11th September Journal Column

By Paul Wilkinson, Director, pwcom.co.uk

To many in the construction industry, late payment is a necessary evil. We almost take it for granted that some companies – often main contractors – will insist on long payment periods, but this credit can be abused as they find reasons to delay settlement of invoices until it suits them. This all adds to the cost of delivering construction projects, undermining the efforts of the UK government and other clients to achieve greater value from their supply chains.

Textura recently conducted a survey looking at the impacts of late payment. Opinions, which formed the survey results, showed that contractors often use the same excuses for not paying on time or not paying at all, such as; the director is on holiday or they haven’t received an invoice.  It is also thought that main contractors are leaning on their supply chain as a banking facility to command growth and bigger companies use late payments as a way of free financing from small businesses. As a result, many subcontractors have responded by inflating their tender prices to cover the costs they incur when their customers pay late. The survey was completed by over 100 respondents and, found that on average, 4 per cent is added to costs to cover late payment. The subcontractors surveyed did say that they would discount prices by an average of 2.35 per cent if contractors paid promptly – within 30 days. I fully believe that ‘digitising’ construction payment would be beneficial. As the industry is digitising, optimising and integrating collaborative design and construction processes (through BIM and other techniques), why isn’t it simultaneously digitising procurement and payment? It doesn’t quite make sense that we can manage complex 21st century logistical challenges, such as offsite fabrications, but many suppliers are still victim to out-dated construction payment practices.

While the UK has raced ahead with its BIM adoption drive, a quiet revolution has been occurring in the US relating to payment management. By streamlining and automating large parts of their payment processes, companies have managed to double revenue without recruiting more staff, save the annual equivalent of two members of staff and save project managers and the accounting team 210 man-hours each month.

While late payment is one of the most significant issues facing UK subcontractors, the US have shown that it can be tackled. Significant benefits might be achieved by forward-looking UK construction businesses that in turn could help add value to their construction industry clients, helping achieve the targets set out in the “Construction 2025” report.

18th September Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

The Construction Leadership Council (CLC) was created in 2013 to work between industry and government to identify and deliver actions supporting UK construction in building greater efficiency, skills and growth.

The Conservative government slimmed down the CLC in July, more than halving members from 30 to 12. The plan was to replace those with personal interests in the industry for genuine leaders, which turned out to be bosses of foreign-owned contractors.

Needless to say this hasn’t gone down well with the majority of the industry who all felt uninvolved, and rightly so.

However, the government may have redeemed themselves by restructuring the council once again, suddenly finding space around the table for industry professionals and suppliers.

They have announced six ‘work streams’, which will involve an industry expert taking charge of different sectors within the industry. Laing O’Rourke chief executive, Anna Stewart, will be in charge of ‘people and skills’, whilst Skanska chief executive, Mike Putnam, will deliver work on all things green and sustainable. Crossrail chairman Andrew Wolstenholme will focus on ‘smart and innovation’ which is likely to include Building Information Modelling, and BDP’s David Cash will concentrate on ‘exports and trade’. Strategic Forum for Construction representative, Simon Rawlinson, will be in charge of ‘industry communication’ and Bouygues’ chief executive, Madani Sow, has been given the task of improving ‘supply chain and business models’.

From contractors to suppliers, architects consultants and house builders, the council now includes a representative for everyone. Involving some of the industry’s leading figures will provide more, much needed, business-focused changes.

The ‘leaders’ of the work streams have been tasked with getting the whole industry involved in decision-making and changes, which won’t be an easy job, but it’s significant in ensuring the industry goes from strength to strength. It’s not all as doom and gloom as we thought earlier in the year when CLC members were cut, this is a huge opportunity for more people to be involved, not less.

The update came at this week’s Construction Industry Summit, which is organised by the Construction Industry Council to mark progress on the industry’s journey to the goals set out in the 2012 industrial strategy, Construction 2025.

There was a noticeable absence of government ministers, which was a shame; it would have been nice to see some government support there. The newly formed council may have the potential to impact the industry but without the government behind them many of their decisions or changes will be limited.

The newly-formed CLC will meet for the first time next month and I’m excited to see what they bring to the table.

