'An insane business model' | Paul Morrell on Carillion
Former chief construction adviser Paul Morrell on Carillion’s shortcomings.
When I spoke to Richard Howson, then newly appointed as Carillion’s CEO, to ask whether he intended to address its reputation as a bad payer, he professed not to recognise the firm I was talking about.
Whether it was ignorance or guile is for others for others to determine, but the reality is Carillion is not alone in having constructed its business model around the insane idea that the smaller players in the industry capitalise the larger ones.
“I don’t see any immediate signs of main contractors changing their business models – or of any serious consideration of a business model which focuses on value to the customer.”
At some stage, those who are not getting paid on time have to find the courage to start discriminating against those who do not pay and price differentially. Otherwise there is no reward for the good payers.
When it comes to clients, the last time I looked, central government was a very good payer but local government was not. In addition to talking sanctions against contractors, how about requiring timely payment by all public authorities involved in projects which have an element of central government funding?
I don’t see any immediate signs of main contractors changing their business models – or of any serious consideration of a business model which focuses on value to the customer – but it could be one long-term consequence of BIM, where the benefits of a more productive environment are unlikely to be captured by tier one contractors but rather trade contractors (who already enjoy better margins).
The direct delivery model is not, however, suited to major players in an industry where demand is both diverse and volatile – forces that demand flexibility in skills and resources. I suspect that if we see a customer-focused model at all, it will come from new entrants.
However, the collapse of a major firm, even one as big as Carillion, doesn’t mean the business model for a whole sector is over.