That said, like many others in the industry, I could have made more money if I had invested in the local building society. Many have criticised the industry for its lack of returns but the fact remains that there is something fundamentally wrong. We know it, the City knows it and the government knows it.
Successive governments have attempted to reform the way the industry operates – through the Latham and Egan reports – but there has been little tangible change.
Poor returns have significant knock-on effects on investment in research and development, training, safety and so on. Clearly, companies that are strapped for cash won't prioritise these things.
The problem lies at the heart of the industry – in tendering. This is accepted as the most efficient way to find a price, but it is perhaps not best suited to the complexity of the construction industry. In reality, tendering indicates only the scale of desperation afflicting those companies most in need of a contract to maintain turnover.
There is always a firm that will submit a tender, even if it loses money, just to maintain its workload. This has been the norm in the industry for some time. But such practices have a negative effect on the industry at large and have led to the impasse we are in today.
Even after tendering has been completed, and a contractor has been selected, the process of suppressing profit goes on. Renegotiation, as it is called, usually to meet the client's budget, further reduces prices and margins. It would be interesting to conduct a survey comparing low initial bids with final accounts. I would suggest that a £1m job is a £1m job, even if the bid is for £800,000.
Then, during the contract, with the inevitable variations, some firms try to edge up the margin. This is where the disputes arise – where that famous adversarial culture has its roots.
Like many others in the industry, I could have made more money if I had invested in the local building society
Partnering is an excellent concept, but it will only work if there is openness and honesty on all sides – an alien concept to many in the industry. So we find a variant on partnering: partnering in competition – a strange idea where you get one "partner" to compete with another.
Despite the failings of the industry, and the fairly bleak picture I have painted, I am faintly optimistic about the future. There are companies that are attempting to break the mould by refusing to take part in the tendering process.
My company, Maxwell Stewart, does tender but it refuses to cut its margins to secure work.
That may sound like business suicide, but our view is that we provide a good service. Why should we give that away? A good service is worth paying for, and we are beginning to see clients accepting that.
If the industry accepted that principle, not only would it restore reasonable profit margins but only those companies providing a good service would survive.
Several of my associates in other companies have correctly pointed out that the budgets prepared by clients' representatives do not reflect designs suggested by consulting engineers and the onus of reducing submitted prices falls on contractors. I would suggest that the people who know market prices best are those in the market, the contractors. Why do clients' representatives not involve contractors in setting accurate budgets? I would be happy to chair a meeting between all parties to debate the pros and cons. Why not?
With proper profit margins reintroduced, we could look at additional investment in training, research and development and safety. Everyone would be better off. Construction might even become more attractive as a career.
Postscript
Robert Stewart is chairman of Maxwell Stewart, a building services engineer based in Hertfordshire.
