You’ve only got to read our analysis of Dame Judith Hackitt’s review into construction and the ongoing plight of Carillion to understand that 2018 will be the year when the regulators strike back. Hackitt’s interim report into the Grenfell fire released just before Christmas is every bit as far reaching as we were expecting, although perhaps with fewer details than some were hoping for. Its recommendations are simple yet significant. Building regulations are to be overhauled, fire risk management is to be placed at the top of the agenda and the role and competencies of all professionals in the construction process will be scrutinised from top to bottom. Nobody is to be let off the hook, from clients to designers, with responsibility falling right the way down through the supply chain to subcontractors.
“Widespread deviation” is what Hackitt identified in her interim report – the yawning gap between how buildings are designed and what is ultimately built, with claims that contractors regularly substitute inferior products for what is originally specified. Design and build contracts have been singled out as a prime culprit. What’s more, Hackitt damningly reports that existing controls and assessments to ensure competence throughout the system are unclear and inadequate. Product manufacturers too have been put into the spotlight as needing to up their game with a call for increased certification and review.
Nobody is to be let off the hook, from clients to designers, with responsibility falling right the way down through the supply chain to subcontractors
Meanwhile, the ongoing saga of Carillion’s financial mess continues to capture the national headlines – the latest bombshell to hit has been news this week that it is under investigation by the Financial Conduct Authority. The watchdog is investigating the “timeliness and content” of a series of stock exchange announcements during a crucial seven-month period, which began with trading update badged as “meeting expectations” and ended in last July’s profit warning, including a £845m writedown. To date the UK’s second largest contractor has written off £1.1bn and it is expected to be carrying a debt of more than £900m.
Even before this latest setback, analysts were at a loss to explain what would happen next to the super-tanker contractor that many thought was too big to sink, but now looks as if it might be heading for the rocks. Sure, everyone wants to know how the firm will be turned around but just as stark a question is how the hell it was allowed to get into this state in the first place. And those on the inside will certainly be feeling the heat of the watchdog’s glare right now.
The mood was so different at the tail end of 2017 when at last there was some good news: the incoming white knight from Wates, Andrew Davies, would be taking the helm 10 weeks early at the end of this month. And crucially it was announced that Davies had been given until the end of the quarter by banks to fix the mess – just as the company looked dangerously close to breaching its banking covenants.
But now Davies’ task has just got that bit harder – he’ll have to deal with the probe while simultaneously scrambling together a rescue package by the end of March. Only once the investigation is complete and a financial fix is put in place – even if it’s only a plug to stop more water coming in – can Davies focus on rebuilding the reputation and profile of a once proud company which will, no doubt, come under increasing attack from its rivals over the coming months as everyone looks to grab market share.
But now Davies’ task has just got that bit harder – he’ll have to deal with the probe while simultaneously scrambling together a rescue package by the end of March
Davies is going to need to act fast and decisively to bring stability. But at the heart of both the Hackitt review and the Carillion saga lies an allegation of systemic failure in this industry. Whether it is one of financial regulation and reporting or the technical and process quality controls on sites across the UK. What will be fascinating to watch in 2018 will be how the government and regulators move on the findings of their reports and recommendations and in which manner the industry responds. The tone of Hackitt’s report and the anger heard from Carillion investors and partners suggests that the authorities will need to be turning to the stick rather than the carrot.
When it comes to fire safety, Hackitt is recommending that our industry should lead on the detailed solutions for setting standards. She wants construction to take responsibility and to throw off cultural norms that have been defined over a generation. But make no mistake, the government will be enforcing those standards with an iron fist from now on and a half-hearted response isn’t on. This is not simply a case of trade bodies producing best practice guidance documents for their members to fend off regulations. This time we’re talking about far-reaching changes in the law. The questions now are: what will they look like? What are you going to do about them? And how much is it all going to cost? Be ready.