Do you still care about Rethinking Construction?
Apart from a sort of observing interest, no.
Do you miss being in the political fray?
Not really, no. But on the other hand, I did enjoy the construction industry. I was surprised when we did Rethinking Construction that such a stimulating and interesting industry had got into such a tired state, in which people were defeated before they started.
Do you think you have made a difference?
I think we, the major clients on the panel, were quite clever. We said: “Well, here’s how we think we should do it, and we’ll put £300m of schemes in as demonstration projects to show what we mean.” The industry couldn’t throw it away because it would be throwing away £300m. But I was delighted to see that in the end £3-4bn of projects that could subsequently be used as demonstration projects were created. I went to the Movement for Innovation conference last year and was very impressed with the projects I saw. The higher quality companies seem to have embraced it and seem to be making a lot of progress. In the longer term, it’s bound to filter through to everybody, I imagine.
What, even local authorities?
A few local authorities, such as Manchester City Council, Camden and Hackney, have embraced the principles. So I assume that, in the long run, it will filter down to all of them.
What about national government?
I can see that a number of departments have been dragging their feet. But even the Treasury has recognised that these quality relationships involved in partnering and so on achieve better results. Don’t forget there was a lot of risk associated with Rethinking Construction, from all points of view. At least the policy of accepting the lowest quote from three tenders apparently had some transparency, but the idea of relying on the quality approach from your supply chain was new, and people were quite frightened of it.
Smaller firms are worried that local authorities will just choose to work with larger firms that market themselves as Eganised. What do you think?
Construction companies have to start meeting their clients half way by demonstrating what value for money means. And clients have to get interested in understanding value for money and making comparisons with other people doing similar work.
Most people who agree with the principles of partnering think that framework agreements should be narrowed down to two or three contractors, as clients don’t seem to have enough work to go round.
I think that’s right. At BAA we thought trying to teach three or four supply chains was too much; the only way we could do it was by keeping a single supply chain in continuous work.
Some firms that bid for BAA framework contracts took exception to the rule that they had to freeze fees at a time when they had to pay more to hang on to staff.
I think it’s everybody’s duty to achieve productivity improvements that are greater than wage inflation. Partnering gives people the freedom to put plans in place to reduce long-term costs.
QSs have voiced fears that partnering relationships conducted away from the chill wind of competition will lead to “cosiness”. Anecdotal evidence suggests that some firms put their B teams on those contracts, while their A teams go after new, more interesting business.
Of course it will lead to complacency if you just leave them to get on with it. It won’t if, like Tesco or Whitbread or BAA, you insist that all your contractors and suppliers reduce cost and improve quality every year. And if they don’t, you change them. No, this is not a cosy relationship; this is a difficult relationship.
Some argue that BAA, as a privatised quasi-monopoly, doesn’t have the same kind of commercial pressures as other clients.
BAA has competition overseas because it runs airports all over the world, and it has to make sure everything it does is competitive. Its prices – landing charges – are going down every year, so it has to increase productivity every year. It expects suppliers to as well – it’s obvious.
A prominent QS has voiced fears that when you get whole supply chains working together over long periods, in relationships based on discretion rather than lowest price, it makes room for collusion in cost discounts that are hidden from the client.
That is why clients need to be alert and continually get their suppliers to generate improvements. Of course, it is much more difficult for clients of one-off buildings. But there, the supply chains have got to be able to demonstrate that what they are doing is absolutely competitive and better than anybody else.
Architects and QSs have argued that a team that has done a great job should be rewarded with repeat business, even if it is more expensive than another team.
I think part of doing a good job is improving on the cost of the previous one.
How would you respond to architects’ concerns that the Egan report does not distinguish between subcontracting of products and intellectual services? They worry that, with the increasingly close collusion between client and contractor in achieving lean construction, they may be squeezed out of the loop.
At BAA, we were continually worried about how we could best reward architects for doing a high-quality job. We used to pay them by the hour, which wasn’t a good idea because they often wanted to design things that didn’t need designing. There is no question that the design team can do a better job for you if they design for a known supply chain. You don’t want your building to be a series of random bits put together; you want them to be designed as a whole. It’s difficult to work out a way of paying designers in terms of their value added. But I do know that a disciplined supply chain working well together on a continuous basis will find a way of resolving these issues.
You are quite close to John Prescott. Are you getting involved in any more government initiatives?
There is one, but I can’t say anything about it.