Construction Industry 2018 – a vital 12 months

2017 has been an interesting year for the construction industry. UK Connect look at what the next year could bring.

Grenfell Tower will be permanently scarred onto the public and the industry’s consciousness after the destructive fire on the 14th of June, that has so far claimed 71 lives.

Building Regulations are broken and have to be updated, but Grenfell must also lead to broader change in how businesses interact with the wider community. The hope is that in 2018 we will not only start to get the answers to the question about what caused the fire, but that industry will learn from the tragedy, so it never happens again.

The warning signs were there and it wasn’t the first time an incident like this has occurred. But it should provoke a lasting change in the way repairs and maintenance works, in particular, are carried out. 

A first report on Grenfell from the inquiry being led by Sir Martin-Moore Bick is expected at Easter, but it will be a long time before the lessons learned can be applied to businesses operating in social housing and the wider construction industry.Media coverage of the disaster gave a clue as to how this industry continues to be viewed in the wider public. The rush to blame construction companies in the aftermath of the incident was borne out of peoples’ perceptions of this industry being entwined with negative connotations around the ‘builder’ being a ‘late, lazy, cowboy’ or whatever epithet you choose to use.

Next year has to be a defining period when this changes and some of the work being done through the construction sector deal can help to make this change.

 

Striking a deal

Different iterations of government have different ways of showing their respect for the contribution the construction industry makes to the economy and wider society.

For Cameron and Osborne it was hard hats and site visits; for Theresa May it’s been a (welcome) focus on housebuilding albeit still too much in the way of stoking demand rather than supply. 

Now the message appears to be finally getting through to central government as a whole. The construction sector deal has taken great effort by Andrew Wolstenholme in particular, while reports like ‘Modernise or Die’ by Mark Famer also appear to have had the desired effect.

None of it is rocket science. But there is enough of a groundswell of support now for a vision of what construction could look like, and it’s far removed from the present situation.

New ways of working

Government intervention can be a good thing. Yes, its commitment has gone off the boil after a great start on the BIM mandate for all central government contracts. But that mandate did stimulate private sector interest and investment. Advanced manufacturing, while not new, can be the next BIM.

Laing O’Rourke’s Design for Manufacture and Assembly losses and L&G’s troubles getting offsite off the ground are well known and are concerning. Perhaps Ray O’Rourke did move too early. But as one CN Summit delegate said last month, for the jobs with losses you hear about, there are many hundreds of successful ones that don’t generate the same publicity.

And that’s where government intervention can be a double-edged sword. The companies who geared up to deliver significant programmes of rail electrification work in CP5 were let down by schemes being delayed or scrapped. Flip-flopping on worthy, if flawed, initiatives like the Green Deal caused companies to fold.

The government, therefore, has to get it right. Rewarding construction industry companies who are trying to do business better is a good way to start.

CN is increasingly being contacted about poor payment practices among tier one contractors. Two or three repeat offenders are cropping up. They are creating good products, and are big employers in their own right, but it’s tempting to believe the industry would be better off without them.

It’s not necessarily the people running these businesses either. Some tier ones have entire cultures focused on being adversarial with their supply chains. This needs to change. 

High profile troubles

Carillion is a company that has done an awful lot right. It works with clients and supply chains to create world-class infrastructure.

But for a business that does so much to promote diversity, equality and opportunities for groups like ex-offenders, the way it has set about supply chain payments for accounting purposes has left many short of sympathy for its current plight.

And Carillion is far from the only one. This year saw several construction industry contractors get their comeuppance and tier ones, to a large extent, struggled.

It’s sad to say, but a negative average profit margin among the top 10 contractors by turnover isn’t even shocking anymore. Lord Adonis said contractors have had “indefensible margins cut down to size”, which was wrong, but tier ones have a battle on their hands to convince the wider industry of their merits beyond being able to build at scale.

Something has to give. 

Lakesmere’s failure in recent weeks was a wake-up call. The best specialist contractors continue to grow in stature and power in 2018, with design-and-build and single-stage tendering causing problems for clients and tier ones alike.

That one of the UK’s most prominent façade specialists could go under so suddenly was worrying. Businesses have to do better in 2018 and that starts with a wider recognition of the work specialist contractors are doing and the innovation they bring to the table.

It goes without saying that a resolution on Carillion’s future is the pressing concern for businesses owed hundreds of millions of pounds and for the thousands of employees there.

Carillion aside, I can see 2018 being difficult for tier ones and would not be surprised to see a high-profile failure or two, perhaps among companies exposed to the commercial sector, or firms with non-UK parent groups shrinking their UK businesses.

A defining theme of 2018 should be the wheat being separated from the chaff.

New rules around accounting standards, such as IFRS 15, gender pay gap reporting and publication of payment terms among big firms will all mean companies performing badly will be more exposed to criticism. Moreover, discerning prospective employees, particularly millennials, will likely look elsewhere for work.

 

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