Jacob Austin 00:00:00 Hi all Jacob Austin here from QS.Zone. And welcome to episode 78 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 78, is all about that trending topic of sustainability clauses and environmental requirements. If you're new to the show, please subscribe for more user friendly advice on all things subcontracting. So these environmental requirements, once considered, are nice to have. Sustainable construction and eco friendly practices have become a must have and a norm in many contracts, both in terms of public and private spend. So today we're going to explore how green obligations are hitting supply chains and subcontractors. The cost benefits of eco friendly materials and practices. Proactively meeting and profiting from if you can. Client demands for sustainable solutions. The contractual basis for sustainability requirements. Where they come from and what you need to watch out for, and value engineering approaches that allow you to save costs while meeting or even exceeding green goals. So if you've been wondering how to handle new environmental obligations, or you're worried that going green might turn your accounts red, then today's show is for you.
Jacob Austin 00:01:40 We're going to try and look at how you can adapt your business model, untangle the complexities, and hopefully find ways to make sustainability profitable for you. So let's dig in. So why is sustainability now becoming a non-negotiable? There seems to be a global push for green agenda and at macro level, governments, corporations. And of course, the general public are all aware of climate change, resource depletion and the urgency to minimize environmental impacts. And this stems from the Paris Agreement. Down to local regulations, we're seeing a trickle down effect that is touching nearly every sector. Even those plastic straws at McDonald's have now been changed for soggy cardboard ones. It's hitting us everywhere. And the construction sector is known for its carbon footprint and the intense use of resources. And for you as a subcontractor, this means that more and more clients are embedding environmental clauses and requirements in their tender documents. Or they're pushing for specific green certifications, be that brief or otherwise. And if you want to keep winning lucrative contracts, particularly for government or large commercial organizations, then you need to tackle and address these green obligations head on.
Jacob Austin 00:02:55 So we've seen several trends converging on one point government mandated targets, including national and regional regulations that require energy efficient materials, reduced waste, and sometimes net zero carbon practices on public projects. We've seen corporate responsibility and sustainability policies rolled out by clients up and down the land. So in a bid to adapt to these, main contractors have rolled out their own CSR or corporate social responsibility guidelines that they're now passing on down the supply chain. And it even comes down to some clients wanting bragging rights for their green buildings, or branding for added marketing or investor relations. If they want a sustainable final product. They then expect every layer of the supply chain. And yes, that includes you to toe the line. Subcontractors can be caught in sometimes a tricky position. You're one step away yourself from the actual client or the developer, and yet the main contractors push you to meet certain standards. This ranges from specifying recycled materials to requiring documentation of carbon footprints and waste management. And if these obligations aren't well defined in your contract, or if they impose unexpected costs, this could catch you off guard and potentially hit you in the pocket.
Jacob Austin 00:04:15 So let's talk about how green clauses are making your way or making their way rather into your subcontract. Often this starts with employers specifications and main contractors flowing these down into your subcontracts. In many cases, it's the main contract with the client. Setting out sustainability targets, including achieving a certain score or explicit rules about waste disposal and carbon neutrality. The main contractor then flows these terms down to you, the subcontractor, including things like sustainability performance requirements. For example, we've all seen All timber must be FSC certified. What are the requirements for concrete and macadam surfacing to include X amount of recycled aggregate? Subcontractors might be asked to track waste volume, water usage or energy consumption on site, or perhaps dispose of their waste via certain waste carriers that have got a high proportion of recycling, whereby they take skips back to their plant, segregate it into what can be saved, and then only a small proportion of it goes to landfill. And this is one of those costs that, if you're not expecting, can easily hit you where it hurts.
