The brave new world of transparency, benchmarking and ISDN lines
Somerset-based contractor Russell Construction has used negotiated Egan-compliant work to double its turnover in two-and-a-half years, from £2.8m in 1998 to a projected £7.5-8.0m in 2000. Housing association contracts account for 60-80% of its work; 20-25% is private commercial/industrial work. Business development manager Pete Harris explains what Egan has done for his firm.
It has not been easy to persuade our staff that Egan is the way forward, but now they see the benefits of moving away from a blame culture, because clients are happy to give us repeat work.
We offer a completely transparent approach. We show them what profit we need to make and the rest is shared benefits. We benchmark all our projects against key performance indicators or housing quality indicators.
We offer clients ISDN links into our integrated information management system so they can check our costs without us knowing. They can trace a bag of cement from when we put in the order to when we bankroll it, to see that we have negotiated the best price and not hoodwinked them. You have to be proactive in continually monitoring the process and then your clients will stick with you through thick and thin. It’s the best opportunity the industry has had to lose its tainted image.
Adopting Investors in People a year ago has been key to our success with partnering. You have to motivate people and engender a sense of responsibility for what they are supposed to do. The most important people in our company are the site managers, because they are closest to the customer. They dictate to the managing director what they want and when they want it. We’ve increased our training budget and 85% of our staff have had some form of training in the past two years.
The local authorities are trying to embrace Egan but they are not quite sure where it leads them.
The 140-year-old family firm that’s getting “a good crack of the whip”
T Manners and Sons, the 140-year-old Bishop Auckland-based contractor, turns over £4.0-4.5m a year. The family-run firm carries out new-build and repair and maintenance work for the National Health Service, local authorities and some private developers. Marketing executive Bob Harrison reveals Egan’s influence on the firm’s working practices.
The impact so far has been theoretical – there has been no practical use of the ideas yet. Nobody in the office has read the Egan report, but we are fully aware of it and all the directors are abreast of the issues. We do endorse what we have heard of it.
Partnering and being part of a complete team is important to us, so that we get rid of the adversarial structure. I am still going out picking up tender documents and bringing them in for pricing, and it’s a case of lowest price wins. If that can change, it will be good for the industry.
I think the theoretical part is about to become practice. What the NHS is trying to do is like a breath of fresh air. It is allowing the small contractor to bring together a team, use partnering arrangements and operate on an open-book basis. We totally agree with that, and it means small firms get a good crack of the whip. But it has to be client-led; the construction industry can’t progress without the push of the customer. We haven’t used partnering yet but we are in discussions with a private developer for a negotiated job.
The individual NHS trusts also seem to have taken the whole partnering idea on board. When we have meetings with them they know what they are talking about, which gives us some confidence that the new approach could work.
I don’t know how the new ways of working will affect profit margins in the future. The Egan report says you should be able to lower your price and still increase profit. That’s the theory – in practice, we’ll have to see.
St Albans maintenance specialist: Major players are using best value to squeeze out competition
St Albans-based Borras Construction has a turnover of £15m, 40% of it in negotiated contracts. Much of the company’s turnover comes from local authority repair and maintenance deals. Managing director Ray Borras gives his views on how the Egan principle of best value, now adopted by councils, has affected his company. It replaced compulsory competitive tendering and means local authorities have to select suppliers on value rather than lowest price.
Did the Y2K bug exist, as far as you’re concerned? It was a lot of hype that went overboard, and that’s what Egan is. Reforms are needed in this industry but we need to take a measured and controlled approach.
I work for 16 local authorities and none of them has done enough preparation for best value. We have to help them in the process because they are not enlightened about what is going on. I don’t think this headlong pace is the right way to introduce reform.
Councils need much more time to take the new regime on board. They haven’t researched its implications and they tend to jump in with contracting partners on a first come, first served basis without understanding differences in service and expertise. They will let contracts to firms that have done a bit of research and development on the Egan agenda. That’s not fair on firms like us that are benchmarking and have effectively had partnering arrangements for a long time, but that haven’t the resources to send people around the country talking about it.
Everyone is talking about partnering. But a context is appearing that it can only be done by major companies, that you can only develop a product with two or three contractors. That overlooks the contribution made by 85% of the industry. Large swaths of work are being put into the hands of a few major players that use a protectionist regime to guard their position, leaving whole supply chains dependent on a couple of people to get the work.
Meanwhile, instead of full-blown partnering, all that is needed to allow more negotiated tenders with small and medium-sized contractors is a tweak and a change in attitudes. There are intermediate measures that can be taken to give SMEs the flexibility to say, “Hang on, this isn’t going the way we want.”
Best value is the best thing that has happened to major contractors that have problems with their share price and profit margin, because they can mop up a whole truckload of work at a time.