Construction sector challenges: Collaboration and preparing for the future
We have set out what prominent leaders within the construction industry had to say at our recent roundtable, and the key take away messages.
As the nation continues to move through the first wave of the COVID-19 pandemic, Colette Morgan-Ford, Patricia Grinyer and Chris Doran held a virtual roundtable on 3 June 2020 which brought together key industry leaders in construction from the private and public sector, insurance, and academia. The participants discussed adapting to the challenges caused by COVID-19 (including lockdown, site safety and supply chain difficulties); the need for transparency and collaboration; and the future shape of the industry.
We have set out what these prominent leaders had to say, and the key takeaway messages.
Peter Jackson, Managing Director, Seddon Construction
The new normal
Since lockdown we have had more flexible hours (which has enabled us to work with the supply chain differently); fewer face to face meetings and fewer people in office spaces. At Seddon, we were re-designing two of our offices before COVID-19, but lockdown enabled us to realise that the office is a collaboration space to bring people together when they need it. That’s not all of the time – a balance of less office space and more agile working is required. Permanent desks and full offices may be a thing of the past. It’s been harder for those returning from furlough, coming back to a world of work that looks very different to the one they left behind. We’re helping them adapt to the ‘new normal’ so that our people and operations can blend back together quickly and seamlessly.
Site operating procedures
We’ve risen to the challenge of adhering to the Construction Leadership Council’s (“CLC”) guidance on site safety. We have seen a real genuine deep concern around safety behaviours in our workforce and partners. This is driving positive change on building sites and workers are getting into the mind-set of taking greater personal responsibility for how they work safely on site. The construction community has been very generous sharing “good practice” via LinkedIn and other channels.
Standardisation & efficiencies
Rather than constantly building prototypes, we devise efficient standardised systems and products which we take to the market, e.g. model care homes or industrial units and standard house types. This results in real efficiencies on programme; labour (e.g. 60% drop in labour –v- 35% drop in productivity); and materials, giving certainty to customers.
Customers & pricing
We have loyal customers who trust us to find the most efficient ways of building. We’re not interested in a race to the bottom on pricing. The cost plan has to be priced fairly and it has to work. If customers don’t understand that then it’s cheaper to walk away after a cup of tea rather than start the job and realise it will not be profitable. We invest significant time in our customers – having relationships at all levels means we can escalate issues; get decisions without emotion; and work together to achieve successful outcomes.
Collaboration & risk allocation
Behaviours are key. Value, respect and trust. We need to start looking after each other better, for the future of construction. The hike in PI insurance premiums adds another layer of cost to customers. If we had a different collaborative way of risk allocation (e.g. where design risk was kept with the architects and the engineer rather than passing everything to the D&B contractor) it would lead to price reductions for customers and greater sector resilience.
Gill Kelly, Managing Director, M&Y Maintenance and Construction
People & Resilience
We are a well-established family business employing about 240 people and I’m the second generation having worked in it for 25 years with my father, who formed the business. Looking after our people is embedded in the M&Y culture and I’m proud of the loyalty, dedication and resilience that they’ve shown during the crisis (even when I haven’t had all of the answers). They have adapted well. We’ve worked more flexibly, embraced Microsoft Teams for one to ones and wider meetings and we have been entirely output focussed - it’s about getting the job done and we now have increased flexibility on how we achieve that.
Lives & Livelihoods
Health and safety has always been essential. We’ve put all necessary measures in place on our sites to manage the COVID-19 risk. But, we’re dealing with human beings so the risk of infection cannot be eliminated altogether regardless of how much training, signage and PPE you provide. We need a balanced approach where we protect our people; our supply chain; and continue to function as a business productively and profitably. We’re doing everything we can to help our suppliers and sub-contractors: from making payments in advance, weekly interim payments, to helping them with risk assessment method statements.
Honest conversations and realistic expectations on pricing are vital. We build for housing associations which have grant funding requirements. Employer’s Agents need to be broader with their thinking when they produce their reports for clients on ‘value for money’. The last price that they refer to could be benchmarking us against a contractor who's gone bust or made massive losses on a similar sized job. We have witnessed the collapses of long running family construction business over the last few years and it pains me to see that. There needs to be more ownership from client, contractor and external agents in relation to price and an end to benchmarking against unrealistic values. Profit is not a dirty word. We all need a sufficient level of profit and contingency in order to be a good contractor and a good payer to our supply chain. A ‘race to the bottom’ on pricing is a problem in the industry. It is not a sustainable model, especially if we want the industry to emerge intact from the COVID-19 pandemic and to work in the new agile way, will need further investment into our infrastructures
Town centre regeneration plans
Given the impact on high street activity (the decline of retail, in particular), regeneration plans could take a different direction in the future. Only time will tell. Town centres could become more leisure focussed – greener and more pedestrian spaces for communities to enjoy and more varied living spaces (beyond apartments lacking in balconies or outdoor spaces).
