The Railway Industry Association (RIA) has written an open letter to National Infrastructure Commission chairman Lord Adonis challenging his comments that margins in the construction industry are too high.
Adonis has been quoted as saying that margins are “indefensible” and that lower margins mean better value for money on public infrastructure projects.
A letter from RIA chief executive Darren Caplan to Adonis said: “I was saddened to read your comments on the “indefensible margins” of contractors in the construction industry. Simply put, many of our largest rail construction companies are actually currently making a loss as opposed to benefiting from so-called “indefensible margins”.
“In any case, reduced margins simply mean less money available to invest in innovation – a top priority of both the Government and presumably the National Infrastructure Commission – and less available resources to spend on the many SMEs further down the supply chain. It doesn’t really benefit anyone to criticise the sector in this way.”
The letter went on to say that the supply chain worked hard to deliver efficiently and continually strived to keep costs down.
The comments from Lord Adonis appear to be at odds with a summer of concerning financial results including Carillion announcing a massive £845M writedown in July, followed by Skanska announcing a £30M writedown and Interserve announcing that it would be pulling back on its construction workload after a £2M loss.
The sector is so concerned about low margins, that it is one of the drivers for the Institution of Civil Engineers launching Project 13, a move to try and reshape contractual relationships in the sector and improve margins.
Yet last week, Lord Adonis told New Civil Engineer sister title Construction News that he was “not worried in the slightest” about reductions in margins.
“I think it’s a sign that the public sector is getting a good deal at last,” he said. “Indefensible margins have been cut down to size, I’m not concerned at all.”
He added: “[Contractors] are still making a very good return from the public purse and it’s the job of the public sector, on massive projects like High Speed 2 and Crossrail, to get value for money.”
The RIA did admit the sector could “do better” on cost. The letter said: “Together, with our members, we are working to examine how we can reduce costs of renewals so that the taxpayer gets the best value they can. Through our Unlocking Innovation Scheme we are ensuring new technologies and methods are brought into the industry that will save Network Rail - and the Government - money.”
But it said to achieve more on cost, it needed support from the government, particularly during the peaks and troughs of major projects and the control period funding cycles and said it wanted to work to the NIC to help resolve these issues.
Source: @andrew_adonis / Twitter
Responding to the letter from the RIA, Adonis tweeted that he disagreed. He wrote: “Rail construction costs out of control and projects badly planned. See devastating NAO report on GW electrification.”