The CBI’s Construction Council has already claimed three victories in its work to promote construction after scoring direct access to Downing Street, says its chairman John McDonough. Ed Owen spoke to him.
Set up just a year ago, the CBI’s Construction Council was designed to give construction a platform on a par with finance and manufacturing − the CBI’s traditional industry partners.
Now its chairman and Carillion chief executive John McDonough says the first year has indeed been a success. “People want to join. We have a strong voice and a unified industry view,” he says.
The Construction Council has gone to the top of the power tree in its short life, thanks to the traditional links the CBI enjoys. “We have had a meeting at Number 10 and with ministers, and the talks have been most successful.”
“We have had a meeting at Number 10, and the talks have been most successful.”
McDonough says his team has scored four significant breakthroughs over the past year − three of them very high profile and all dealing with the immediate effects of the recession.
“First there was the capital spend and stimulus package. We got a £3bn package for construction. While it was not the most successful [stimulus package], the likes of the Highways Agency are spending money on the ground,” he says (see news).
“Second there was the debt market freeze − we pushed hard for debt financing and it came through from the Treasury in the form of the PFI [Private Finance Initiative] funding scheme.”
This scheme made Treasury cash available to help projects reach financial close (NCE 5 March). “By the end of July, there were five times more deals being done in 2009 than in 2008,” he says. The £2.2bn Manchester waste PFI has been the largest benefactor to date.
Industry unity and successful lobbying
The council’s third success was to persuade the government to appoint a chief construction advisor (NCE 3 September). Now, McDonough says getting the right candidate is key. “The right kind of person is needed and there will be an appointment in November. We need to have a high quality person in there and our members are putting names forward,” he says.
There has been more action too. The council has set up working groups on climate change, procurement and the low carbon economy.
McDonough is each of these are perhaps not as sexy as the big three wins, but they are significant nonetheless. McDonough says industry unity is the critical factor in the council’s success. Indeed it is the secret to successful lobbying.
He says the council’s recent report into the benefits of spending in construction (News last week) was a significant weapon in the battle to show the effectiveness of spending in infrastructure at bringing wider economic benefits. This was one issue on which all sectors of the industry could agree.
“It is time to go on the front foot − we have to make the case for why construction is important in a time of economic restraint.”
McDonough says the recession has also sharpened minds and made the council’s members think ahead. “We were formed heading into the crunch, and came together at the right time. Looking into the future, the public purse has to be managed better and efficiencies have to be made.
“It is time to go on the front foot − we have to make the case for why construction is important in a time of economic restraint. It is an exciting time,” he says.
McDonough says securing capital expenditure is the most important issue on which the group is now pressing. “Not only does every £1 spent bring £2.84 back into the economy, 92% is spent in the UK.
“The debate now is about maintaining spend. Net public sector investment is dropping from 2.25% [of Britain’s Gross Domestic Product] now to around 1.25% in 2013. That’s a big cut. We need to keep spending in infrastructure and sustainably so.”
Issues and concerns
The perennial skills issue is another concern. “The most disadvantaged are the very young. Construction is something that can make a difference here and now.
“If we are to spend £160bn on the low carbon economy and the infrastructure around it, then we are stupid to throw people out of work today if we need them tomorrow.”
The low carbon economy is another area ripe with opportunity, he says. “I want a new construction business − it is about innovation and world class safety. A massive 79% of the low carbon economy will be put in place by construction.”
“I want a new construction business − it is about innovation and world class safety.”
McDonough argues that some of the planned initiatives are counter productive to the UK economy. “Investing in clean engines will result in money going overseas,” he says.
“Similarly, in a car made here, 28% of the materials are sourced from overseas. In construction this is just 8%.”
But problems within construction are not restricted to the current recession. Planning has been a millstone around infrastructure developers’ necks for decades. The new planning system ought to be a good thing, he says, and McDonough is concerned about Conservative Party plans to abolish the newly formed Infrastructure Planning Commission (IPC).
This was established recently to fast track the planning process for projects considered to be of national importance. Fast track projects will be listed in sector specific National Policy Statements to be published by the IPC.
The Tory review
There is concern that the Conservatives might scrap the IPC if they win the next election as they have promised to review it. “The Tory review of the IPC is a concern. The National Policy Statements are coming out and we can’t afford to put them in limbo by going and putting a new process in.
“At some point the lights will start going out,” he says, referring to the urgent need to build new power stations. “This new system may not be perfect but let’s get on with it.” McDonough hopes, like many in the industry, that pragmatism may save the IPC.
“Any incoming government has a lot of learning to do and before taking power, will tend to see the negatives. Nothing is perfect but there is a lot of good stuff in here [the IPC]. If it ain’t broke, don’t fix it,” he says. Procurement is another problem, but one that needs addressing, he says.
“Nothing is perfect but there is a lot of good stuff in here [the IPC]. If it ain’t broke, don’t fix it.”
While the planning system is likely to be significantly improved through the introduction of the IPC, time must be saved in procurement. He says good examples are already working on the ground, particularly the Highways Agency’s Early Contractor Involvement (ECI) approach.
“We have to get away from long drawn out bids and tender processes that go on for years. Time compression is important. The Highways Agency’s ECI programme is working now, and roads are starting to be built on time because of this,” he says. Risk should also be managed in a more sensible way, he says.
“Procurement and government procurement need to go further more quickly. We have to look at risk management, risks through the life-cycle of a project and who takes that risk.”
Achieving ambitious targets
Funding new infrastructure needs to come from the public and private sectors so ambitious targets to decarbonise society can be achieved, he says. McDonough believes private investment is the way to fund more infrastructure in the future, a view shared by the Conservatives. “Not one method fits all. PFI has to be modified. Where is the best place for risk to reside? In practice, PFI is a good way forward.”
The Conservatives agree that PFIs could be a good way forward. “Toll roads could be a good use of PFI money, which is an extreme example of private investment. But PFI is not the only game in town. While PFI makes the most noise − almost everyone has heard of it − it has never been big. It only accounts for 8% of projects,” he says.
As for the ICE’s proposal of an infrastructure bank, McDonough says the CBI has: “not specifically looked at it”. Instead, he is more focused on getting the secondary debt market up and running. He says one major bank will shortly be announcing its intention to plough £3bn into the PFI market, but would not name which one.
“Debt is not easy-peasy to get. The cost of debt is high, but it is there,” he says.
John McDonough CV
- January 2001 to present chief executive of Carillion. Oversaw acquisition of Mowlem and Alfred McAlpine. Adds chairmanship of CBI Construction Council to responsibilities in 2008
- 1999 Becomes ASG Vice President, Integrated Facilities Management (Europe, Middle East and Africa).
- 1991 UK MD of Johnson Controls Automotive Systems Group
- 1972 Joins Massey Ferguson as graduate trainee engineer. Rises to managing director of its Global After Market company, age 35.
- 1st Class BSc (Hons) Eng in mechanical engineering at Imperial College London