Industry Watch – Construction Lobby Lays Out Plan For 2018 – What They Got Right and What They Got Wrong.

The article I have for you Today comes from the United Kingdom. It appeared on www.constructionindec.co.uk on the 3rd of January. It’s a report about a specialist lobby group called the Specialist Engineering Contractors’ (SEC) Group.

The article lays out the three main points that the SEC will focus on for 2018. Those points are procurement, payment, and professionalism.

What is interesting to me in this report is that these three points have received quite a bit of attention in recent months. The fact that the SEC has focus on these issues foretells of major changes for construction in the future, so I thought we should look at them closely.

Procurement

The SEC is promoting alliance arrangement models which move away from traditional construction delivery models towards a unique arrangement that creates “Virtual Companies”. This revolutionary delivery model creates a unified muti-disciplinary team that is seconded to an Alliance Manager all covered under an Integrated Project Insurance.

In the US, the closest alternative delivery model to this is Integrated Project Delivery models proposed by the American Institute of Architects.

This is the first I have heard of alliance arrangements, but you may note from many of my own writings, that I am very interested in delivery models that relieve parties of risk.

Not only do I agree with the SEC that more collaborative models need to be explored, as a procurement professional, you can bet I will be encouraging this kind of delivery myself.

Payment

In 2017 we witnessed the demise of one of the world’s largest construction companies.

In this blog, I have chronicled the liquidation of Carillion and how their failure was due in part to unreasonably long payment terms. I have shared with you that this is not an anomaly and that many more large constructors are subject to the same risks.

The SEC is on a mission to improve payment terms for contractors and to protect sub-contractors.

In this initiative, the SEC is promoting the use of project bank accounts (PBA). PBA’s are now being trialed on public works projects in Queensland Australia. PBA’s are bank accounts that are created solely for managing the distribution of funds for a construction project. These accounts are strictly regulated requiring the prime consultant to provide out-of-pocket funding anytime an amount due to a sub-contractor is insufficient.

You might recall the Carillion failure was due in part to them owing significant sums to their subs, but because their payment terms with the Owner were well over 180 days their subs were waiting more than 6 months to be paid.

Using PBA’s as a method of project accounting aims to limit the exposure of sub-contractors and is being mandated by law. In November of 2017 the Queensland Parliament passed the Building Industry Fairness (Security of Payment) Act of 2017. The SEC hopes to lobby Parliament in the UK to follow suit with Queensland.

The problem of late payment in construction has many facets to it. I don’t believe that there is any one solution to relieve the industry of this burden. Legislating the use of PBA’s may not solve the problem. I’ll dive more deeply into PBA’s in a later post, but on this issue, I think there needs to be more done.

Professionalism

On the subject of professionalism, the SEC is referencing the Grenfell Tower fire and the Cole Report. I have already written about the Grenfell Tower fire and have expressed my feelings on that subject.

The Cole report however is a new topic, you should be familiar with. The Cole Report is a comprehensive report issued by Professor John Cole CBE RIBA. Professor Cole’s report has been lauded by the construction industry as “comprehensive and hard-hitting”. Cole’s report covers the spectacular collapse of improperly constructed masonry walls at several public schools in the UK.

What is significant about Cole’s report is that it addresses the commonly overlooked problem of quality control in the construction industry. Cole cites the use of quality inspectors that are directly hired by the constructor to inspect the quality of the constructor’s own work.

For anyone not in construction, that should sound inappropriate, but the fact is that this is a common practice. Most often we see this happen in the private sector. Private sector Owner’s who’s core competency is not in construction, often completely overlooked quality control assuming it just gets done.

In geographies where contractor led design build projects are common (such as the UK), Owner’s don’t even benefit from the Architect’s vigilance during construction because (as noted by Cole) their presence is reduced under such arrangements.

Cole’s Report calls attention to several areas where the industry has grown lax. The gaps cited by Cole are largely blamed on the pressure to reduce costs, but the SEC’s point is that collectively the profession has lost it’s professionalism. Their proposal is for a licensing scheme that requires credentials from trade associations.

I’m not entirely certain that paying more money to trade associations will solve these issues. I would start by eliminating contract-led design build schemes, after all, haven’t we already diminished the role of Architect’s enough?

Closing

The SEC appears to have the right focus, but on some of these positions they might just be missing the point. Circulating construction payments through dedicated bank accounts wont keep owners from making late payments nor will it encourage them to agree to more aggressive payments terms. Similarly, investing more money on trade organizations and creating new licensing requirements at a time when we have labor shortages wont protect the public from poor quality. These issues need to be dealt with directly addressing the crux of the problem without adding more complexity to the work. I’ll share more of my thoughts on these subjects in future postings.

What do you think? Are the SEC’s priorities properly focused? Are there other issues that they have not addressed? Tell me your stories.

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