After I had expressed considerable pleasure at winning our first major contract for a local authority, my grandfather said: "Wait until you've agreed the final account before telling me how pleased you are. Any fool can win a building contract in competition, but only a few can make them pay. Stick to working for people you know and trust." That sensible advice (unfortunately, not followed) was given more than 30 years ago, but is even more relevant today.
It is still so easy to be seduced into cutting prices below cost simply to follow the competition. It's even easier to agree to a maximum fixed price for a prestigious millennium stadium before the client has finished moving the goalposts or, in Laing's case, the touchline.
Despite the graphic lessons of the past 20 years, the majority of the industry's contracts won in competition are the result of mistakes. Whether the mistakes are accidental or deliberate, the majority of competitive contracts begin in the full knowledge of all parties that they are below their true value and that adversarial gamesmanship will be required to increase (for contractors) or further reduce the margin (for consultants). That is what the standard-form-of-contract procurement system is designed to achieve – and what many clients still expect.
The problem stems from the industry's macho culture that has developed as a reaction to the ridiculously high risks and stupidly low margins that open tendering encourages. This fuels the obsession with turnover that dominates our industry, contractors and consultants alike. Most construction companies that fail do so as a result of the deliberate buying of low-margin turnover, in the vain hope of disguising losses with high cash flow. They do it because their principals are too proud to admit that they were not making money and needed to change their policies.
It takes courage to admit to yourself and particularly to your peers that things have gone wrong and you are no longer the biggest or fastest-growing or most profitable company in your field. That statement applies to companies of all sizes, in all sectors, from the sole traders to major contractors and international consultants.
The industry’s macho culture was a reaction to ridiculously high risks and stupidly low margins
Joe Dwyer, when he was in charge of Wimpey, and Sir Neville Simms of Tarmac/Carillion, demonstrated such courage when they agreed to exchange their house building and general contracting businesses in 1996. Sir Martin Laing, as high-profile president of the Construction Confederation and chairman of Laing, needed even more courage to announce that Laing was pulling out of open tendering and concentrating on partnering, private finance initiative contracts and prime contracting.
As Laing is the undoubted market leader in the construction management of projects, its decision has focused the whole industry's attention on the need to change. More importantly, by walking away from adversarialism, it has shown everyone how to make that "great leap forward" required to implement Sir John Egan's rethinking of construction.
If Laing can do it, so can we all. It's not a question of pulling out of contracting; more one of moving into contracting with willing, competent and trusting partners for the benefit of both clients and the industry. It's a question of repossessing our own product and encouraging consultants and clients to work with us rather than against us.
Instead of whingeing that the Latham and Egan reports do nothing for them, smaller builders should be following Laing's example, taking courage and talking to their clients – direct.
All that is required is to forget the old inhibitions and conventions, pick up the telephone and explain to the client how the industry is changing for their benefit. Most clients are relieved to be able to talk directly with their builder and as we are only suggesting improvements to the service through partnering, what reasonable consultant could object?
Postscript
Colin Harding is chairman of Bournemouth-based contractor George & Harding.
