Construction creates value, but business model needs to change
The systemic failure that created the Grenfell tragedy is a millstone around the industry’s neck (Image: Loz Pycock)
A CBI study highlights the value of construction to the wider economy, but reform of the sector is needed urgently, says Iain McIlwee.
A new report by the CBI shows that the construction industry is a vital part of the UK economy – but the business models that underpin it are breaking.
Fine Margins: Delivering Financial Sustainability in UK Construction found that every £1 spent on construction creates £2.92 of value – and yet the operating environment for construction companies is still precarious.
The CBI Construction Council has looked at the role risk allocation plays in the fortunes of UK construction. Poor risk allocation between clients and contractors prevents projects being procured and delivered successfully, and the industry structure leaves major contractors and their subcontractors especially vulnerable.
A rethink of the accepted wisdom in the industry’s business model is needed. As this report sets out, a series of behaviour changes are required across the industry to tackle the problem with risk and move towards a financially sustainable future.
It acts as a rally call on businesses to break from poor habits, and on clients to bring new behaviours to the table. It recognises that better risk management is the major enabler and looks at how risk is squeezed onto the supply chain.
The report draws out some inherently unhealthy practices. In 1932, it was recognised that contracts should be balanced and the Joint Contracts Tribunal (JCT) was born. It simply cannot be right that these contracts are often issued with pages of amendments that double the size of the document.
Clients should stop asking and we should stop accepting amendments to these contracts. If enough clients did this and the public sector led the way, we would make fix many of the problems overnight.
However, the CBI report doesn’t dig far enough into the supply chain. We need positive changes – like zero retentions and more time for planning – through each stage of the process.
The study also does not take the opportunity to reconsider how we value buildings. If we reward effective asset management, clients will give more consideration to how they manage and maintain that asset and, vitally, look in a more considered way at the reuse, recycle and rebuild options they can take. A typical building will have upwards of 30 refits in its life.
Finally, the report fails to offer solutions for the total systemic failure that created the Grenfell tragedy. This is a millstone around the industry’s neck. To this end, it was good to see the chancellor announce the creation of the £1bn Building Safety Fund last month. Measures like this are essential to rebuild trust.
Iain McIlwee is chief executive of FIS, trade body for the finishes and interiors sector