A very expensive way of saving a few bob

A few years ago, I wrote a column for this magazine suggesting that traditional main contractors would find it increasingly difficult to justify their role. In a world of ever-tightening margins, I argued, why would clients share their profit with a middleman if they had the skills to manage the project themselves?

As it turns out, I was half right. In a lot of cases the big contractors have found themselves squeezed out. But although that’s created a bit of breathing space in the margin, it also seems to have formed a vacuum in the way building projects are planned and managed.

Like most things in business, it all comes down to money. With the economy talking itself into a slump, everyone has an eye on the bottom line – they’re focusing all their efforts on trying to get more for less. But is this really in the customer’s best interest?

Most jobs these days tend to follow one of two models. First, the “hardball” model, where clients chop 10% off the subcontractor’s costs and tell them to live with it; or second, the “delegation” model, where clients pick one of their subcontractors and put them in charge of co-ordinating the others – effectively playing the role of a main contractor, but for much less money.

You don’t need a degree in building economics to spot that both these models are flawed. In the first, squeezing your subcontractors too hard will drive away anyone who is good enough not to be desperate for the work. Good luck with that.

In the second, you’re asking someone who specialises in one aspect of construction to make decisions about other areas where they have no expertise. At best, this will create friction between your suppliers; at worst, it will lead to mistakes, delays and precisely the kind of budget overrun that you’re trying to avoid.

So, what’s the solution? The best place to start is by using the right people. Compromising on quality is never going to be a good way to save money in the long term – and if you cut your suppliers’ margins too far, you’re guaranteed to lose the quality.

The second point is that you should get those people round a table and talk to them as early as you can. There are always ways to save money on a project without compromising the build quality – but not if you keep it a secret until the last minute. If you’re straight with your subcontractors, they’ll help you find a solution that will keep the customer happy, as well as protecting everybody’s margins.

The final point is that there is no value in replacing one middleman with another that’s cheaper, but ill-equipped. Client companies who dispensed with the services of main contractors on the basis that they could do the job themselves need to take responsibility – and that means investing in skilled people.

You’ve only got to look around to see how wide the skills gap in the UK industry is becoming. It’s a gap that has been plugged, temporarily, by an influx of skilled workers from eastern Europe and the Far East, but this isn’t a sustainable solution.

As the economic balance shifts to fast-growing economies like Poland, Russia, China and India, the UK is becoming a much less attractive market for these skilled workers. So, where will that leave us?

It’s the same question that the health service and education sector have been wrestling with for years – and both have come to the same conclusion. To establish a sustainable base of skills, you have to invest in developing those skills at home.

Otherwise, in another 10 years’ time, we may find ourselves wondering why we’re paying higher prices for worse work. And straining the bath water to see if we can find the missing baby.