Is the worm turning for London contractors? Here Iain McIlwee, Chief Executive of FIS gives his point of view.
The recently published AECOM Main Contractor Survey 2022 should give us some confidence that for London contractors maybe the worm is finally turning. The findings in this insighful report underpin the fundamental problem construction faces in the fact that procurement processes have driven margins down to a point where we have consistently failed to price risk. Now we are at a tipping point, something has to got to give.
The consulting firm surveyed Tier 1 and Tier 2 contractors operating in Greater London, with the largest building contractors turning down one in every two bidding opportunities. Following two years of turbulence and disruption, activity has increased with the report indicating order books of the main contractors are “almost full for the year ahead”.
A key focus in 2022 will be relationships says AECOM, but does this mean more supply chain loyalty and less of a disposable supply chain culture? The fact is drylining and joinery, two of the key trade packages for FIS, are highlighted in the top four shortage areas. The report emphasises the importance of “established relationships” to secure orders and underpins the importance of this with “availability can change quickly”.
While it’s good news of the growing understanding that communication supports risk sharing, the cynic in me needs to be sure that this is about clear communication, not looking to protect yourself with ‘I told them’ and hiding risk in the contract or email chain.
The report states that trade contractors are “unwilling to fix prices for any substantial period of time”, and nor should they in this climate. Worryingly, the report concludes the risk is not being passed onto clients and that it will impact viability of main contractors. Midas is an example of where this can go wrong and there remains little protection for the supply chain.
“Contractors’ strategies are focused on providing value beyond price,” AECOM research reveals. However my perception is that this is still more about telling a good story and there is not enough focus on doing the basics well and getting it right first time to eliminate waste and allow time to focus on quality.
On the “move away from single-stage fixed price contracts” and contractors “favouring a two-stage approach”, this is good and bad. It gives flexibility, but takes time. Time engineering in construction is as much as a problem as value engineering; we need (and are entitled to) realistic time allocation and clear and unfettered access. The race to the bottom isn’t just about price, it can be agreeing to do it too quickly or without sufficient time allowed for pre-construction.
The fact that “inflation in 2021 caught main contractors off guard” is indeed a huge issue. The main contractors have an important role here, as it is less about squeezing now and more about protecting the supply chain. We need more flexibility and understanding from clients. A comment in the report that gives me hope is “They (main contractors) are deeply aware of the importance of their position in the construction ecosystem, acting as the vital link in the chain between the client, subcontractors and suppliers.”
“Contractors want to engage as early as possible with the client team” the report finds which “will ensure that potential risks are properly identified early on.” It is something we wholeheatedly support – but please don’t waste this time. Early supply chain engagement is essential; more loyalty and collaboration outside of the project enables improvements between jobs.
The report says that the industry is striving for a “shared, collaborative market — one where everyone benefits”. When do finally get there, I will retire happy but at the moment, there is more evidence of talk than action!
The report concludes on a positive note: “A communicative, collaborative, carbon-cutting industry isn’t a pipe dream” and that is something we can all get behind. It also recognises that “the best-in-class are taking their time to understand a project from the outset, honouring their existing relationships and aiming to build trust and respect within new ones.” We at FIS will certainly do all we can to ensure that the good ones win.
To download the report click here.
For further information or for any questions please contact the FIS at email@example.com or call 0121-0707-0077.