25th September Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

The Department for Business, Innovation and Skills (BIS) published the latest Key Performance Indicators (KPI) last week and the results are not what we wanted to see.

The figures, which were compiled by BIS, the Construction Industry Training Board (CITB), Glenigan and Constructing Excellence, show that three out of five construction projects are delivered late. The industry’s ability to deliver work on time fell to 40 per cent this year, from 45 per cent in 2014.

The highest level of projects delivered on time recorded in the history of the survey was 58 per cent back in 2007, which sounds impressive compared to where are now; but it’s not really something to celebrate, it means that as an industry we only managed to deliver just over half of projects on time.

Another major concern for the industry came in the customer satisfaction scores, with customers rating their finished products an 8 out of 10 or higher on only 81 per cent of surveyed projects. It’s not much of a change from last year, just one per cent lower, but it now means that satisfaction scores have fallen for three years in a row.

This brings us back to the on-going issue of skills shortages and training. The industry must increase training provisions to address productivity levels. An increase in productivity is always a good thing, but we’re never going to get there if contractors can’t deliver work to both a high standard and on time.

And it wasn’t just customer satisfaction that fell. Contractors also rated satisfaction with the performance from the client, and figures show that only 69 per cent of client performance was rated 8 out of 10 or higher, showing that work needs to be done from both ends in order for us to see an improvement.

However, there is light at the end of the tunnel in terms of cost predictability. Last year, projects coming in on budget or better hit an all-time high with 69 per cent, and the industry has managed to hold on to the same score this year. It would have been nice to see a little increase, but looking at the rest of the figures, it’s the least of our worries.

In terms of meeting the government’s Construction 2025 performance target, the results show that the industry is making very limited progress.

Sticking to agreed project timings is still a big problem for a lot of contractors, but they have managed to complete many projects within budget. This is a far cry away from the 50 per cent reduction in the time it takes to get a project from concept to completion and reduction in costs by a third that we are aiming for. 2025 might seem a lifetime away, but with some figures only changing by a marginal one per cent each year, more effort needs to be made to ensure we reach the targets the government are expecting from us.

2nd October Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

There’s always been concern over health and safety, especially in this industry. But, most recently, there have been issues with companies prioritising customer satisfaction over safety.

To me there isn’t much debate over customers vs. safety- there’s only ever going to be one clear winner.

There’s been some concern over Highways England’s customer focus and the risks posed to those workers on the roads. The focus should never be on the customer when there are workers so close to cars travelling at such a high speed.

Being told that the customer shouldn’t come first, isn’t something you often hear, but when it comes to health and safety, keeping the customer happy should be the least of your worries. In an ideal world we would have a fair balance between the two but the reality is that safety should always trump customer service.

I’m happy to see the newly appointed chief executive of Highways England, Jim O’Sullivan shares my opinion on this and as he said, ‘nobody needs a road so badly that someone has to die for it.’

However, not all responsibility should lie with the contractor; the client should do as much as they can to keep health and safety top priority. It’s a two-way street (no pun intended), and the client can ease health and safety risks by keeping the volume of traffic on the road at a reasonable level. Contractors would benefit from support from the Police and authorities, and it would make their jobs a lot easier.

Hopefully more attention will be given to health and safety in the coming months, following the Health and Safety Executive’s (HSE) annual construction refurbishment initiative starting this month. The nationwide drive aims to target unsafe work practices that make our industry one of the most dangerous.

I urge you all to take action now in protecting the health and safety of yourselves and your employees, before it’s too late to make a change.

Construction is only five per cent of Britain’s workforce but it still manages to account for 31 per cent of all fatalities, with 42 deaths being reported so far in 2014/15.

HSE Inspectors will be visiting sites across the country this month to challenge the poor standards that are putting the health and safety of workers at risk; a step in the right direction to improving health and safety risks within the industry.

I’ve heard many unnecessary complaints, this morning alone, after more disruption to the A19 was announced.  Drivers are set to face three weeks of disruptions when resurfacing work begins next month. Work will take place overnight from 8pm to 6am running throughout October, when the volume of traffic will be at its lowest, keeping disruption to a minimum and road workers safer, yet still people manage to complain.

A little reminder to contractors .. you can’t please everybody, but the important thing is that you do everything you can to keep everybody safe.

