Opinion

Construction should be a product, not a service

26 February 2018 | By Colin Harding

Carillion’s collapse highlighted the fragmented nature of construction once more. It is time to modernise and become an integrated manufacturing industry, argues Colin Harding.

Colin Harding

The UK construction industry is facing its greatest challenges in 70 years. But the collapse of Carillion, the quality issues in the housebuilding sector and Scottish schools, even the awful tragedy of Grenfell Tower are symptoms, not the cause, of this crisis.

That basic cause is the fragmentation of the industry, dividing construction into two adversarial parts: those on site – “real construction” – and the project managers, cost consultants and tier one contractors like Carillion who “supervise” the work – “virtual construction”.

Which is where it has all gone wrong. This virtual construction level doesn’t even “supervise” any more, they “administrate”. Some risk-averse contract administrators are now dumping the responsibility for doubtful or difficult details through contractor design sections in tricky forms of contract – cynically offloading their own and their client’s risks.

To compound this, some clients, contract administrators and larger contractors – not only Carillion – are specifying 90 or 120-day stage payment terms, forcing otherwise sound firms to take up credit management facilities with interest rates only just below margins. Then there are the interminable delays in agreeing payment for variations, and even longer to release insecure retentions.

This lack of respect for real constructors is one of the principal causes of the current rash of quality, reliability and solvency issues. 

Collaborative or combative?

What would make UK construction change? The only hard evidence is 25 years old, yet is frighteningly relevant. After the Channel Tunnel project, the BRE compared French and British performance using identical administration buildings on either side of the Channel, designed by the same UK architect. The French system produced better results in all seven categories.

Design costs were 25% less. Collaborative France finished on time, combative Britain had a 28% overrun. The French contractors’ profit margin was considerably higher.

The research showed that more than twice the numbers of management and supervision staff were involved in the UK process than in the more productive, profitable and competitive French industry.

“The lack of respect for real constructors is one of the principal causes of the current rash of quality, reliability and solvency issues.”

This is the principal reason UK construction productivity has since plummeted. The French system was and is based on a lean, collaborative and integrated management structure, without the unnecessary involvement of independent contract administrators and their lawyers.

But, like many others in construction over the last 25 years, the report, with its inconvenient truths, was quickly “buried”. This allowed “virtual” companies to build their position as principal industry contact with government and clients, while profiting from the process now known in contracting as “design and dump”.

The solution for real construction is to escape its service provider status by becoming a modern manufacturing industry, which takes control of the design of its own products through Integrated Design and Construction – Single Responsibility (IDCsr). IDCsr is a code of practice supported by the CIOB and is a totally integrated and collaborative procurement, design and construction management system between client and IDC Constructor (IDCC). 

An end to retentions

IDCsr unites the real and virtual industries, with the IDCC employing or engaging all the design and construction workers to deliver the project. The development of the detailed design involves the client team and the IDCC design team, all working with the trade suppliers, cost management, estimating and delivery teams. Total responsibility for the design and quality of construction rests with the IDCC backed by insured 12-year warranties (CM February 2017).

Payment terms of the IDCsr product sale agreement are based on pre-agreed stage payments through project bank account, made within three days of authorisation – subject to confirmation by the joint client and IDCC quality managers that the relevant stage has been satisfactorily completed in accordance with the BS:EN 9001 compliant project quality plan.

Retentions are therefore not required. IDCsr collaboration is by far the better way to do away with retentions than any legislation.

Colin Harding is past president of the CIOB and author of Integrated Design & Construction – Single Responsibility: A Code of Practice

Comments

Finally someone has found the words to define one of the fundamental issues within the construction industry.

The next question is have any of us got the courage or morals to do the right thing?

Paul Fitzpatrick, 26 February 2018

And Tier 1 contractors need to be constructors rather than merchants where they buy work from clients and sell it onto Tier 2s and suppliers.

Martyn Jones, 1 March 2018

In my 25+ years in the CIOB this is the first time that I have found an article that is bold, courageous and a the "call to arms" that many in the construction sector need. The industry I joined in the 80s is wholly different to the one that now exists. So much so, that I have elected to take a sabbatical from the industry because of my frustration with how many within the sector now feel that it should operate.

Mr Harding may be accused of harping towards the good ol' days but recent events with Carillion, the struggles of Balfour Beatty a few years ago and the decimation of medium-sized contractors in the industry is surely evidence enough that this current regimen does not work.
The only caveat, with so much of what this industry needs, the "real constructors" have little influence on their business strategies. Ultimately, the client and their advisory team are the ones that set the parameters in which work is procured and ultimately managed. Despite clients struggling to get tender returns, it is still only that, "a struggle", it is not impossible and there are "real constructors" still keeping afloat (barely) purely because they are able to secure work this way. A vicious spiral to the lowest common denominator that will only stop once the small to medium contractors have been completely decimated.
A real change is needed and I for one am willing to join the fight to bring about this change!

Paul Hannant, 4 March 2018

Colin Harding's article in March 2018 CM includes a paragraph not quoted above comparing tier one contractors to "virtual construction" where they merely "administer" and don't even "supervise" their projects, "dumping" risk on their supply chain. This has not ceased since the demise of Carillion but will continue as long as Government procurement systems systematically seek to ensure blame and responsibility is pushed further down the chain. The inherent flawed practices within Public sector procurement are the cause of the problem. Harding's article could/should have been written 20 years ago. If you keep doing the same thing you tend to find you get the same results.

Jerry Ball, 8 March 2018

I read Colin Harding's article with interest in this month's edition and I have subsequently ordered his book and read some of his previous articles. I found 'Integrate to Innovate', which was written at the height of the recession, to be particularly interesting. Colin essentially identified the recession as an opportunity for change. Instead, here we are, worse than ever and in the midst of a 'real construction' skills crisis whilst some incredibly talented professionals operate in the 'virtual construction' world.
I also recently read the "From Transactions to Enterprises" report by the ICE. There are some similar thought threads around the need for greater integration. Are there any plans for the ICE and CIOB to collaborate on initiatives like this to help drive some change?

Alistair O'Reilly, 9 March 2018

Thank you Mr. Colin Harding for your article. You are holding a candle of truth in deep darkness. You came to the point directly and define the real meaning of construction.
Every word you wrote is an evidence of what construction has become nowadays starting approximately 25 years ago in the reverse transition.
I hope construction returns back to its craftsmanship/product status with its profound respect to Clients, Engineering and Innovation.
Many Many thanks for your words.

Ehab Shallaby, 20 March 2018

The worst part for me is, those doing the design and dump, often enough have no idea of the risks they are transferring to a contractor, which remain in reality with the client, who is now risking not getting the project he expected.

All the cleverness of contract language won't stop problems from happening, and hoping others with inadequate resources and under pressure to make a profit will manage and resolve them to a satisfactory conclusion for all, is more than wishful thinking, it's highly risky and increasingly reckless.

Charles, 21 March 2018

Hi Colin, Is virtual another term for non value adding?

A Mafi, 15 June 2018

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