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Egan's bottom line

In the four years since Sir Michael Latham's 'Constructing the team' report set the agenda for sweeping changes in construction, no one has ever truly doubted that change was vital.

This week's follow-up report - 'Rethinking construction' - by Sir John Egan's government-sponsored Construction Task Force makes no radical departure from the well-trodden Latham message.

'The industry as a whole is under-achieving,' says Egan's report. 'It has low profitability and invests too little in capital, research and development and training. Too many of the industry's clients are dissatisfied with its overall performance.' Strong words, which were no doubt intended to provoke some reaction from an industry struggling to make the change.

To a large extent the problem now is not so much whether a change should be made but how it will be achieved. Talking about change is the starting point - putting it into reality is what really counts.

As Tarmac chief executive and Major Contractors Group chairman Sir Neville Simms points out, the industry is all too aware of its own state of health. 'We need to be more profitable and more consistently profitable,' he confirms, reflecting on the desperately poor margins still being achieved in the industry.

But he is also sure that since Latham there have already been massive improvements made by large sections of the industry. What it needs now, he says, is to wrestle some of the fruits of its increased productivity from the clients it serves. 'We need to make more money - we want to share in the benefits of this improved efficiency.'

Egan, like Latham before him, talks about learning from the radical changes made in other industries. Committed leadership, a focus on the customer, integrated processes and teams, a quality driven agenda and commitment to people are his five key 'drivers for change'.

These are targets for improved efficiency, safety, cost, productivity and quality. The challenge is for the industry to make further radical changes to meet them.

Unlike Latham's reforms which were followed by legislation, those instigated by Egan will be commercially driven. 'Rethinking construction' uses increased profits as the carrot and the risk of being put out of business as the stick (see box).

'The radical changes required in the culture of the construction industry are likely to mean that there will be fewer but bigger winners,' says Egan. 'The Task Force's view is that those companies with the right culture deserve to survive.'

Association of Consulting Engineers business affairs director Mindy Wilson is satisfied that the Egan task force's approach will achieve the desired results. However, she warns that there must be a joint effort between the industry and clients to make changes stick.

'Dictation from one person to another will produce results, but not particularly happy ones. There has got to be a collaborative effort,' she insists.

Wilson is convinced that Egan's message will eventually be heard, especially now that it has the backing of Deputy Prime Minister John Prescott.

'People will soon realise that if they do not develop a certain way of working they will be doing themselves out of business,' says Wilson. 'Everybody is in competition. Those companies that survive and prosper will be those that give added value to clients.'

Institution of Civil Engineers President and former Amec chairman Sir Alan Cockshaw believes that, having now accepted that the current construction process is wrong, the industry would see the Egan report recommendations as a 'useful contribution' to the solution. But he points out that clients must drive reform.

'The client's role is fundamental,' says Cockshaw. 'They must get away from thinking about price and realise that the only thing that matters is the outurn cost.' Clients are not unhappy when construction firms make money so long as they get what they want on time and to budget, he adds.

'If we have inefficient companies in the industry then they must go,' insists Cockshaw. 'What we need is an efficient industry - supporting the weak is not what we want.'

The industry knows it can deliver better value for money. But it needs to be encouraged to do so by the clients. 'Education, education and education is the answer,' according to Cockshaw.

The Egan taskforce's view is that getting clients and the industry thoroughly educated in the ways of partnering and alliancing is one of the first steps. 'The most immediately accessible savings from alliances and partnering come from a reduced requirement for tendering,' says the report.

BAA technical services group director Simon Murray - formerly chairman of the Construction Round Table clients' club - also accepts that clients should take a strong lead but he points out that the industry also bears a significant responsibility to change.

'The industry has got to grow up,' he says. 'Firms must realise that it is not their price but their ability to innovate that will win the work.'

Murray is keen to get to the situation where the whole industry can measure its performance against an agreed set of criteria. He expects pan-industry group Movement for Change to be set up to provide the lead following the Egan report's recommendation.

But he is in no doubt that with the exception of a few enlightened clients, consultants and contractors, progress could be slow. 'It is all down to attitude,' says Murray.

The Egan task force is also hoping to promote change through a series of demonstration projects although this has still to attract universal backing.

University of Bath's Professor Andrew Graves, who leads the Department of Trade & Industry-backed Agile Construction bench marking initiative, is not convinced that this approach will help.

While he says the message in the report is correct, comparisons made by Egan of the task facing the industry to that achieved by the UK car manufacturing, he believes, contain some degree of folly.

'UK construction is characterised by a Dunkirk spirit,' says Graves. Unless people are continuously cajoled into making a change, he says, they will simply say 'that's interesting' and continue to fire-fight.

'All the evidence from the UK car industry shows that as a nation we are not good at learning from demonstration,' he says, referring to the less than successful Rover/Honda experience in the early 1990s as an example. 'These demonstration projects have to be organically linked to actual sticks and carrots.'

And having spent two years working closely with Balfour Beatty he should know. 'With Balfour Beatty there was a lot of pain,' Graves admits. 'Unless you force them and work with them the Dunkirk fire fighting spirit returns.'

That said, it follows that the biggest hurdle for construction is going to be accepting that these reforms do not just apply to the new breed of super clients and the big contractors, consultants and suppliers lucky enough to be working for them. Starting small will surely be the answer - easy lessons learned well by as many people as possible.

Inevitably there will be casualties as people fail to adapt. For as Egan summarises: 'We are not inviting UK construction to look at what it does already and do it better. We are proposing a radical change in the way we build.'

Take it or leave it, there are tough times and some searching self examination ahead for the industry.

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