Jacob Austin 00:05:25 There are also often penalties for non-compliance. So in some cases, failing to meet certain standards could lead to liquidated damages or other set off. And this can be set up to work in a similar fashion to how time related liquidated damages might work. So you must take action on this, which means reviewing in detail the contracts sustainability section and relevant parts of the spec. If it then refers you on to a specific standard or a code. Then make sure you understand the sub requirements that could trickle down into your scope. Often the main contract will include a separate sustainability appendix or perhaps a schedule of environmental requirements in the tender documents. This might look like a long laundry list of various obligations, from the brand of insulation you must use to the recycled content of steel in your rebar. The tricky part is ensuring the cost for complying with those requirements is in your price. If not, you could face unexpected expenses, and you'd be right to expect the contractor to be less than sympathetic. If they've provided you with all the documents and you failed to comply with them.
Jacob Austin 00:06:36 So the best thing for you to do here is to flag any sustainability requirements, particularly if you think they are going to affect your pricing, your lead time or your logistics, and then query this through an RFI. During the tender process, if you're unclear on it. Don't just assume that you can handle it with the same bidding structure that you might do for more traditional materials. There is undoubtedly an element of green tax added into the cost of these materials, so it will bear going out for specific pricing to make sure that you're on the right side of fair. Also, you need to pay close attention to how liability is assigned to you if you fail to meet a green specification. Is there some kind of step down from the main contractor's liability to you? It's not unusual if you miss meeting the specification to have to put your work right, but there might be further penalties on top of that for failing to meet required environmental standards. This may be somewhere where you need to limit or negotiate your liability.
Jacob Austin 00:07:37 If you're perhaps dependent on external factors, perhaps there's a particular supplier's product that you need, and that's the only place you can source compliant material. And if that supplier has a particularly long leading period on their materials, it might be necessary to agree some program parameters to prevent you copying for liquidated damages for what might be an inevitable delay. So what are the benefits and how do you evaluate them of eco friendly materials and practices? I often hear people telling me that going green is expensive, but is it always true? Many sustainable materials like high recycled content, steel or low VOC paints can be pricier than conventional alternatives. Similarly, if you're using new technologies like advanced insulation or energy efficient lighting systems, they might require special manufacturer specific training or different installation processes, which could then inflate your labor costs. And at the same time, older green products are becoming more mainstream and that may well be driving costs down. You might also be able to benefit from certain grants or tax rebates for using a particular eco friendly component, or for sourcing local materials in certain situations, so it's crucial to investigate these nuances on a case by case basis.
Jacob Austin 00:09:04 There are also often long term savings and a reduced total cost of ownership. So although an eco friendly product might cost more upfront, it might reduce the long term operational costs for a client. So there might be lower energy bills, reduce maintenance, or a longer lifespan. And whilst you might not actually benefit from these savings, you might be able to justify a premium on your supplied products. If you can position it as better in the long run. So let's say maybe a roof membrane with a longer lifespan and then a lower disposal impact. This might let you charge more for an initial installation, because that product has a greater value in the savings that it's going to deliver to your client. There's also the prospect in certain instances that by embracing green practices, you can stand out in a crowded market. More and more clients and main contractors are searching for subcontractors who get sustainability requirements. So if you can showcase a track record of successful, eco friendly projects, especially if you've got useful performance metrics on, say, energy reduction, waste reduction or carbon footprint, this might give you the foot in the door to secure higher value contracts or become the go to subcontractor for environmentally conscious clients.
Jacob Austin 00:10:24 And there's another hidden benefit. Because implementing green measures often forces you to optimize your own processes, be that reducing materials or thinking about lean construction techniques which can boost your internal efficiency, reducing scrap and waste, and even streamline your own procurement. Over time, these little gains can add up and perhaps even surpass the initial premium for sourcing those eco friendly materials. Now let's turn and face things from the other end. Consider taking a proactive stance rather than waiting for sustainability demands to fall in your lap. What if you propose green solutions that benefit the environment and your client's bottom line? You might well be able to do this through value engineering, and that's about finding cost effective and hopefully high performing alternatives that either meet or exceed the initial design. Often this revolves around materials, construction methods, and sometimes also logistical approaches. When sustainability enters the equation, value engineering can highlight eco friendly substitutions that still deliver on quality and function. The most straightforward types of these is where you can do a straightforward material swap, perhaps proposing locally sourced and responsibly grown or manufactured products to reduce both carbon footprint and transport emissions.
