Blog 016 - Are Tier One's Ready to Self Build?

A bit of a click bait title, but, I read an article in the Telegraph today (http://digitaleditions.telegraph.co.uk/data/309/reader/reader.html?social#!preferred/0/package/309/pub/309/page/134/article/68091) which discussed how 9/10 medium sized businesses could be at risk if trade doesn’t pick up and it got me wondering how the industry would be serviced if we lost an entire “generation” of medium sized specialists (£50m - £350m turnover).

In what would seem like a construction apocalypse, would we see a resurgence of the Tier One’s employing Tradesman and owning plant? How would this change the way the Tier One Contractors approached project delivery? One thing that is quite well known among the industry is that these companies would be under capitalised to purchase plant, procure materials and pay a work force. I think if this difficulty was kept at the forefront of the Tier One’s mind, then the way they treat their current Specialist Contractor’s might change.

In figures published this week by Build UK; Canary Wharf Contractors, Costain, Multiplex & Bouygues (amongst many others) are still failing to pay their supply chain in 30 days and failing to pay approximately 20% within the agreed credit terms. If they were to lose their medium sized specialists, they would first have to wonder if they contributed and then consider how they could self build without them, a reality being that many couldn’t. It is worth noting that many of those that do self build, such as Laing O’Rourke & BAM Nuttall don’t have stellar payment records either (LOR – 20% don’t get paid in time and BAM – 41 Day average payment terms).

The other alternative in this apocalyptic scenario then would be to let the packages to the smaller Specialist Contractors. Without generalising too far, most aren’t set up to be taking the larger schemes that would typically fit into this bracket and will likely require works packages to be broken up into smaller sections and then managed by the Tier One. This would cause future issues for defects liability and create huge interface issues at the design and construction stages. Consider M&E as an example, all of the co-existing Specialists would be required to procure and install co-ordinated and compatible systems so that the project or building could be served correctly by one system, again, considerably more work for the Tier One and certainly a lot more risk.

The smaller Specialists typically can’t afford to suffer poor or protracted payment practices and thus the Employers would have no choice but to improve in this area or risk losing another part of the supply chain.

The smaller Specialists might not be able to offer the same services as the medium sized enterprises, the requirements to submit P6 programmes, provide BIM information, integrated design or even the most modern plant (think Euro Tier engine ratings). This will then drive a lot of this work and the management of project back to the Tier One.

The point I am making is, if the industry doesn’t step up and look out for its own, the only people that will suffer will be the industry itself. If we let the SME’s of the industry disappear, we are only going to drive up the cost of construction as we either finance under qualified Specialists to do the work or take Tier One’s that have found their success in general Project Management and ask them to undertake Specialist works. Neither are as practical as looking after what we currently have!

If you’re a Specialist struggling with work winning or payment from Clients, get in touch, equally, if you’re a Tier One and want to look at ways you can improve your Supply Chain Management and engagement, drop me an email.