The government and its army of regulators and supervisors are gradually separating the best firms in the industry from public sector work. Both parties will suffer
Gordon Brown’s election shadow boxing last week and Alistair Darling’s associated Dutch auction of tax reforms has further dented the reputation of politicians and government. Two weeks ago it was suggested that this column should be about the “forthcoming election”. My reply was “Gordon Brown isn’t going for an election – he’s just tempting the Tories to announce policies so he can pinch them himself.” If only some of the business forecasts I’ve made in my career had been so right.
As we have grown to expect from Blair/Brown governments, the chancellor’s populist pre-Budget headlines disguise the underlying problems our economy faces – the increased stealth taxes and the government’s left wing, anti-business spite. There’s going to be less money available to spend on construction in the public sector. That means pressure on real construction to reduce margins. But its designers, contractors, specialists and subcontractors are already struggling to achieve minimal margins, let alone receive payment or recognition for the total responsibility for the project that is offloaded by virtual construction.
It is the supervisors, service providers and regulators of virtual construction who are paid to force down prices on behalf of the government. Such generous patronage by government has driven their expansion and profitability in recent years, at the expense of real contruction’s margins In return, virtual construction has encouraged government to impose increasingly complex regulation and bureaucracy because it helps drive its fees.
Take, for instance, the Building Regulations. In 1980 Michael Heseltine “simplified” the then empirical Building Regulations by doubling their size and complexity. Successive governments, and now virtual construction, have continued that process so that for some jobs you need a doctorate in physics to be able to undertake the largely hypothetical calculations. So real construction has had to employ virtual construction consultants to do it.
There is no valid reason why the Building Regulations can’t be properly simplified so they can be understood and applied by the firms that are actually doing the work. This is a clear case of going back to empirical basics so that regulations can be executed by practitioners without the need for consultants with complex (dodgy) software.
Ten years ago, Sir John Egan deduced that the inefficiencies that the adversarialism of virtual construction creates added more than 50% to real construction’s costs. I believe that figure now to be nearer 60%. We cannot continue to ignore that level of waste.
My concern is that as the downturn starts to bite, the division between virtual and real construction will create
Yet in the whole of that 10 years I can’t recall one sound economic argument for the retention of virtual contruction’s fragmented, adversarial, externally supervised construction industry or process.
Now here’s a challenge to virtual construction. Instead of discrediting and obscuring the integration argument of reformers, can you come up with a costed defence of how fragmentation and adversarialism reduces the overall cost of construction, while improving the quality of the service? We know from experience that this can be achieved through collaboration and integration, so put up or integrate.
My concern is that as the economic downturn starts to bite the growing division between virtual and real construction will become a split, creating two separate industries – 40% virtual for the public sector and 60% real for most private sector work.
This is not alarmism. It is simply a recognition of what has been happening over the past few years. Government and virtual construction together have deliberately cut most of the real construction industry out of public sector work. These are the well managed medium-sized and smaller contractors and specialists who train and nurture most of our direct labour, and the competent subcontractors that had previously looked after our public sector estate.
Government must exercise positive discrimination towards smaller firms in all public sector work below, say, £3-4m in value, keeping virtual construction well away. The solution is tried and tested: smaller builders operating design-and-build contracts with direct responsibility to the client. Virtual and real construction must then be merged if we are to salvage the efficient, collaborative modern construction industry we all need. Politicians, bless them, need not apply.
Colin Harding is chairman of Bournemouth-based contractor George & Harding