M&Y Maintenance and Construction
Mike Lane, Operations Director North West, Willmott Dixon
Site operating procedures
As a business, Willmott Dixon is used to managing health and safety risks, so, we’ve put proper measures and risk assessments in place to adhere to CLC guidance. Our people are trained to manage health and safety risks - they know how to act responsibly and stay safe on site. One of the biggest challenges of COVID-19 has been helping colleagues with the emotional stresses and strains of working on site whilst keeping their families and communities safe.
We need to work together as a sector to maintain supply chain service continuity and cash flow in order to avoid wide scale collapses and the inevitable ripple effect on projects nationwide. We are a member of the prompt payment code. Customers like Liverpool City Council, Liverpool John Moores University and Merseyside Police (among others) have supported us in this initiative, so, where our suppliers and specialists have suffered COVID-19 related hardship, we’ve been able to support them (e.g. 14-day payment terms). Public bodies (through Public Procurement Note 02/20 (which was effective up 30 June) and 04/20 effective from 1 July 20 31 October 2020) are providing relief to suppliers working on public sector projects. The private sector could so something similar.
Collaboration & pricing
True collaboration has been at the core of our most successful projects. It has been high on our agenda ever since Sir Michael Latham was a board member. Historically, the construction sector has not embraced collaboration and can do much better. It requires transparency, honesty, and shared objectives at all levels (from customers down to materials suppliers) and a fairer share of pain and gain. The extent of collaboration has been positive since lockdown and there is an opportunity now to ensure that this step change becomes embedded in our sector for the future.
We choose procurement routes which drive collaboration e.g. Scape, Procurement Hub and Procure Partnerships; and regional frameworks across the North West and North Wales. These require significant investment to meet customer needs and the expectations of the market. There are still only a limited percentage of businesses that actually believe in the benefits of this type of procurement and that needs to change. They are collaborative arrangements which require a mind-set where everybody involved has to succeed – e.g. the customer, supply chain, material supplier, general operatives, plasterers and the bricklayers. No exceptions.
Remediation of unsafe cladding
Through holding positions on a range of national and local OJEU compliant frameworks, we must respond to customer re-cladding needs quickly and effectively though there are challenges procuring the design and build for these schemes (including supervision, labour, plant and materials). Based on our own anecdotal evidence the lifespan of a cladding contractor is around 7 years and key manufacturers of the materials tend to suffer collapses too. The cumulative effect is that we lose vital expertise in the market despite the Government stressing that remediation of building and fire risks on high rise buildings remains a priority and essential for public safety.
Operations Director North West
Mike Horne, Division Manager, Capital Project - Liverpool City Council
Relationships with transparency and trust
In construction, this is something that the private sector needs to get better at, particularly at Developer level. In the public sector, there has been significant work around collaboration and partnership. Once you achieve that, you do not go back to old ways. Common sense dictates that if you are fair, reasonable, sensible and transparent in anything in life, then generally you will get rewards from it. Our behaviours at Liverpool City Council mean that we attract the best contractors, sub-contractors, suppliers and products for our projects. We share the attitude and behaviour principles of our contractors (social value focussed) and we expect those to filter down through the entire supply chain.
We collaborate with our construction partners on issues of risk and price benchmarking. We pay on time and on sensible terms. We accept that those working for us, need to make a profit. All those in the supply chain must know that they are going to get paid what they are owed and on time. The end result is that we generally have projects delivered on time, on or under budget and to a high quality standard.
We are working with suppliers to ensure they can maintain service continuity and cash flow through COVID-19. This is in line with the measures recommended by Procurement Policy Note 02/20 (PPN 02/20) i.e. COVID-19 ‘hardship relief’ to suppliers (e.g. forward ordering, payment in advance, interim payments and payment on order) and from 1 July to 31 October 2020 PPN 04/20 ‘Recovery and Transition from COVID-19'. The supply chain is shared across both the public and private sectors. We should work together to prevent wide-scale supplier collapses and loss of industry capacity – as that would be catastrophic for public and private sector projects alike.
