaker
Yeah. um And so I think there's a yeah there's a big reality check for like what actually the the job of running the construction company is compared to what maybe software vendors and technology vendors are selling.
00:26:34
Speaker
i don't understand 100%. And ah definitely for guys like me that spend my whole career just out on site, i you get the tunnel vision about what's important. You're like, oh, we're going to do this on a project. But yeah, there's only so much you can do with it once it lands in your lap.
00:26:51
Speaker
Yeah, 100%. All right, jumping to the last topic before we get totally squeezed out of time.
Legal Challenges in Construction: Flatiron vs. ACOM
00:26:56
Speaker
So for setting up, a federal judge in the US has ordered Flatiron, which is ah a large construction contractor in North America to pay ACOM.
00:27:07
Speaker
$14 and a bit million dollars in legal costs following a $5 million dollar verdict in a Colorado highway dispute project. The dispute stems from this C470 Express Lane project, which was about a $200 million dollars design build contract awarded in 2016.
00:27:27
Speaker
the dispute between the two. ACOM as the designer basically made a claim on Flatiron for payment of out of scope design services. So a variation to the design scope, which then ah went into a five year legal battle.
00:27:42
Speaker
that culminated in a $5 million dollars verdict in their favor. um And then the court ordered for $14.2 million dollars in legal costs, split between $8 million for attorney fees. So we spent $8 million on top of a $5 million dollars claim and then another $5.9 million for expert witnesses.
00:28:01
Speaker
um which i think draws a really clear line to this like disproportionate expense and cost on the construction industry of respond resolving construction disputes.
00:28:12
Speaker
Probably similar to the last topic, Sam, you've probably seen a bunch of these in your time as well. um Does it does it does it ah ring any bells of deja vu? uh yeah unfortunately i think everyone does congratulations to the lawyers they did pretty well didn't they for they made more money than the contractor like because if you take if you take it's a 200 million dollars scope uh which means if you take the average margin they might have made maybe maybe 10 million if they were lucky out of there they probably they're claiming they've lost five on this uh design thing so they they've probably made less than five million out of the project
00:28:48
Speaker
And then the lawyers have smacked in $8 million and then $6 million dollars for expert witnesses. So I know which business I'd rather be in. I mean, how expert can these guys be if it costs you 5 million to get that sort of outcome? It's pretty yeah pretty bad. But to be honest, i ah having been on the mostly the builder side of this sort of thing um and really like ah you know just helping compile the sorts this sort of claim ends up getting stacked up on most projects these days, not to this sort of scale, but there's some sort of dispute that gets in there.
00:29:27
Speaker
um good on the Good on the designers for getting a win. I'm sure there's some executives at some design houses out there going, finally, we got one. Because ah to be honest, when you look at the numbers, what was it? There was like a 5 million suit and they counted with something like 200, like Flatiron came back at it and for like 250 million in damages, like something something ridiculous.
00:29:51
Speaker
i I was the thing that stood out to me, which reminded me of, I guess, myself in some ah salt, like in my earlier days, being salty with ah with a ah ah bad outcome.
00:30:05
Speaker
um Yeah, they had this claim for additional design services. ah Flat-Eyed, in response, did this like countersuit, as you said. They then rode this out for five years, arguing the toss on this.
00:30:17
Speaker
And then their claim back to them was in non-technical language, basically, but ACOM did a shit design. It was the counter-argument that they then like stuck and dug their heels in and like wrote it out for five years.
00:30:32
Speaker
i need to come up with the l it's ah It's pretty sad. like when you because Starting from the number it did, um you know that it gets this five years down the track. Nobody wants this.
00:30:45
Speaker
Why... you know why Why are we going down this path constantly now? just feels like it's become the price of doing business instead of, you know, let's get good designers. Like let's come up with good scope. Like who's carrying the right level of risk? Like these are the these are the conversations that aren't getting as You've got, um you know, you've got bad design coming out because you've got poorly formed teams that get no time to build it because you've got governments that are trying to push some project.
00:31:14
Speaker
And then they, you know, give some shitty design to a contractor who at the start says, yeah, sweet, I can build that. I want this job. I'm happy. and And then they get into it and they've done their ass and they're like, fuck.
00:31:25
Speaker
Like, you know, I can't carry these costs. So, oh, that design was shit, which I was happy with two years ago. Yeah, just go after it. They probably got like equal number of cases with the subcontractors, with the client.
00:31:36
Speaker
It's like, ah what's the what's the saying? This might be an Australian saying, but it's like ah when this shit hits the fan, everyone gets splattered. Yeah. It's very visual, isn't it? Yeah, you get you get it.
00:31:48
Speaker
Yeah. But now, I mean, it is like that. And meanwhile, like the the developer, the owner, who's really like, they're the cause of it all. They built this thing and like, they're, you know, they're generally involved to some degree.
00:32:01
Speaker
They're clean. They're absolutely clean. They've stepped away. their contracts are airtight. Yeah, yeah. So they just let the kids play it out like this and this is the result.
00:32:14
Speaker
it so It almost like calls back to the prior conversation,
Risk-Heavy Service Model vs. Manufacturing
00:32:17
Speaker
right? Like if you're ah if you're the software vendor or the or whatever you're trying to sell to a construction industry, Your four hours a week, you save the team or the six hours in writing a report.
