The Carillion collapse is a reminder that everyone loses from lowest-price tendering – clients, contractors, supply chain and workers.
Chris Blythe
“This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong,” said a statement from co-chairs Frank Field MP and Rachel Reeves MP after the board of Carillion appeared before both the Work and Pensions and Business Select Committees.
If such delusional behaviour is possible in one company, is there more of it about and who else is deluded? The companies stuck in a business model that does not work? Governments which think every complex project can be done on a competitive tender, lowest-price model? MPs who have never made a mistake?
In the Carillion case, the tragedy becomes very personal; it’s the many thousands of people who will be affected either through impaired pensions or unemployment, as well as the users of hospitals, roads and schools which Carillion used to manage.
It seems everyone “knew” that Carillion was in trouble, except the deluded few at the top. It’s easy to be critical. A time comes when any rescue plans have to be abandoned and salvage plans put in place.
That time was well past in Carillion’s case, as evidenced by the drop straight into liquidation, rather than administration. The taxpayer will have to pick up the tab.
Notwithstanding what everyone knew or did not know about Carillion, everyone is agreed that construction is not working. Other major companies around the world are experiencing problems.
Competitive contracting is a mug’s game, where everyone loses money eventually. It’s akin to gambling – only worse: it’s a bet for the client, a bet for the contractor, a bet for the supply chain and a bet for the workers too.
Without doubt a culture change is needed in construction, but how? Some would argue that we don’t have enough good people in the industry – with the right skills and right attitude.
The Hackitt Independent Review of Building Regulations and Fire Safety criticises the culture of the industry and the competencies within it. As an industry awash with professional bodies, way more than any other industry, there seems to be a significant difference between being competent, being qualified and being professional.
Professionalism can be hard to define but you know it when you see it, and there are plenty of competent people out there who operate very professionally but who do not have a string of letters after their name. Professionalism is not a question of whether you get fees or a salary, or whether you are trade or white collar.
Taking steps to change behaviours
In terms of culture change, the common factor across the world is the relationship with the biggest client: government. Projects are getting bigger, taking longer, with wider scopes and more complex supply chains and relationships. It’s equally delusional by governments to think they can continue as they have always done.
Unless governments take meaningful steps about how they behave and manage risk, then there is the very real prospect that if they want construction done they will have to do it themselves. Competitive contracting is fast becoming a lose-lose game; we need to make it a win-win. The alternative is to continue the collective delusion.
Comments
Comments are closed.
Chris Blythe has it exactly right. However, how do the people at the top get these highly responsible positions when, many if not all are not construction trained, qualified or professional enough to understand the industry. They all appear to be accountants!!
I don’t entirely agree here. Undoubtedly change is needed across our industry on many fronts. The Farmer Report “Modernise or Die” from the Construction Leadership Council paints a very stark future for the industry within 10 years. It is within this window that we must make substantive change or face extinction.
Whilst “Government” remains the largest composite client, it represents only around 25% of construction spend now, so their influence is limited to a select supply chain. So an appeal to “Government” I think is delusional. Administrations change, agendas change like a straw in the wind.
We have to take responsibility to fix this ourselves for ourselves. The problem is we are so fragmented. So who speaks for our industry? The CIOB? CLC? CE? CIC? RIBA? RICS? IET? ICE? CPA? and so on. A plethora of organisations each with their own view and agendas. Few are willing to set aside parochial ambitions and work across the industry in real collaboration. Too many will join the race to the bottom in an apparent attempt at survival which in the long run just leads to extinction also.
The threats facing our industry are very real now on a lot of fronts and few in leadership positions seem to really grasp this. The move to a data driven industry and digital transformation is going to shake a lot of trees to their roots, and will act as a catalyst for evolutionary change. The writing I believe is truly on the wall here. When a Google, Apple, or Amazon enters our industry shortly in a big way soon, they will do the equivalent of what iTunes, Amazon or Uber, did for music, retail and taxis. I think only then will people will sit up and take notice. But of course by then it will be too late for many organisations and businesses, and the race to innovate will be lost. Maybe we need another working party…….I’m joking of course.