Capital Project - Liverpool City Council
Terry Carroll, Chief Business Officer, Sovini
The new normal
The immediacy of the need to lockdown to contain the virus and protect the NHS meant that we could avoid a prolonged debate tackling different agendas and blockers. At Sovini it forced us to accelerate towards a better way of working. A blend of the old and new ways will be the future of our organisation and that should generate efficiencies and better work life balance.
Site operating procedures
We have put policies and processes in place. However, the practicalities of ensuring that the latest requirements are adhered to at all times, will prove challenging and could lead to frustration on site. What is not clear is how the HSE would deal with a COVID-19 incident and whether they would take enforcement action against a Contractor or Client under CDM Regulations in all cases. There has been a lack of guidance from HSE on this.
Prioritising the safety of residents
We took the decision promptly to remove unsafe cladding from some of the buildings where we are the landlord. We did not wait for the outcome of legal disputes with parties responsible for installing the unsafe cladding in the first place. We put our residents first. We also believed that acting promptly would allow us to ensure quality and cost control. Cost control has been challenging. We discovered significant additional building and fire safety issues once we removed the unsafe cladding. Consequently, the remediation costs were 60% greater than our original estimate. I am concerned that the Government funding for the removal and replacement of “unsafe cladding systems” will not go far enough.
In terms of claims for extension of time due to the effect of COVID-19, we are working closely with contractors to try and reach commercial settlements. Now, more than ever, parties need to work collaboratively to find commercial and contractual solutions to allow projects to get back on track as quickly as possible. The resumption of productive site working and project completions is a priority.
Chief Business Officer
Chris Casey, Group Managing Director, Casey Group
The new normal
When the COVID-19 crisis hit, it created some disruption and disorder at Casey Group. However, lockdown enabled us to accept that we had been gripping on to some archaic ways of working. Now, when an electronic signature will suffice, we do not insist on an original one. We have adopted some new technologies. We have embraced working from home, both in terms of the efficiencies for our business and the improved work life balance for our people. Lockdown was a real driver for positive change. I do not see us reverting to old ways in the future.
Remediation of unsafe cladding
We are always well aware that contractors need to protect themselves against unfair risk allocation. However, it is a major concern in relation to these unsafe cladding schemes. We are involved in number of the remediation projects. The main difficulty is that clients seek to pass all of the risk down to contractors even when there is no design responsibility.
Group Managing Director
Alastair Blundell, Head of General Insurance, British Insurance Brokers’ Association
This was already high on our agenda and the pandemic has made it even more relevant. The insurance industry responded quickly and effectively to lockdown requirements and working en masse from home has been a success. It is not without its challenges and young people who may be living alone or working in cramped conditions are particularly vulnerable and miss the social interaction of the office. We understand some big insurers are considering whether young people could be in the vanguard of those employees who return to offices and call centres once it is safe to do so.
Professional indemnity insurance in the wake of the Grenfell Tower fire
The PI insurance market became tough from a capacity and pricing standpoint. BIBA is working with the Ministry of Housing Communities and Local Government to identify solutions, including an appropriate risk allocation model. Together with ARMA, IPRM, the Leasehold Knowledge Partnership and the British Property Federation, BIBA wrote to the Secretary of State, Robert Jenrick, on 17 March 2020 to outline the problems and propose solutions. We have a positive ongoing dialogue with the new Minister for Housing, Lord Greenhalgh, and we are pleased that the Secretary of State has announced a review into the supply of PI insurance for fire safety engineers.
The traditional pyramid model of liability flowing down the contractual chain is not fit for purpose and is not acceptable for PI insurers today. Some of the building and fire safety functions may revert to local authority building control. The new regulatory regime will place greater responsibility on ‘duty holders’ and ‘accountable persons’ (e.g. for the ‘safety case’). There has to be absolute clarity on what constitutes a ‘safe’ building from a fire perspective. That clarity on obligations can then be tracked back into the PI market. These measures, combined with the Government funding for remediation of unsafe cladding schemes, should both result in greater capacity within the PI market and help to alleviate escalating insurance costs.
Employers liability insurance - Long term effects of COVID-19
EL insurers have been reflecting back on the effect of asbestosis on a generation of workers and the impact that it had on the EL insurance market. Insurers are live to the potential that those that have contracted COVID-19 could suffer lung damage which (like asbestosis) may take years to manifest. Only time will tell.
COVID-19 policy exclusions or limitations
Businesses should talk to their insurance brokers before returning to site and before renewing their policies. Employer’s Liability policies are a statutory requirement and, therefore, COVID-19 exclusions cannot be applied. However, we are seeing insurers reduce cover from a £10 million limit down to the statutory limit of £5 million. Public Liability policies are seeing a broad brush application of exclusions. The construction sector should be wary of this, albeit that that the risk of transmitting COVID-19 to third parties on site is perceived by some as relatively low risk.
