The absence of leadership in construction is deafening, says Rudi Klein. Who will step up to drive through the industry’s urgent agenda for change?
Within a period of 12 months the image of construction has been battered to a pulp. Yet there isn’t a coherent voice coming from the industry that is providing leadership and a way out of the crisis.
In February last year Professor John Cole’s report on his inquiry into the dangerously defective masonry in 17 Edinburgh schools condemned the lack of competence and accountability in the industry. In December Dame Judith Hackitt’s interim report on her inquiry into the regulatory framework governing building safety deplored the lack of an integrated delivery process.
And to cap it all, we had the Carillion collapse revealing to government and public at large the dirty underbelly of construction. Many have compared Carillion’s operations to a Ponzi scheme – robbing Peter to pay Paul. In fact Carillion had perfected the art of holding onto the cash of its supply chain. Firms paying “commissions” to get work. Others being sucked in by being given loads of work and then put out of business because they were paid either late or not at all.
Over the past few weeks I have been asked many times: why did public sector procurers select Carillion and other companies like it? Answer: many construction procurers do inertia better than anybody else
Firms in the supply chain had no idea who were the ultimate masters or clients. Neither did clients know who was in the supply chain. For example, G4S would contract government work to Carillion, which would then subcontract it to another firm – and this subcontracting would continue on. UK construction has become the outsourcing capital of global construction. And we wonder why UK construction is so costly.
Carillion – like many other large companies – was an empty shell or facade. It did not have any connection to a product. Therefore it was not held in check by any ethos that subscribed to professionalism through enhancing the product for the long-term benefit of its clients. Instead it marketed itself, laced with plenty of management-speak, as promoting sustainable and value for money outcomes – all code for cheapest price. Lack of assets or resources did not matter. Jarvis was doing the same thing years ago, and look what happened to them. As an aside, the bidding process in the nuclear industry prioritises the ability to adhere to quality and programme before price.
The Carillion business model – using the supply chains as a receptacle for risk dumping – was contagious. In order to compete, many big construction and property companies have adopted this approach and are still using it. It needs to be dumped.
Over the past few weeks I have been asked many times: why did public sector procurers select Carillion and other companies like it? Answer: many construction procurers do inertia better than anybody else. They lack sufficient knowledge and experience to challenge what is presented to them. Often they are incapable of assessing the quality of the engineering input which, these days, forms the largest value element of construction and services delivery.
But where is the leadership in the industry to give a response to all of this? Answer: nowhere. Yet there is an agenda that demands change. Even the government seems to have woken up to this. Here is Greg Clark, the business secretary, speaking in the House of Commons on 30 January: “The lessons and the scrutiny of what went wrong in Carillion […] and in the oversight that took place across the whole of the public sector in terms of contracting, need to be looked at and will be looked at […] Whatever actions are required from that, we will take.” So, what changes are needed?
Firstly, we need radical change in procurement practices to embrace alliancing and also to allow for more SME participation. The majority of projects never come in at the price that was agreed at the outset, because cost plans are never underpinned by any robust risk management process. The whole delivery team needs to subscribe to that process. But, in spite of advice to this effect in numerous reports and initiatives over the years, it rarely does. While encouraging the industry to take up digital and manufacturing technologies it is vital that we now prioritise addressing the dysfunctionalities in the delivery process.
Secondly, we need radical improvements in payment security so that all payments for construction and services delivery are protected. Public sector procurers should now insist that the payment process commences much earlier to cover offsite activity such as design and assembly; this should be required all along the supply chain.
Thirdly, we need radical improvement in quality and standards through licensing reputable firms that can demonstrate the appropriate technical capabilities. Nearly every state in the US has a licensing system for construction works. Queensland, Australia, also has such a system, but it additionally requires firms to have a certain level of assets, which is a requirement too far – just imagine introducing that here: we could lose thousands of firms.
Finally, we need radical improvements in responsibility and accountability for what we deliver. This should embrace effective enforcement of regulations and standards.
Here is my challenge. Those with a drive and energy to take up this agenda should now come forward. Let’s not wait for another image-sapping disaster.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors’ Group