4th September Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

The Construction Industry Training Board (CITB) has responded to complaints from contractors and decided to simplify the application system for those looking for funding.

Complaints came from contractors who want to apply for funding, but claim the process is too complicated so it puts them off. The new changes will apply to the flexible funding system, which currently distributes £20m of funding each year.

The current system has 40 flexible funding streams that give out £140m in funding across all streams, but from next month this will be reduced to only two routes. The idea is that the system will be simplified, and rather than firms having to jump through hoops to decide which funding will be best for them, they will only have two options.

The Flexible Fund will be for short term funding for projects lasting less than 18 month, and The Structured Fund for long term funding, for projects expected to last longer than 18 months- . Both will offer support to projects that help employers find long term solutions to the industry’s major skills challenges.

The current system in place for accessing funding is unnecessarily overcomplicated. It’s not surprising that firms were put off applying, especially for projects which are less than 18 months long, would it really have been worth all the fuss?

The new system, which is due to be put in place next month, seems to be a lot clearer and much more straightforward. I’m in favour of the new system- I’m all for anything to help fund projects which will benefit the industry.

It’s also been announced that the system is undergoing an evaluation to ensure that funding proves to be beneficial and that they are only funding the projects that work. I don’t know why this hasn’t been looked at before- why would you want to give out millions of pounds of funding to projects that you’re not sure are actually going to work?

However, getting the funding right is only half of the solution, the organisation must also identify where the funding is needed most. Throughout the process CITB have worked with an industry advisory group to ensure the funding process is simpler and in the long run more beneficial to the industry needs.

This new approach will see the organisation undertake an analysis on industry skills needs, to understand which skills make the biggest difference within the industry. Putting more funding into improving skills and training, in the areas which need it most, will definitely help the industry reach its growth potential.

I strongly urge all firms wanting to apply for funding to just go for it, especially once the changes come into place and it becomes easier than ever to apply. If you think you would benefit from funding, or could benefit the industry as a whole then do it, what have you got to lose?

 

28th August Journal Column

By Mark Siddall, Principal at LEAP: Lovingly Engineered Architectural Process

By 2050 an anticipated 7,000 additional deaths per year could occur as a result of the high temperatures arising from climate change, and a growing and ageing population – roughly triple current levels.

The National House Building Council has raised concerns about the unintended consequences of low energy homes and the potential for increased overheating risks. This has been echoed by the Zero Carbon Hub in its observation that improved standards of insulation and the growing risk of hotter summers could cause overheating within new homes

Although these are serious concerns, we must maintain perspective. The Office of National Statistics estimates roughly 25,000 people die from the cold each year. Putting that into perspective, it means three and a half times more people are dying from the cold today, than those who could potentially die from high temperatures in 2050.

What are needed are homes that are neither too warm in the summer, nor too cold in the winter. Homes just like Steel Farm in Northumberland could be just the solution we are looking for.

You see, the house is super insulated and designed to reduce the amount of energy used for heating by about 90 per cent. Also, in accordance with best practice, Steel Farm was designed to avoid indoor temperatures rising above 25°C for more than five per cent of the year.

The heating bill for similarly sized houses in the North East, built between 1919 and 1944, is on average estimated to be £975 per year. If you owned Steel Farm this would mean you were saving up to £765 per year whilst keeping snug and warm without any worry.

Measurements taken throughout 2014, the warmest year on record according to the Met Office, show that indoor temperatures rose above 25°C for less than two per cent of the year. The average temperature was a comfortable 20°C (just what Trevor and Judith, the owners of Steel Farm, like).

Given the concerns of the National House Building Council and the Zero Carbon Hub and the fact that the ODPM, in 2006, observed that temperatures above 25°C can lead to an increased risk of mortality, Steel Farm demonstrates that you can create a house that is fit for Goldilocks, neither too hot, nor too cold, just right!

So how was this achieved? Steel Farm was designed to the worlds’ leading quality assurance standard for low energy buildings. It is the first Certified Passivhaus in Northumberland. You can learn more about Steel Farm in an in-depth 3-part documentary at PassivhausSecrets.co.uk. Let’s hope we start to see more Passivhaus buildings in the North East in the near future.