Trade Credit Insurance
We’ve been working in collaboration with the Association of British Insurers (ABI) and Government to achieve the availability of affordable supply of trade credit. It is a vital source of credit. Following the 2008/2009 financial crash, trade credit evaporated overnight. To ensure that this does not happen in the wake of COVID-19, the Government has intervened and proposals are in progress. Trade credit insurance is about £300 billion of capacity into the loans market and construction represents about one third of that. Affordable supply of trade credit must remain available in the future – it could be a life line for many businesses as we emerge from the COVID-19 crisis.
Head of General Insurance
British Insurance Brokers’ Association
Professor Peter McDermott, Salford University, School of the Built Environment
Initially, the Government’s COVID-19 rescue schemes, failed to support SMEs and the self-employed. The rescue schemes were pulled together and taken to market quickly but the terms and eligibility criteria then changed. Many SMEs or self-employed trades could not benefit from the interest rate periods and rates under the rescue schemes and were told to shop around and then reapply as they might become eligible. For some SMEs or self-employed it was too little too late, particularly if they were also not getting the right cash flow support from contractors (i.e. those not demonstrating the positive behaviours of those around the virtual table today). A lack of systems and mechanisms in place to provide support and genuine industry collaboration has led to unnecessary collapses and that will continue unless proper support and genuine collaboration is embedded into construction sector culture going forward.
Post COVID-19 challenges
Things are fairly positive at the moment. Will it last? The CLC has been working on its Roadmap for the future of construction business nationwide and creating a sustainable future. On Monday 1 June 2020, it published a summary of its proposals. It talks of three phases - restart, reset and reinvent. Reset is when the COVID-19 related Government rescue schemes finish. That phase will test the construction sector’s resilience and appetite for collaboration and “cultural change” (a phrase we heard a lot after the Carillion collapse, Grenfell Tower (Dame Hackitt’s report) and now in the context of COVID-19). Coming out of a normal style recession is difficult enough. COVID-19 and its impacts are totally unprecedented and a significant number of high level job losses e.g. consultant designers and engineers may be the hiatus to come (40,000 predicted). We need to do all we can to prevent mass industry shrinkage and retain that resource for the future.
Value based procurement
We need to value outcomes over the lowest price. The CLC is accelerating the development of their work on defining value, “procuring for value” and the creation of a toolkit for use by clients and their advisers. Different kinds of business models for operating in new collaborative environments will also need acceleration.
An accelerated shift to a green, agile and digitalised construction sector
This could be made possible by “conditionalites” which might be attached to any forthcoming economic stimulus packages. There is a change agenda not least because of the legislative target of zero carbon by 2050. Acceleration might occur as a result of changes to our lifestyles made since COVID-19. Climate change and a greener future is high on the government radar and these issues can be built in as requirements through the planning and procurement processes in the future.
Professor Peter McDermott
School of the Built Environment
Take away messages
- Cultural change – The construction sector has faced unprecedented financial and operational challenges due to the cumulative effect of Brexit, COVID-19 and the predicted economic crisis. A cultural shift towards sector wide true collaboration (including looking after the fragile supply chain) will give construction the best chance to emerge, recover, and rise up again ready for the future;
- Better value though efficiencies and innovation – A recent CBI report, entitled Fine margins – Delivering financial sustainability in UK construction, has expressed the view that traditional relationships between clients and contractors continue to drive negative behaviours and that a better approach to risk will support the industry by raising quality; it recognises that innovative culture could have a real impact on the bottom line and sustainability for the construction sector; and states that a 2% increase in efficiency could result in an additional £30 billion in output;
- Honesty collaboration and transparency – Vital components for the sustainable and profitable construction sector of the future.
- Road to Recovery Plan – We need a nationwide strategy to drive the recovery of the construction sector through the COVID-19 pandemic and economic downturn. The Construction Leadership Council has issued a 3 phase plan:
- Restart: increase output, maximise employment and minimise disruption (0-3 months);
- Reset: drive demand, increase productivity, strengthen capability in the supply chain (3-12 months); and
- Reinvent: transform the industry, deliver better value, collaboration and partnership (12-24 months).
Weightmans LLP is a full service firm. We have advised many construction clients in relation to the impact of the COVID-19 pandemic. If you would like our assistance in, for example, reviewing/amending your construction contracts or with banking and finance issues (COVID-19 related, or otherwise), please contact us. We are ready to help you.
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