Administration
There are considerable challenges facing the construction industry.
Insolvencies are still a significant risk to us all despite dropping around 2.7% when compared to a year ago. That is still in excess of 4,200 companies within the UK with 58% of those being specialist contractors. We haven’t seen the full impact of ISG going to the wall yet but, with revenues of £2.2bn and their net profit being only £11.5m (0.5%), you would have thought they were a reasonably safe bet at the procurement stage. Blame was laid at the door of legacy loss making contracts on the lead up to COVID. The ISG administrator has found £35m to pay down £1.1bn of debt, this will have a massive impact on the supply chain.
SME’s face so many extra barriers from closed procurement frameworks and tender thresholds beyond their reach. A significant factor contributing to the number of SME developers reducing from 12,000 in the late 1980’s to around 2,500 currently. These companies are no greater risk. They are often not judged on a level playing field but still successfully climb a steeper hill in order to achieve positive results.
Should our New Year’s resolution be to change as an industry, if so, what do we do? How about more closed frameworks or enhanced retentions? Does that help or protect the status quo? Closed frameworks restrict opportunity and choice, enhanced retentions impact on cashflows whilst offering little protection. Insolvency costs will increase by at least RPI from the original tender award and suffer additional risk and remedial work costs increase as high as 70% of the original contract value. So ‘big’ too often does not provide the security you think it may (Connaught, Carillion, Rock, Buckingham, Henry Construction, ISG etc.). Here are some scheme risk triggers to help you navigate the stormy waters we are currently sailing:
· Drop in quality standards.
· Scheme delays in the absence of any relevant events/matters.
· Aggressive claiming on variations.
· Requests to renegotiate contract terms.
· Staff and supply chain turnover increases.
A proactive approach such as accelerated valuations which can be done simply and efficiently whilst still only paying for goods or services that you have received? Then there is direct contract awards to a point where value for money can be demonstrated through current value for money statements. Escrow accounts also facilitate confidence commercially. We could evaluate companies based on their current financial health, turnover and quality standards rather than promote commercial ceilings within tender conditions that exclude competent SME contractors.
Then of course there is the less used, but reassuring, pre-award and mid-scheme insolvency audit.
If you are interested in this option, for more information on the services we offer, get in touch.
So, fingers crossed, a happy and prosperous 2025.
Richard Whittaker, Director
Email. Richard@whittakersconsultancy.co.uk
We are delighted to welcome Mike Doolan of LoCaL Homes as the new chair of our Social Housing Forum.
With nearly 7 years in MMC timber frame, Mike is currently with LoCal Homes who are a are part of HA GreenSquareAccord, Delivering social & affordable housing across the UK.
Mike previously worked for Roe Timber Frame (STA Member) and Castleoak Timber Frame – Part of Castleoak Construction – specialising in construction of Care Homes.
Mike has 25 years experience in Structural Precast Concrete delivering Offsite MMC precast to Residential, Care, Education & Hotel / Retail sectors.
He has held middle to senior management roles. Sales Manager, Business Development & Partnerships manager, Operations Director and is an established and well networked professional with a wealth of sales, commercial and operational delivery experience across the various construction sectors.
Mike was also Chairman of the Welsh Concrete Society and Chair of regions & clubs.
Welcome to 2025! I hope everyone is well-rested and ready for the new year to come. We don’t know yet exactly what it will bring, but some challenges are already clear and indeed have been clear for quite some time.
For example, at the end of last year, we learnt two things about housing. First, that the Government has the ambition to see 1.5 million new homes delivered during the current Parliament, and second, that UK housebuilders do not think there are enough skilled people actually to build them.
This presents a major opportunity for capacity-building, but it needs to be the right kind of capacity. Certainly, we will always need some specialists in the wet trades, because the vast majority of our housing stock is made of bricks and blocks and most of it will still exist a hundred years from now. However, one of the best opportunities is in off-site manufacture, whether as components or modules.
The advantages of this are obvious. Compared with a building site, a factory can be safer, cleaner, can produce less waste, be net-zero in operation and more efficient. It is proof against bad weather and allows the same type of quality control which is achieved in the automotive and electronic industries – and quality control is still a challenge in traditional housebuilding. Done properly, it can remove the need for wet trades from site altogether by delivering weatherproof, fully wired, fully plumbed and even pre-decorated modules to site.