 

21st August Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

Council officials have called for a rise in apprenticeships, as more skilled workers are required to support the UK’s wider house building targets. They want more devolution of the training systems, having claimed that ‘for too long we’ve trained too many hairdressers and not enough bricklayers’. Don’t get me wrong, I appreciate a well-trained hairdresser, but the skills shortage is becoming a real problem and something has to be done about it.

There is currently a gap between the number of apprentices in the sector, and the industry’s forecasted annual recruitment. The issue is one mainly faced by the house-building sector and with ministers announcing plans to build up to 275,000 affordable homes by 2020; a huge improvement in skills and newly trained employees is needed.

The Local Government Association (LGA) has previously announced that in the last five years the number of completed construction apprenticeships fell by 58 per cent. This data, along with the results that followed last weeks A-Level’s show that not only is the industry lacking in apprenticeships, but the numbers of students studying the subjects which relate to the industry are mainly boys,

Data gathered from A-Level results, which went out last week, show that those studying Science, Technology, Engineering and Maths (STEM) was weighted disproportionately to boys. The gender gap at A-Level is reflected in the numbers entering professions, increasing the current gender gap within the industry.

Further data shows that a quarter of sixth form colleges have had to stop offering STEM courses due to funding problems, which will only fuel the problems the industry is currently facing. The Government need to consider the long term effects of cutting such funding. Not only does it means courses and training opportunities are reduced, it also means that in the long run there won’t just be a skills shortage, there’ll be nobody left to do any of the work!

The LGA also added that its latest data suggests that the skills shortage could hold back between 16-25 per cent of forecast economic growth between now and 2022. The association has suggested that in order to prevent this, ministers need to work closely with employers, councils and education bodies, and I completely agree.

Councils are in the best position to understand the needs of their residents and the local area, yet they can’t contribute towards decision making on skills training and employment opportunities in the area. Those who have a better understanding of what is needed in order to improve the industry should have more of a say. Not all areas require the same skills, so it makes sense for opportunities to be created based on localised needs.

More power for councils can improve relationships between schools, colleges and employers resulting in a stronger workforce to close the skills gap in the industry and increase house- building, which benefits the country as a whole.

14th August Journal Column

HK Logo - smallBy Graham Sutton, Associate Solicitor at Hay & Kilner

It is now common place for main contractors to have to provide various documents to increase an employer’s financial security for a project. Documents including collateral warranties to third parties, sub-contractor warranties, performance bonds and parent company guarantees are all items now required by an employer at the beginning of a contract.

Investors are often wary of funding construction projects due to exposure to various risks, but these bonds, guarantees and warranties should offer some security.

The purpose of providing the documents is only beneficial to the employer, with little to be gained by the main contractor, so it’s therefore not surprising that many contractors fail to provide the documents in the hope that the project will be completed before the documents are requested.

This tactic has now effectively been “scuppered” by the recent case of Liberty Mercian Limited -v- Cuddy Civil Engineering Limited (CCEL). In this case CCEL, the main contractor, had agreed to provide a performance bond and sub-contractor warranties in favour of Liberty. In cases where contractors fail to comply with obligations in accordance with the building contract, performance bonds offer a secure fund for the employer. However, CCEL argued that despite its best efforts, it had been unable to obtain a performance bond from the funders it had approached in the format required by the contract. A number of the funders would only issue a bond if CCEL made a cash deposit equal to the value of the proposed bond, plus a premium for issuing the bond.

The matter was taken to court and the judge ordered CCEL to make a payment of £420,000, the equivalent to the financial value of the performance bond. The court placed Liberty in the same position as it would have been if the bond had originally been provided.

CCEL told the court that it had been unable to obtain warranties from a sub-contractor who had now gone bust. The court was also told that there was evidence that the sub-contractor had held professional indemnity insurance and it was possible that the insurers may respond to a claim under the warranties. The court therefore ordered CCEL to obtain the warranties. The case is a clear example of the real danger in ignoring requests to provide contractual documentation. The court has shown it is prepared to order parties to honour their obligation to provide agreed documentation, regardless of the stage of the works or the difficulties that may be involved.

Leaving the matter for the court to decide can clearly have dire financial consequences, so it’s best for all parties involved to make sure the issue is resolved before reaching this stage.

