When Carillion collapsed a year ago, the construction sector was faced with a number of challenges. Shona Frame, a partner in the construction team at CMS, looks at the response from contractors and what the future may hold
ONE year on from Carillion’s demise, a new report ‘UK Construction 2019: What’s Next?’ commissioned by CMS in conjunction with business research group Explain the Market, canvassed opinions from 150 contractors across the UK. This sought views on the main challenges facing the industry, how contractors are responding to these and it also looked to the future in terms of where the market is going.
In terms of challenges facing UK construction, no single issue was identified by the research but rather respondents identified a blend of factors, mainly related to finance and risk allocation.
Suicide bidding and the race to the bottom on price remains a prevalent concern across the industry. Offering ‘best value’ within the tendering process is still considered by many to mean delivering the lowest capital cost of the build but ignoring the impact this approach will have on quality and lifecycle cost.
Main contractors are being asked to assume high levels of risk transfer although we are starting to see a hardening of positions on this. Employers are looking for comfort about the financial security of main contractors and seeking enhanced protection.
As highlighted in our report, there are a number of areas being developed by contractors in response to these challenges including better utilisation of technology, innovation, partnerships, collaboration and education to help make the industry more competitive and cost efficient.
Encouragingly, 70% of respondents said that their approaches to technology and innovation have changed over the last 12 months. The rate of technological change is enormous and major changes are happening all at once. This requires investment but that too is a challenge at a time when resources are tight.
Contractors are looking to other markets for ideas rather than the traditional construction supply chain model. They are looking towards more of a partnership based approach, for example with tech start-ups which can deliver process or engineering efficiencies to boost margins.
60% of contractors also reported changes to partnership and collaboration since the collapse of Carillion. One area where the partnering model was mentioned in particular was that of professional services support where provision of real time data about progress on projects and financial information across a portfolio of projects in order to provide early warning of issues is seen as beneficial.
A need for closer relationships across the public sector was also identified although this is seen as challenging given the sheer number of local, regional and UK-wide government agencies. Each of these has its own priorities, approaches and requirements meaning there is no ‘one size fits all’ approach and that building of relationships takes real commitment. However, an increasing focus on collaboration is seen as a route to greater rewards.
60% of our respondents considered education to be critical to the long-term health of the sector. The need for this was seen as being much wider than technical skills but involving leadership, team-working and innovation. The need to educate in relation to collaboration was a strong theme emerging from the report.
What comes across clearly in the ‘What’s Next’ report is the blend of complex issues at play across the sector today, one year on from the impact that was felt from the demise of Carillion. There are competing priorities, interests and challenges amongst stakeholders at all levels of the supply chain.
As ever, there are no simple solutions to these challenges but there is a clear need to continue the conversation to find an industry-wide approach to a sustainable way forward.