Jacob Austin 00:11:48 You're cutting potential cost in freight, and you might score extra points under requirements such as Brian for sourcing locally over placing an order with large national suppliers. Sometimes there's a modular approach that can be taken. Certain assemblies can be manufactured in a factory with a bit more of a conveyor belt manufacturing approach. This can speed up installation, lower site energy costs, and there's often an added benefit of more consistent quality. Material lifespan is also an important factor. So if you can pick a product that you can show has got a demonstrably longer lifespan, then over a building lifetime it needs to be replaced less often with obvious reductions in reinstallation costs and also the disposal of the existing products. This is particularly powerful if you've got data to back up what you're saying. Clients really appreciate data driven insight, and if you can demonstrate that the total cost of ownership is better, then the potentially open to paying more money in the first instance to save themselves money longer term. When you propose a V option, you need to do so in a really clear fashion so that the client or the contractor can see exactly what they're getting.
Jacob Austin 00:13:02 They know you're offering an alternative product and tell them how that product is going to benefit them. So provide data sheets show a clear difference in either the purchase or the installation cost, and give them the data around the environmental impact. That might mean quantifying the carbon reduction or the saving in waste, if it's possible, and emphasize that this isn't about cutting corners, it's about selecting smarter materials for longer term gain. Presenting these as a structured and professional proposal enhances your likelihood of them being bought into. And it also works reputationally as well. You look and sound like you know what you're talking about, and the contractor will appreciate your collaborative and forward thinking approach. We've discussed that many clients already have sustainability requirements, but what if you see a project that hasn't spelled out environmental targets yet? You suspect that the client might want them anyway? Well, being proactive might set you apart. So asking about sustainability goals during the tender stage might get you an added edge. Questions like are there any environmental performance indicators that we need to be aware of, and how important is waste reduction or carbon footprint management in this project? You may be able to brand yourself as a green and sustainable partner, particularly if you're able to obtain green certification such as ISO 14,001 for environmental management.
Jacob Austin 00:14:29 And if you do get that, you want to highlight it and show successful case studies of previous projects where you've reduced waste. Or used cutting edge, eco friendly materials. This can make it easier for the contractor or perhaps a client, to justify awarding you a package, maybe even at a premium over others, especially if they're under pressure to pick contractors that perform and that can demonstrate that they walk the walk. But the key with this is to be authentic. If you can claim to deliver X amount of recycled content, then you need to be able to back that up, because over inflating your green credentials can damage your credibility. And some of this is going to come down to that quantity. Surveyors old favorite of records, keeping records of what you sourced, along with relevant certifications and test data, not only shows that you walk the walk, but you've got a piece of paper to back it up. Now that we've discussed some of the upsides, let's mention some cautionary tales because not everything is rosy.
Jacob Austin 00:15:30 Sometimes eco friendly materials have longer lead. In times, maybe they're not manufactured as often, or they come from smaller, more specialized suppliers. And if you're not careful, a late delivery can blow your program to pieces and perhaps lead to damages. So your suppliers, if necessary, try and build in some contingency and time requirements for specific custom products or green products if you know they're coming from a less established supplier. Make sure you're communicating these to the main contractor. Smaller suppliers may be less financially stable, so it bears doing your due diligence on the company accounts and having open and frank discussions with them about if they can definitely supply what you need, particularly if demand is high from a supplier who is fairly small, then price fluctuation can be an issue also. Sustainable products can be subject to price hikes. So considering the cost of certain materials or perhaps if there's any volatility in the marketplace on these items. Looking into this, you should be able to inform yourself whether you need to build in additional contingency, or perhaps consider limiting the amount of time you're fixing your price for so that you're sharing the burden of that with the contractor.
