Overseas construction projects: why involving the head office is vital
13 December 2017
By Elisa Sofocli, UK global mobility lead - engineering & construction
For UK engineering & construction (E&C) companies, big overseas projects are a major prize to go for. But when these opportunities come up, winning the contract is one thing: making sure it’s profitable enough and also compliant for areas such as tax, social security, and immigration, to justify the effort is quite another.
E&C companies can have very ‘light’ head offices, consisting of functions such as HR, finance and tax. The real action goes on in the divisional business units, which tend to be segmented across different sectors and can operate very separately from each other.
This devolved structure is a great way to keep costs low, and operational and customer focus high. But one outcome can be that the divisions handle their own tendering for overseas projects. And here is where a close relationship and strong two-communication with the head office can be vital.
In my experience, the overseas projects that generate the healthiest profit margins while also being compliant tend to have a key characteristic in common - strong links with the head office function to support bid preparation, estimating staff costs and confirming local compliance obligations. This helps to avoid unexpected surprises further down the line with unexpected tax bills.
The number of people needed for a major construction project means even a small variation in the cost per head will quickly ramp up. Overseas taxes can be a particular minefield, and small changes in assignment packages and lengths can have major implications so forward planning is key. What’s more, in any E&C company of significant size, it’s highly likely that another division in the group will already have worked in the market where the project is located or potentially tendered – meaning that, if asked, the head office would be able to contribute valuable experience.
A recent case in point specific to the UK is the recent budget announcement that could mean the costs of engaging individual contractors through personal services companies could increase by c.14%, as well as being required to deal with additional administration. This is because the IR35 rules which were introduced for the public sector may be extended to the private sector.
If you’re an E&C company about to submit a bid for an overseas project, I would suggest working in partnership with your head office early on. It really does pay dividends.
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