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INDUSTRY COMMENT BSEE
How do we reform the construction delivery process? T
By Professor Rudi Klein, CEO, Specialist Engineering Contractors’ Group
he construction industry has been left reeling from the repeated battering of its image over the last two years. Last summer, I read 15 reports relating to the industry and published in the last two years. They start with the Farmer Review, published in October 2016. They include Professor John Cole’s February 2017 report on serious defects discovered in 17 Edinburgh schools, various Parliamentary reports on the Carillion collapse and, more recently, Dame Judith Hackitt’s report on building safety following the Grenfell tragedy. But the key messages were similar:
uLowest price contracting; uFragmented and disaggregated delivery processes; uPayment abuse and bullying of supply chains; uLack of any means for accessing corporate competence and capability; uFailure on the part of the industry to take responsibility; uLack of any auditing of delivery processes.
This is what Dame Judith Hackitt said about payment: “Payment terms within contracts (for example, retentions) can drive poor behaviours, by putting financial strain into the supply chain. For example, non-payment of invoices and consequent cash flow issues
can cause subcontractors to substitute materials purely on price rather than value for money or suitability for purpose.”
In the first quarter of this year 780 firms in the industry became insolvent – 20 per cent up on last year. Even if firms have not ended up in administration or liquidation following Carillion’s demise, many have had to curb plans for investing in training, equipment and plant. And on the horizon is Brexit. Increases in the cost of goods, materials and delays at ports are to be expected – all impacting on contracts. The priorities, as I describe them, are the ‘four Ps’.
Procurement
Construction delivery processes are inefficient. Appointments are made sequentially within a hierarchy of contractual arrangements involving different levels of sub-contracting. There are, on average, between 50 and 70 tier two contractors working on projects, with further layers of sub-contracting.
Each interface has to be coordinated and managed. Each firm’s pricing strategies have to take into account overheads, profits and contingencies. So the costs go up. We have to flatten the delivery structures by moving towards an alliancing process enabling all
parties to collaborate to achieve the best outcome.
For some years we have been promoting insurance-backed alliancing, which requires project participants to work together from the outset to agree a cost plan with the client that reflects the most cost- effective outcome. The cost plan is then insured. The insurer meets any cost overruns – subject to an excess agreed by the team.
This has already been piloted and it is hoped to achieve cost savings up to 20 per cent on project costs.
Payment
Here there are three matters to be addressed. uThe use of project bank accounts (PBAs). These enable all firms delivering projects to be paid from the same ‘pot’ (rather than payments payments passing through different levels of contracting). The use of PBAs must be mandated throughout the public sector. uWe must have legislation to protect retention monies. uWe must have legislation to mandate 30-day payment periods.
Professionalism
We must also have a licensing scheme requiring firms to be
accredited in respect of technical and business capabilities.
Policing
Dame Judith Hackitt’s report revealed the lack of effective enforcement relating to safety. More research is needed to come up with measures to police the regulatory framework governing building safety. Digital
technologies such as blockchain should be deployed to monitor and audit performance. All projects should have ‘smart’ risk registers tracking whether the appropriate risk management is being carried out. We also need a new authority to ensure that the necessary resources and leadership are in place to drive transformation of the industry. Poor practices need to be challenged and rooted out.
Summary
There is much talk about the industry being transformed by greater use of disruptive digital technologies and off-site manufacturing. But without addressing my ‘four Ps’ it is difficult to envisage any long-lasting change in the industry.
https://secgroup.org.uk
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BUILDING SERVICES & ENVIRONMENTAL ENGINEER DECEMBER 2018 27
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