00:32:27
Speaker
I think like on the list of things that they care about, right at the top is like not having the company ending project. ah Probably somewhere beneath that is avoiding the giant L on a dispute with one of our partners delivering this project.
00:32:42
Speaker
And then like right down is like, can I save this fixed cost engineer, supervisor, superintendent a couple of hours? And i think the... The lawsuit's number one for the design house.
00:32:54
Speaker
Um, you know, go in there, like, I don't care. Like, yes, get a design out, have a happy client, reputationally great. Don't get sued by the builder. It's funny. We, um, you know, we always like engineers joke about all the disclaimers that get attached to the design reports that come out and like every piece of information that comes out.
00:33:15
Speaker
These poor designers, like, you know, ah it's okay, just tell me, give me a call, let me know. Yeah, do give me an answer. If it goes wrong, if it goes wrong, I'll... In two years' time, ah it's I'm pulling that out of my diary, so you're going to see it on an affidavit that's and coming over it to your lawyers.
00:33:32
Speaker
Yeah, I think it all starts from this industry that is trying to be a ah service industry that is usually, like, kind of known or relatively fixed margin. You know, if you think about most other, like, service industries,
00:33:45
Speaker
like, I'll do this service and I get some margin and construction has this added, like, but, but by the way, as part of like getting that service margin, you take on the risk of the entire project.
00:33:57
Speaker
Yeah. Like it's like a, it's like a weird, uh, they get really not any of the upside of it. And for some period of time, carry all of the downside.
00:34:08
Speaker
It's, it's incredible. Like what other, you know, it it it only makes It only gets through because the numbers are so high. But what other industry carries that much risk?
00:34:20
Speaker
Like you're not getting a tradie out to your house and he's not carrying that risk and he's getting 30%. He's not getting 6% for the work he does. And you know yeah things go wrong, he's still getting paid. But in construction, if things go wrong, you don't get paid. You don't even put your hand out for more most of the time. you just That's the price of that's the process of business. That's the industry.
00:34:41
Speaker
I think people conflate it with like the supply of a good. So, you know, if I bought, if I bought something from, know you're a manufacturer of cars, if I buy a car, I've got the fixed price and you take the risk of like all the costs to get me that thing at that price.
00:34:56
Speaker
I think some people would say like, we're not in the business of construction or we like when we give people these like assets, you know, whether it's a bridge or a road. I still think that's true. I think it's a service industry.
00:35:07
Speaker
You're building the thing that the person that's asking you to build it has designed. You're not in control of the good that you're delivering. If I'm selling you a car, I'm totally in control of exactly what how I'm gonna build it, what I'm gonna build, what's gonna be in it, what the price of it is car.
00:35:21
Speaker
and then you could choose to buy that thing or not yeah the construction industry is like i want this thing that looks exactly like this thing maybe i'll ask you to design a few bits around the edges but like ultimately it's ah it's this bridge in this location whatever it is yeah uh can you go and make that a reality and it's a service industry but it's a service injury that carries this like ah at one point in the life of this company is going to be a up that could end the company Yeah, I couldn't agree more. You know, especially when you're down thinking about, you know, when you're losing money on a project and it's the worst feeling, but you're like, I'm spending money to build a money making asset for this person who refuses to pay me and they own it at the end. Like I'm paying for them to have this thing. It's like, why am I here?
00:36:09
Speaker
I just paid money to give you this thing. Yeah, and the people on the project blame the people that tended the project, but the people tended the project have got an impossible situation as well, which is like the unknown unknowns and you've got a clock to like get... Yeah, predict future, please. Yeah, predict the future, do it really, really quickly, and then make all these assumptions and we'll just sign you up to them being true.
00:36:30
Speaker
and then And then stick your best like then guess contingency that you might need for all the unknown unknowns that could like... could kill you. it's It's like everyone has a, yeah, it's the, it's the short end of the stick for everyone.
00:36:43
Speaker
Yeah. I think, uh, I think I'm a firm believer. Like it all comes back to the risk. Like it's like what we saw at Rob's goes, is the risk profile, who's assessing it, getting that right up front.
00:36:55
Speaker
Um, because you know, the contractor's got to have some skin, but, um, you know when they're When they're paying to go there and build something for something someone else, that just doesn't feel doesn't feel right, doesn't pass the pub test.
00:37:07
Speaker
No, yeah. they just and And no one knows whether it's not like it's... I think there's some, maybe some elements and bad actors of like hide the cheese of where the risk is like in the in the documents, but...
00:37:20
Speaker
on the On the whole, I think people just don't know where the risk is. It's like unknown it's unknown unknowns. there's a bunch of They just jam all the things i can think of in a bunch of documents and then be like, hey, we don't really know what's in the we don't really know what's in these documents, but it's a fuck these lot of documents make me feel really good about this project. And then can you can you take this and price it, please?
00:37:42
Speaker
And you might make a relatively low margin if you do well. All right, on that positive note, I think we're out of time. Mate, thank you very much for co-hosting. I think everyone will agree that was a really interesting conversation.
00:37:55
Speaker
We'll take a rain check on whether we do round three in a row. We'll see. It depends what the intro music was. Copy. Awesome. Good fun. Thanks, mate. Folks, thanks very much for listening. It's been a really interesting conversation. If you like ah what we covered, please think about liking or subscribing to the podcast. Feel free to also to drop us a message if you've got ideas for topics of the future or guests.
00:38:22
Speaker
Thank you very much. Bye-bye.