Toxic and dysfunctional industry awaits its revolution

The Times gave more space to construction and its problems in a series spread over three days in May than the industry has probably ever received at one go from a national newspaper. None of it was good.

The industry was characterised as ‘toxic and dysfunctional’ and racing to the bottom. A poorly configured supply chain, subbies on razor thin margins, poor procurement, ‘cosy relationships’, corner cutting and shoddy work, were among the undeniable accusations hurled at the industry by the Times.

The article thought the industry was trying to get its act together when the Grenfell tragedy struck. The fact is though that the industry is always trying to get its act together, but without much success.

Mostly the industry is ignored by Fleet Street, with even the business newspaper of record the Financial Times only really showing interest when listed companies report their results. Cynics might say that this suits the industry very well, as its weak performance and financial situation are better hidden. They won’t stay so well hidden for much longer.

The spotlight is increasingly on the industry since the Grenfell tragedy in 2017 and the collapse of Carillion in 2018, whose problems came as a major shock when they were exposed, despite being the most shorted stock on the London stock exchange for about a year before reality caught up and overcame the financial shenanigans that its Board oversaw.

There was little in the Times series that wouldn’t have been familiar to those familiar with any of the major construction magazines, but reading it was a stark reminder of the failure of the many industry reform drives that have been trumpeted over the years, starting with the Egan Report that was hailed as representing a turning point. It wasn’t. The Latham Report was the next notable effort in a long run of seemingly milestone studies that have all come to very little.

The fundamental issues remain – clients are convinced that the industry is inefficient and prices have to be held down; main contractors compete ruthlessly on price and take work with little chance of profits and sub contract what they can down the supply chain to those least able to shoulder the risk. Insurance companies can see what the outcomes are likely to be and this has helped drive insurance premiums beyond what some companies can afford.

Our Reports From the Courts article this month shows that the dangers of an uninsured supply chain can hit even the biggest projects, with one company liquidated and another in administration before the case came to court where a design sub contractor was revealed to be uninsured.

As to what to do about the problems the Times had little to say. Some improvements would be made to payment practices by ending retentions and using Project Bank Accounts for example. There was a consultation on retentions that closed in January 2018 but nothing has resulted from that yet and a proposal to protect retention moneys from insolvencies in 2019 failed after receiving no government support.

There certainly seems to be something rotten at the heart of the construction industry and tinkering with payment practices isn’t enough of a solution. The Times obviously feels that the industry is ready for some sort of revolution to take place. It can’t come quick enough.

Nick Barrett