Identifying £560k of margin improvement in a 4-week period

We were commissioned by a market leading and globally recognised façade specialist subcontractor to review a subcontractors variation account and identify any opportunities to recover revenue upstream or achieve cost reductions with the subcontractor. The value of the subcontract was circa £20m and there were approximately 1,200 variations which needed to be reviewed.

Recoverable or non-recoverable?

Due to the volume of variations, we thematically analysed the variation account to establish categories which allowed variations to be categorised. These categories were defined using a combination of our own experience, the subcontract agreement, and discussions with the client team. The variations were grouped as being either recoverable, potentially or partially recoverable, or non-recoverable. Those variations which were recoverable and potentially or partially recoverable were then further assigned to indicate why they were recoverable and who they were recoverable from.

We carried out a complete review of the variation account, working with our client’s commercial and operational team in a structured and organised manner, to establish the opportunities for revenue recovery or cost reduction. We presented this to our client and made recommendations as to options available to our client which included an assessment on prospects of success and implications of acting on the recommendations.

The outcome

We identified £300k of cost reduction opportunity where our client had paid items as variations which were included with the price agreed with the sub-contractor. This comprised £200k which could be immediately reduced and a further £100k which required further review by our client. There was circa £80k of potential charges to other sub-contractors and circa £180k of opportunity to recover revenue.

In total, we identified £560k of margin improvement through a thorough and robust review of 1,200 variations. We completed this in a non-continuous 4-week period, delivering a significant return on our client’s investment.