Home Features Voice of the Industry – September 2012 – If you pay peanuts

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If you pay peanuts…

We all know how it ends, so why does construction persist in thinking it’s a good way of working?

Ask any specialist subcontractor, not just plastering or drywall, what’s eating them at the moment and three things come straight back: tender prices (including margins), PQQs and late payment – and the one common factor is main contractors.

FPDC’s snapshot survey into late payment practises would make a CEO and FD in any other sector wince. The practices highlighted are little short of scandalous; some are downright dodgy and pure abuse of position in the construction food chain. The government has made it clear that it will take action to stamp out such bad practices for the benefit of all in construction. The government’s recent ‘mystery shopper’ survey uncovered a number of bad payers on government contracts and it has taken positive action to ensure prompt payments by government agencies are immediately passed down the line and not hoarded to keep main contractor’s balances looking rosy. FPDC is actively collecting evidence of late and bad payment and passing it to BIS for action.

But why do we have to use a ‘stick’ to get sense? The age of enlightenment started in 1650; what other industry would treat its vital suppliers in such a poor way? Look at the recent newspaper fuss when supermarkets tried to force milk producers down below cost price – yet it is happening every day in construction. Main contractors have been quick to forge supply chain agreements with manufacturers and distributors, but not the actual installers that they rely upon more than anything to get the job done, on budget and on time. There’s precious little difference between one sheet of plasterboard and another, but the installer makes a huge difference and, in the case of the interiors sector, our work is the first thing the client sees. Is that not just a little bit short sighted?

PQQs were heralded as the way forward – some being an expensive way. If you could line up the ducks it would indicate you were a serious contender, someone with the right approach to business, a safe employer with good systems to back up their work. But what is the point of having ISO 3.142 with quality assurance if main contractors accept tender bids for a £0.5m contract from a company that only has £25k credit rating and puts in a bid at 10 per cent below cost? These silly prices are then used either to drive down legitimate tenders or actually used, only to receive a mountain of variation orders or delays as a consequence. FPDC was recently informed of a contract where the main contractor won with a bid that was 15 per cent below cost and minus six weeks on delivery, with a declared aim of making their margin by nailing the subbies. Needless to say, with such a poor attitude to the people they were relying on to do the job, the contract came in 20 per cent over budget and eight weeks late. Utterly pointless!

Surely both clients and main contractors have realised that it is the finished price – the ‘cost out’ rather than the ‘cost in’ – that matters. A league table of main contractors that pay on time and match their project delivery outcomes with their initial promises would make interesting reading for all clients. Glenigan, are you out there?

If we are to bring some much-needed enlightenment into construction, then one of the first things that needs to be established is a realistic, pragmatic and accepted rate for the job that can be used by both main contractors and subbies alike. If we have FPDC benchmark prices to start with, based on good practice, then main contractors accept or demand lower prices at their peril: down that route lies a higher risk of screw-up. We all want value for money but none of us would trust the garage that offered to change the cambelt on a BMW 5-series for £200; so why do main contractors expect that from a subcontractor? With an independent benchmark rate, main contractors can expect fewer variations and look for a subcontractor that adds value to the tender whilst knowing that the price is realistic. Of course there will be some subcontractors themselves that try to get commercial advantage by going in well below the accepted benchmark, but they should also understand that they are doing themselves no favours , cutting their own throats on the very next job. Anyone with a marketing qualification will tell you that there are no winners in a price war, just losers.

We urge main contractors to work with FPDC to establish proper benchmarks that will work in your favour too. Clients want good results – ‘screw-up-free’ days should be almost as important as ‘accident-free days’.  Using an FPDC member should be the best PQQ there is; FPDC membership should be the basic starting point for any main contractor looking for a subcontractor in our specialist trades. To that end, let’s start communicating with those main contractors that see themselves as progressive and show the others that it’s in their own interest to follow suit.

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