For further details about Hay & Kilner and the services they provide please contact 0191 232 8345

 

 

31st July Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

The news that the government plan to appoint a Small Business Commissioner to tackle payment disputes and unfair practices, means that the government have actually followed through on something they promised our industry, which is brilliant news for SMEs.

Back in June I shared my support for the government’s plans to tackle the ever growing problem with late payment, and it seems it’s now becoming a reality.

On Sunday, the government announced the new service which will be the first point of contact for SMEs and will provide advice and support on how to avoid disputes and resolve them. It will also offer access to mediation services to resolve problems quickly, affordably and most importantly out of court. The commissioner role will offer advice to suffering contractors, investigate the many complaints filed and have the power to name and shame offenders.

The plan is only one of several measures the government are taking in the right direction to tackle late payments. Other measures include the requirement of large companies to report payment policies and practices twice a year. They will have to report on their standard payment terms, average time taken to pay, the proportion of invoices paid in 30 days or less, 60 days or less and then 60 days and beyond.

The commissioner will then have permission to use this data to name and shame those who are failing to pay on time. Hopefully the embarrassment of being named will give companies the push they need to cough up!

The data will also be used to celebrate those who are paying promptly, which may sound silly, but celebrating a company that is fulfilling their contractual agreement is such a rare thing to hear at the minute, that it’s something I think we should be making a big deal of!

It may seem like the government are going to extreme measures but for me they’re only doing exactly what is needed. Nothing has been worked in the past, so I’m all for the introduction of new plans, it means there’s more chance of at least one of them sticking and being successful.

According to the Bankers’ Automated Clearing Services (BACS), SMEs spend £10.8billion each year chasing late payments, and as of this month they were collectively owed £26.8billion. These statistics are appalling, payment isn’t optional, these businesses need, and deserve, to be paid on time for their services.

I look forward to seeing how the late payment tsar affects the industry as it has the potential to resolve these issues once and for all.

All firms are invited to respond to the plans before they are passed as part of the governments Enterprise Bill, on the Department for Business Innovation and Skills on the Government website. The consultation will run until 21 August.

7th August Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

Health and Safety is relevant in all aspects of the construction industry, and it’s vital that it’s taken seriously, as, in some instances, it can mean the difference between life and death.

A recent report by Neil Ashdown, general manager of the Fire Door Inspection Scheme, shows a worrying increase, in big and small companies alike, of incorrect fire door installations. The purpose of the fire door is to block out flames and smoke during a fire, and if wrongly installed they are useless at compartmenting the flames

The study found doors wrongly hung in buildings ranging from hospitals and schools to the most iconic buildings which were built by some of the biggest names in the industry and cost hundreds of millions of pounds- basically, places you’d expect fire doors to be correctly installed.

The results of the report have highlighted a need for improvement in a particular area of the industry which I don’t think has ever been considered before.

Companies are more than likely following protocol when it comes to certifications for the doors being verified and work being checked and rechecked, but if nobody understands the problem in the first place, then it isn’t going to be picked up.

Five of the most common faults with the doors in the report include:

  • Over one third having incorrect signage
  • Over 230 fire doors having excessive gaps between the door and the frame
  • 15 per cent having damage to door leaf
  • One in five having unsuitable hinges
  • Over 61 per cent having fire or smoke seals missing or installed incorrectly

If you are responsible for Health and Safety in your organisation, it is down to you to ensure you are correctly trained and feel confident enough to be completing or overseeing such tasks. It might not be the easiest thing to admit that you need more help/training, but damage to your ego isn’t as tragic as the possible consequences of incorrectly installing a fire door. Some of the common faults found could have easily been avoided or resolved, had they been flagged up.

There’s more to consider than just the quality of Health and Safety prevention measures, it’s about legal responsibilities too. Under the Regulatory Reform (Fire Safety) Order 2005 (RRO) and your probable duty as the Responsible Person appointing the Competent Person to carry out work, regardless of whether a fire occurs or not, you could still be liable if a problem with the doors is flagged.

I’m not picking faults or criticising companies, but the results of the report have stressed the need for education and training and made me aware of a problem that I didn’t know existed. It’s a problem with a very simple solution in my opinion and a one we need to sort sooner rather than later.