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Life on Mars stalks a squeezed industry

The next three years will see many civil engineering contractors go to the wall unless clients take responsibility for the situation and ease the pressure on cash flow and project risk.

That was the stark warning from industry leaders at last month’s Infrastructure Show.

Factors such as slow payment, intellectual property theft, inconsistent contractual approaches, and an apparent reluctance to make relatively well-paid consultants take more responsibility have all combined to leave contractors fighting for survival.

“Bad debt is our biggest risk today,” one the chief executive of one medium sized contractor told NCE at last month’s Infrastructure Show. “We have to really weigh up who we work for, and question internally whether we think we will get paid.”

The chief executive cited work his firm had done for a lead contractor on a major UK project as a classic case of work done but not paid.

“We had a contract that saw the amount of work required grow dramatically. The work is done, but we’re not being paid.”

Major contractors holding on to cash and not paying the supply chain is old news, of course. But the fact that major industry clients appear to be complicit in this is far more worrying.

Other contractors tell NCE of a similar story in the water sector, with the clients themselves often holding on to the cash long after work is done.

Network Rail has recently unveiled plans to cut the time it takes to pay suppliers. It seems many more need to take this lead.

There’s no reason yet to think that Crossrail won’t, but it is likely to be a client that faces the most scrutiny over the next few years, as construction work on Britain’s biggest project gets underway with a vengeance.

And already there are dissenting voices in the contracting community, unhappy at the way contractors are under intense pressure to deliver to time and budget, while consultants that designed that work are absolved of such responsibilities.

Costain hopes to change this. It has urged client Crossrail to bring its designers into pain/gain share arrangements with its contractors to better engage them with contractor-proposed design changes.

“Consultants are not currently encouraged to take on our ideas… We will see in the next couple of months whether it is adopted,” Costain rail contracts director Lee Davies said at the Show.

Costain is lead contractor on the Crossrail Paddington station contract, and hopes its recommendation will be adopted.

Davies was speaking after Crossrail head of procurement Martin Rowark had stressed that the mega-client was not necessarily awarding contracts to the lowest priced bidder. Rather, it was looking for best value, he said. Davies concurred with Rowark, but said more needed to be done to encourage contractors to invest in innovation to create best value.

Bam Nuttall chief executive Steve Fox, speaking at an infrastructure leaders’ panel discussion at the Show, said that if clients truly wanted contractors to offer up innovative, cheaper solutions then they needed to start respecting contractors’ intellectual property on new ideas.

“Grown up customers already do that,” he said. “But it doesn’t happen across the board. There are a number of clients out there who will take your ideas and tout them around on retender. It doesn’t do much to encourage innovation,” he said. In fact, it’s another abuse of position that gets free work out of already stretched contractors.

London Underground head of stations Miles Ashley agreed that such practice should be stamped out. “It really doesn’t sound like it should be hard to stop,” he said.

Fox also stressed the need for a consistency of approach from public clients if costs were to come down.

Fox, who is one of three industry leaders charged with rolling out the plan by Treasury body Infrastructure UK (IUK) to cut the costs of civils, said a big concern for IUK was getting its recommendations to clients fully embedded in all public bodies.

But who is going to force clients to take action? Fox said the industry had to act with a stronger, single voice to government. “The industry has got to have more a joined up voice,” he said. “There are far too many industry groups fighting their own small corner. There is not one single big hitter.”

Incoming ICE president Richard Coackley said he “wouldn’t be as presumptuous” to suggest that that single big hitter should be the ICE but rather that institutions and trade bodies needed to collaborate.

Wise words, no doubt. But the industry needs to see some real action, and soon, if more firms are not to go to the wall.

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