Wednesday, 21 May 2014

No more Boom and Bust!

Balfour Beatty has just announced that yet another top executive is stepping down after yet another profit warning. Sir Robert McAlpine, another of the UK’s biggest and best contractors, has revealed £38m losses for the year. Five years ago, Balfour was a great builder, and our biggest customer. Now it faces break-up and a possible sale.

These firms’ misfortunes stem from problem contracts, but why is itthat so many contracts are going wrong?

I believe the problem lies in the way the industry is organised and the way that its top managers think. The industry is divided into professions whose members are

taught from a young age to regard a stranger in a rival camp as an enemy they haven’t shafted yet. When I was training as an architect, I attended seminars in legal self-defence, because I was taught that the contractor is going to try to do you over. I was also told that architects are better than everybody else, and that clients were just the people who commissioned buildings on our behalf.

Meanwhile, the contractors carry on with main contracting looking to make their profit targets by squeezing their supply chains and extending their payment terms by another 30 days. They spend almost nothing on research and development, and it seems that whenever something goes wrong, their only response it to throw another chief executive to the shareholders. The result of this are businesses like Balfour that are great when they’re riding a wave of public sector investment, but struggle when the bad times come.

Set up to fail

I should say here that I’m not blaming anybody. The fact is that the system is set up in such a way that people are encouraged to behave in a selfish way. True collaboration springs from a shared goal, and in construction we tend not to have that. If I’m the architect, my goal is to get my drawing out as quickly as possible and get my fee; I’m not really bothered about helping out the M&E guy because I just want to get my bit done. If I’m a contractor, my goal is to get the building up as quick as possible, while reducing the risk and making as large a margin as I can. And if I’m a subcontractor, all I care about is getting the next job and try not to take too many beatings from the main contractor. A subcontractor has no interest in a common goal; they just want to get through the process and get their last payment.

So, how to you break the cycle of boom and bust? How do you change attitudes and organisations in an industry renowned for sticking to what it knows, even though it also knows it doesn’t work? I believe the answer is to think in a completely different way. I believe we have to start with the product and then work out the process that will best deliver it. In an industry that is driven by costs, it means focusing on value.

Let’s try it another way

The good news is that there are powerful drivers for change in the industry. The government has played its part with its plans to use regulatory and economic power.

 There are other forces at work as well, though. There is a generational change, and that is bringing a different approach to providing a product. One part of it is technical. When Sir John Egan produced his report in 1998, I was using a Rotring pen to design buildings. He talked about technology, but most of it wasn’t quite there.

The government’s Construction 2025 is, I believe, the Egan Report with a different cover, and this time the technology has transformed everything. The iPad generation are using Twitter and other social media to discuss building information modelling 24/7. They are coming together around BIM regardless of what they do, or which company they do it for. I would go so far as to say that BIM has allowed the rising generation to create Construction 2.0, which has the potential to bring together the spirit of youth and the wisdom of age. And with that comes a radically different approach to the construction process. Instead of designers, builders and building engineers, BIM divided the work into define and validate, design and prototype, manufacture and assemble, operate and maintain. And with that comes a new intolerance to skips full of waste and court rosters full of construction cases. The opportunity is there to redesign the design process and rebuild the industry around shared goals. I only hope this cultural change comes quickly enough to secure some of the great construction businesses of the UK.