Jacob Austin 00:16:46 Another burden from sustainable practices can be the extensive paperwork that's required to demonstrate that you're carrying them out. This might be logging daily energy usage or reporting monthly waste figures. This is something you need to be aware of and factor in the time and the cost of complying with that when you're bidding. If the client demands some elaborate reporting, then request clarity. Do they provide templates and is there a way for you to render down the admin work that you have to do to keep your costs at a minimum? We've all seen changes in building regs and those have been numerous just in the last ten years. And requirements are becoming more stringent all the time. And these are easy to trip up on. A project that is sustainable today might be seen as behind the curve in just a few years time. So this means that you need to stay informed of upcoming legislation and potential trends, and this might actually help get you an edge over competitors. For example, if you know that in another 18 months time, there's likely to be a rule on embodied carbon in concrete, and you think that's going to weave its way into your projects.
Jacob Austin 00:17:51 Well, you might be able to explore low carbon mixes now, build up some expertise around it and a network of suppliers ahead of time, particularly if you can build up some trading history with these suppliers and perhaps get preferential treatment in the future. Working with new materials sometimes comes with new requirements, and that might mean that more training is required for your operatives. Otherwise, you might be looking at poor installation requiring remedial works and sometimes replacement altogether. So bear in mind if you're using cutting edge products, that you need to have the right labor with the right skills to install them. Now, in construction, we're no stranger to a dispute, and there is potential over sustainability issues for disagreements to arise, perhaps you need to make a particular rating or supply a certain material that complies with the green spec. And this is, as I mentioned before, where the quantity surveyors friend, that fabled record is your absolute friend as well. Keeping robust records of materials you used, including potentially your manufacturers certifications and including delivery notes and any compliance documents they might provide, is an absolute minimum.
Jacob Austin 00:19:04 Sometimes you have to rely on a contractor's approved supplier list, and if that's the case, then keep evidence of who told you to use them and which particular supplier they directed you to. As I mentioned before, there is some volatility in the marketplace around small suppliers offering niche green products. So be aware that they might cause delay and if necessary, be prepared to submit delay notices to secure those all important extensions of time and to mitigate any liquidated damages. The important thing with delay is not to leave it until the last minute. The main contractor doesn't want their job to be delayed, so often they'll step in and try and help you if they can. But if you're notifying them at the 11th hour, obviously their options are at a minimum. So act fast and try and approach it in a collaborative fashion, and you're more likely to find the contractor works with you to find a solution. Some final thoughts before I wrap things up. You might look at sustainability as a burden, but if you approach it in a strategic fashion, it can be a powerful tool for you to differentiate yourself in a competitive marketplace.
Jacob Austin 00:20:13 View any green obligations as a chance to innovate. If you can develop expertise in a new method of construction, then you can pitch yourself to clients with high sustainability aspirations, and having a specialization that you can turn your hand to could translate into more premium rates and the greater profitability that goes with that. You can use your sustainable construction experience as marketing and brand building material. If you can highlight carbon savings, show comparisons for perhaps before and after waste volume management, or percentage of material diverted from landfill from a typical project before you started green initiatives to afterwards, or use a case study to demonstrate how you achieved a premium requirement for a client. All of this is great marketing material, and it will really resonate with an ever growing audience that favors sustainable behaviors. And you can also use it as a relationship builder. If you can collaborate with a main contractor or client to help them achieve sustainability goals. You don't just become a subcontractor, but hopefully a strategic partner who helps them to solve their problems proactively. And that is the kind of relationship that opens doors for repeat work.
Jacob Austin 00:21:29 Mutual trust and fair dealing with each other. So good luck with your sustainability goals. And thanks for tuning in. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's show, I'd love it if you'd share the show and pass that value on to somebody else who would benefit from hearing it. And of course, subscribe yourself if you haven't already. Don't forget, you can find us at www.QS.zone and we're also on all your favourite socials again at @QS.Zone. Thanks again! I've been Jacob Austin and you've been awesome!