Firstly, I feel aggrieved for the majority of the industry that it has taken the collapse of only one (albeit a big one) “contractor” to bring so much sense to the fore. For decades we have seen the decimation of the medium sized contractors that have been trading for 30+ years and built their business and reputations on being “real constructors” (see Colin Hardings article in this same edition). Nevertheless, we are at least seeing some true and meaningful comments as a result and this can only be commended.
“Competitive contracting is a mug’s game” everyone knows this, contractors, clients, their agents, their agents agents, etc. However, despite how badly it’s working, it is still working and that is the problem. We don’t have those individuals in the industry any longer that have the power and influence to make the step change to a whole brand new world. Thirty years ago we had PQSs that did weald such power and influence but over the last three decades even the RICS has reduced the PQS role to merely a desk jockey (probably ruffled a few feathers with that). PQSs, architects and constructors have all been so fractured into so-called specialisms that no single person or body has the strength to make a change.
The article, however, petered out with a whimper. To make such a bold introduction and then use the grande finale to simply state that it’s got to be led by the government is wrong and feeble. (Sorry Chris).
We need the CIOB to take the lead, we need the CIOB to speak to major client groups, to collaborate with the RICS, RIBA, ICE and the plethora of other representative organisations, to bring about this change. Currently, the industry still has the experienced (us old uns) people that remember when you dealt with a handful of white collar people and the contractor had his own workforce of joiners, bricklayers, plasterers, painters. More importantly when you had clients and their agents who collaborated in getting projects delivered. Call upon this experience to help bring about a change otherwise we are all doomed!
I would take slight issue. I dont think “competitive contracting” is the problem, it is competitive FIXED-PRICE contracting.
Fixed prices drive a whole host of undesirable behavioirs, and underpin most, if not all the symptoms identified by the various working parties.
The sad thing is driving for fixed prices does not lead to the lowest cost for the client.
There are much better ways to contract for a project (project alliances/IPD), and if this is not resulting in lower cost, faster, and better projects, it isn’t being done right!
I can understand why politicians like to use headline grabbing terms like ‘delusional’, but I’m not sure how beneficial it is for industry insiders to repeat this; effectively throwing stones within their own green house. Yes, professionalism is hard to define, but name calling isn’t a great starting point nor setting a good example.
Without question there were massive issues in the Carillion board room and I’m there are similar issues up and down the country throughout the construction industry and others. I don’t think there is anybody in the industry who would disagree. I’m not sure it is the responsibility of the government to remedy this.
The Grenfell disaster, collapse of Carillion and the housing crisis has put the industry in the spotlight, again.
If any more of our industry leaders would like to come forward with tangible recommendations following the great report by Mark Farmer, [Modernise or Die] please do so.
Sorry Chris, but I didn’t find your article at all useful.
It is partly a culture of fear, partly inadequate training (too many graduates too few indentured staff) and corporate amnesia.
I have to agree with Chris on this. Due diligence, what does it actually mean anymore? Is a due diligence model fit for purpose? People are operating on such low margins it actually becomes unhealthy for industry and business, great for the customer of course but with it comes this operating risk. And yes delusional is exactly the right word to use. So at what point did Sir John Egan’s partnering principles decide to leave the room in all this? My heart goes out to all the young operatives who aspire to make themselves professional in our chosen field and who have young families and mortgages. Is this the environment and the playing field we have to work in, what’s really really sickening is that top executives were selling their shares in bulk and in advance of the crash. It just smacks of unethical and immoral behaviour.
I fully agree with Chris Blythe. He went to the core of the problem and highlighted it.
I would like to add few points for the philosophy and meaning for construction. Construction is the oldest historical trade that is based on craftsmanship, skills and honesty in accomplishing the job.
With the rise of engineering education in the past 300 years, it turned to be the industry/trade that reflected the growth and development. The companies were classified between small, medium and large. Companies were prequalified and vetted before participating in any tender against their technical, financial and manpower capabilities. The employment was not an issue at this time since the construction team age ranged from 25 to 70 years old.
Since the wake of 2000 and afterwards, the mentality has changed. The small and medium companies started to disappear. New Conglomerate Corporates started to swallow the small and medium with more third party supply chain mentality to replace the engineering/innovation mentality. Employment for construction nowadays became blurry and not clear like before. There is no shortage of skills.
Having given over 40 years to this industry – and I know I’m not alone here – not sure it’s very helpful to label us as mugs!