The UK already has a diverse ecosystem of modular house manufacturers but many of them are small business struggling to scale. The opportunity is for government and industry to work together in 2025 and beyond to grow this into a world-class industry that can play a major role in delivering those million and a half homes.
Finally, Local Government is a major stakeholder in approving, facilitating and sometimes providing social housing, which is one of the areas where supply is poorest. There is a chance for them, at all levels up to the Combined Authorities, to look for new ways of working in partnership with industry to build supply chains through innovative procurement, to complete the virtuous circle of local employment producing local housing to contribute to the national need.
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Well, if the Building Safety Regulator (BSR) – with the responsibility for ensuring the safety of buildings in England – has its way then yes, we will be embarking on a transformation of our culture.
The new powers of the BSR under the new building safety regime continue to be widely discussed. What perhaps has not been so widely examined are the statutory duties on the BSR itself to facilitate improvement in the competence of the industry and change our culture.
This month Martyn Jones examines how the BSR sees their role in changing our culture and how we as an industry should respond.
To start, what is meant by culture? It is a nebulous, imprecise concept, but is commonly defined as the way of life shared by a group of people, including their values, beliefs, customs, and ways of responding to life.
Within an organisation it’s seen as the set of values, ethics, beliefs that define its day-to-day operations and atmosphere, with “the way we do things around here” often being used to describe what it means.
Defining the culture of a construction project is even more complex given the diversity of our projects, the number of organisations making up a project team, and their often-different aims, objectives, culture, backgrounds, and ways of working.
Despite the challenges involved, the BSR aim to bring consistency, structure, and a common language and an understanding to what is meant by culture, maintaining it is “how we think, feel, and behave”, and that it is influenced by our immediate environment.
But there are wider social influences too – the economy, local and national government, and increasingly of course social media with its benefits, such as helping to raise awareness of social, environmental, political, and ethical issues. But also, its downsides such as negatively impacting on relationships, and creating a sense of detachment and isolation by reducing face-to-face interactions.
What about the BSR’s role in this? Given their roots in the HSE, they see themselves very much as setting the vision; monitoring and reviewing; supporting and facilitating; and working in partnership with the industry.
They aim to help us clarify and articulate at a high-level the factors that drive a positive building safety and compliance culture, and what this might ‘look like’. They want us to consider where we are now, and provoke discussion and reflection about what we can do to improve our culture. An obvious role here for Constructing Excellence.
They have identified the steps, as they see them, in bringing about this cultural shift, starting with awareness of the need for change, setting a vision, and showing how the core principles can be demonstrated in everyday practice.
In this they highlight the need for accountability and leadership and sharing best practice across teams, duty holders, supply chains, professions, trade bodies and with the BSR.
Then there’s ensuring appropriate practices across projects, supply chains and sectors along with competence and conduct – ensuring individuals and organisations have the skills, knowledge, experience, and behaviours needed.
They are looking to people across the built environment to take the lead and be accountable in driving industry improvements by raising awareness and understanding of the culture change agenda, self-assessing cultural maturity, and monitoring competence.
Given the high level of interdependence between construction organisations, they are calling for inter-organisational collaboration and the sharing of knowledge, expertise, and data. Mutually identifying and championing success, challenging and addressing poor behaviour and practices, and striving for sustained and continuous improvement.
We’ve been here before and, let’s be honest, found cultural change on this scale to be tough given our continuing infatuation with the traditional operating system and often transactional relationships.
The last time we saw such a call for cultural transformation was in the 1990s in response to the Latham and Egan reports. And yes, these did provoke some change in our culture and behaviours but the degree of change judged to be necessary at that time has not fully materialised.
What’s different now? Well, this time round the need for transformational change has been highlighted by our past failures now all too apparent following the Grenfell Tower fire and the publication of the Hackitt Review, the Public Enquiry, and the need for a new Legal Framework.
Clearly, change is needed and is already underway with construction and property professionals having to grapple with new very specific legal duties and following more meticulous processes in the new safety regime.
But will the current call for cultural change, driven by the BSR and the new statutory duties being placed on clients, principal designers, principal contractors, and principal accountable persons be more successful than our previous attempts at such transformation? Perhaps making it work this time should be our collective New Year’s resolution for 2025.