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Night of the Laing Knives

ANALYSIS; One of the UK's most respected contractors is facing an uncertain future suggests Andrew Mylius.

Laing has the business nous, technical expertise and project management skills to deliver high quality construction schemes and to turn in healthy profits, believes division chairman Jim Armstrong. Making the vision happen, though, involves shedding nearly a third of UK staff and cutting turnover by almost half.

'We're achieving 1.2% margins on turnover, and that's simply not good enough,' Armstrong states. The firm is chasing a modest but elusive 2%.

'Clearly we can't improve profits by raising the fees we earn from clients,' he says. 'So we have to make a difference in the way we approach projects. Laing must develop a uniform strategy across the company based on procedures tested on our best projects.'

Finance director for 10 years before he was appointed chairman last year, Armstrong says Laing has performed well in the water sector. He also counts work on the M40 (undertaken with Tarmac), A55 and A140 as strong projects: 'They were well bid, well managed and gave good value to the taxpayer.' Armstrong even claims success on the troubled Cardiff stadium: 'It was very good, complex engineering delivered to time,' he says.

In Armstrong's view, Laing's problems have lain in its fragmentation. By retrenching, reducing turnover to £650M from £1.18bn last year and knocking 850 staff from the pay-roll (the construction arm employs 2,800), the company will be able to centralise.

Laing aims to build a more coherent structure, with skills and knowledge concentrated at its Hemel Hempstead headquarters. The 12 regional offices, to suffer the brunt of the job cuts, will be 'tentacles' attached to and ultimately controlled by the central office brain.

Armstrong sums up the problem: 'The structure we have creates too much overhead and leads to complex decision-making. We are getting rid of cumbersome hierarchy and matrix management.'

Capitalising on its remaining human resource, the company is introducing a £2M a year training regime to hone tendering and risk assessment skills. Armstrong is adamant that, if Laing can improve accuracy at tender stage, profits will bound upwards.

Laing has also mapped out a £3M a year IT investment programme. Electronic communication and e-commerce will be intrinsic to supply-chain management, he thinks.

The regrouping, skill-sharpening and equipping in progress is paralleled by a decision to become a high-value-only contractor - Laing is to withdraw entirely from jobs below £10M.

'We are working on about 150 contracts at the moment and are prepared to see the number fall to 60,' comments Armstrong. 'We need to win 40 new contracts a year - a win rate of one bid in three - to put quality and profit into the business.'

The pared-down contractor particularly wants work won through negotiation, as well as two stage tender, fee-based, private finance initiative and prime contracting projects.

Partnering is Laing's future, claims Armstrong. However, he quickly quashes suggestions that Laing may no longer competitively tender for lump-sum contracts. Activities will be focused where Laing has an established record in transport, public sector buildings, commercial accommodation, industrial and utilities projects.

Armstrong has been pushing for reform at Laing for more than a year, he says. Envisaged improvements in performance on site should make the £18M cost of this year's reorganisation (Laing underwent a £7M re-grouping only last year) a good investment, the chairman maintains.

But there are doubters. Laing stock fell 10% when the re-organisation was announced and has failed to bounce back.

'The reason share price fell is that Laing has admitted they've got it wrong,' commented one construction analyst. 'Why has it taken so long for them to see that this [risk management, value engineering, partnering] is the way forward?' he queried.

Firms like Amec, Bovis, WS Atkins and, lately Fluor Daniel and Bechtel have carved out a commanding position in the UK market that, he said, Laing would be hard-pushed to challenge.

'The territory Laing has in its sights is going to be shaky ground for anybody not in the contracting elite,' he said. 'There's a barrier to entry, and it's not price.'

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