13 August 2019
The construction industry is caught in a self-fulfilling prophecy of low expectations driving clients towards protective procurement models focused on lowest cost rather than best value. The industry knows this needs to change, but there are significant challenges in embedding better business models, not least in convincing clients to invest in new approaches to procurement. Leadership is needed, but who will step up to the plate?
We all know that relationships in the construction sector are primarily built around transactional models which allocate risk and reward in the form of contracts, sub-contracts and appointments. The British legal system focuses very much on the letter of the law (i.e. the specifics of a contract) rather than on intent (which is more common in European Legal systems) and so it is entirely logical that over time the industry has shaped itself to deliver against those specifics.
Unfortunately, this has made bad and unsustainable business models the norm, characterised by a culture of risk divestment, slow payment, adversarial claims and under-pricing of work to win projects. Inevitably this is followed by the subsequent abuse of contractual mechanisms to re-build margins. The result is an industry that is too often focused on managing its own tribal relationships within the construction process rather than delivering value to clients and society at large.
No surprise then that many clients view the prospect of commissioning building work with some trepidation. There is an almost universal expectation that building projects will go over budget and be late – an expectation that is all too often proven correct.
These low expectations in themselves fuel bad behaviours. It is normal for client-side project managers to squeeze budgets to create headroom to manage cost overruns; squeeze programmes to create ‘float’ to address delays; and focus on driving down costs to the lowest possible level in order to demonstrate value for money.
In combination with the construction sectors own structural problems this makes for a vicious and toxic cycle, based on negative business models which tend to make failure more, rather than less, likely. These failings have been long recognised and understood, but change has still been far too slow to take effect.
I would argue that this is no longer acceptable. We need an industry that from top to bottom is capable of building safely, sustainably and which delivers genuine value to society as a whole. This means moving away from transactional business models focused on discharging contractual obligations, towards value-based business models which understand and reward projects delivering value across the lifecycle of the building.
That change must start at the top – with a client willing to lead by example. A client that has a large property portfolio and a large budget, a client that everyone in the industry wants to have as a customer.
As financier of 40% of all UK construction work the Government could choose to do this and may be the only client with enough mass to drive real change in industry business models. Investing marginally more up front to deliver better quality and performance will deliver significant savings to taxpayers in the long term. This would fully justify shifting to procurement based on life-cycle performance rather than lowest capital cost.
More importantly, reformed procurement would help better business models to thrive – construction business that are focused on delivery and performance rather than discharging contracts and meeting minimum standards of compliance. An industry that can invest properly in research and development and has a genuine appetite for continuous improvement. Whisper it quietly – an industry that is great at building, not just contracting.
In the aftermath of Grenfell tower, in the shadow of a climate emergency, in the midst of a housing crisis, there is an appetite for change in the better parts of our sector and a pressing need for fundamental reform. Government should be brave and cast aside the shackles of short term thinking to become the client that the industry, and the nation, needs.
And it should do so now – there is not a moment to lose.