Creating a productive environment for UK Construction

Creating a productive environment for UK Construction

Building better: CLC announces plan to boost industry productivity by 25%.

The Construction Leadership Council has today published a new report exploring the potential for the UK industry to transform its productivity, identifying three areas where billions of pounds of savings could be made, or additional value generated for the UK economy.

The analysis explores why average productivity per worker in construction lags 13.5% behind the wider economy and suggests that the introduction of a number of measures – many of them already in the process of delivery – could boost productivity by up to 25%.

For the first time, the report includes a detailed breakdown, issue by issue, of the potential benefits of boosting construction productivity; demonstrating the urgency of the issue and the scale of opportunity on offer if the challenges can be addressed.

The three key focus areas identified by the report are:

  • Better preparation: creating a productive environment to develop and deliver projects; through reforming the planning process for housing and major infrastructure projects; showing consistent leadership in project scope, creating more effective delivery teams, improving supply chain relationships and more collaborative working during the design process; delivering a potential 17% productivity boost and £30bn in annual value added.
  • Better building: delivering construction more productively; through maximising the use of MMC, supporting workers in the industry to re-skill and extending their careers; and reducing re-work through the elimination of errors; delivering a potential 7% productivity boost and £12.7bn in annual value added.
  • Better business: supporting our industry to do business more productively; through supporting digital investment for SMEs, better utilisation of capital and improved data on productivity at a sector level; delivering a potential 2% productivity boost and £2.8bn in annual value added.

Richard Robinson, Deputy Chair of the Construction Leadership Council and Chief Executive Officer, UK & Europe at AtkinsRéalis, said:
“Improving the construction industry’s productivity offers the UK one of our largest economic opportunities. If we can build faster, at a reduced cost, we can spur growth and job creation across the UK – delivering the places and infrastructure our communities want and our economy needs without delay.
“At a time when construction costs and the complexities of planning policy are rightly under scrutiny within the UK, this latest report from the CLC lays out the scale of the opportunity and sets out a roadmap to partner with Government to help us realise it. This isn’t just something that benefits our industry – it’s something that could be transformative for the entire country.”

The report includes a series of recommendations and measures for industry and government to follow, many of which are built on already existing programmes of work; highlights of these include:

  • Reform Planning, Allow industry to pay increased planning fees in returned for guaranteed standards of performance, learning from the best of the current planning authorities who already deliver efficiently and digitally
  • Showing consistent leadership in infrastructure planning, Adopt the proposed National Infrastructure Commission recommendations around accelerating the planning process for Nationally Significant Infrastructure Projects.
  • Supply chain development, work with the industry to bring about widespread fair and balanced commercial terms and payment practices.
  • Explore licensing domestic builder, gather evidence to understand the link between licensing domestic builders to enhance quality and productivity and if sufficient, introduce licensing.
  • Set out a clear policy and regulatory roadmap to accelerate domestic retrofit across UK housing stock.

The measures in the report will be built into the existing Construction Leadership Council delivery programmes.

FIS calls for payment and retention overhaul

FIS calls for payment and retention overhaul

FIS had today responded to the Amendments to the Payment Practices and Performance Regulations consultaton calling for an overhaul that will better support SMEs in the sector.

The FIS response draws on recent research conducted by the University of Reading into procurement, contractual and payment practices in the sector.  It challenges headlines indicating that payment in construction was improving, on the basis of flawed data that fails to measure the value of invoices paid and is opened to being gamed.  As it stands companies only need to report on the percentage of invoices paid, but does not measure value.  Whilst the guidance does make clear that invoice in construction should mean application, this is not regulated and there is little to no enforcement of how companies are reporting.   This misleading dataset masks a cancer at the core of construction that is killing businesses and ruining lives.

In the response FIS makes it clear that whilst metrics on the average percentage of volume of payments made are useful but fail to give us a true picture of payment performance.  As it stands efficient payment of small invoices for e.g. business facilities or stationary could mask differing practices within the construction sector, typified by larger payments. The FIS also recommends that Duty to Report obligations should be incorporated into annual Audit requirements to ensure that there is third party scrutiny of auditing practices.

The FIS is also calling for a clampdown on retention practices.  FIS Research dentifies 33% of main contractors always secure retention, compared to 14% of specialists.  This concern here is that a significant proportion of retention that should cascade through the supply chain is actually realised as profit.  FIS continue to advocate for the ultimate abolition of retention, but in the interim, to ensure that retentions are protected, associated only with the work packages undertaken and AUTOMATICALLY RELEASED based on a defined date (rather than abstract event).  This should be Regulated and monitored to prevent nefarious practices.

In a seperate consulation the FIS has applauded the efforts of the Small Business Commissioner recommending that the Office is strengthened, responsibility in the construction sector is extended and that the office is given more resource and greater powers to support SMEs in the supply chain.

You can read the full FIS Payment and Retentions Submission 2023 here and response to the Small Business Commissioners Consultation here.

The consultation closes at 11:45pm tonight and FIS has also prepared a template response to encourage members to feed their views in here.

FIS calls for payment and retention overhaul

Vital work to improve payment in construction – we need your help

In March FIS attended a round table with CLC and Government officials to look into payment practices, retention and support available through regulation via the Duty to Report.  I think there is a desire from Government to beef things up a bit to support SMEs, but we need to ensure that they see votes in change and that small businesses feel strongly about it – so to get change over the line we need your help.  We will, but we also need you to respond to the consultation.

What is the  aim in all this?

Recent headlines that payment practices in construction are improving are, at best, misleading.  Our own research with the University of Reading (shown in the chart at the top of this page) tells us that, for most in our sector, it is no better and, for nearly a quarter of specialists, it is worsening.  The improvement headlines ring particularly hollow when we see the human impact of poor practice and you know and care for the people that our QS helpine has been working with – it is not just cashflow and the cost of money that concerns us, the stress and human toil of poor payment is literally sickening.

Where the market fails to correct we need regulation to drive better behaviour.  Effective Regulation needs three things, a clear and proportionate set of rules and scope, an mechanism to measure and impactful enforcement.

Why does official data suggest it is getting better, but I am not seeing any (positive) change?

The old addage… lies, damned lies and statistics comes to play here.  The headlines are based on information extracted from the Duty to Report.  The concept of the Duty to Report is it exposes payment practices – it compells larger businesses (those that satisfy two of the following £36 million in turnover, £18 million on its balance sheet and 250 employees) to formally report on payment times against an agrreed criteria.  This means Government can make procurement decisions based on it, have a formal measure to support initiative like the Prompt Payment Code and equally SMEs can check theoretically check a company’s payment history (here) to help decide if you want to work with them. It is a good concept in that it highlights a problem, but the issue is that it is poorly delivered.

The underlying problem is that companies only report on volume of invoices, not value.  Ten tiny invoices (for e.g. stationary) can drown out one huge invoice for construction.  She system can be gamed by selecting what invoices to pay early to mask that you are paying the big ones late.  Thus you can still continue to use the supply chain as a free line of credit and still look good on paper!

The other big issue for construction is that it measures invoice payment, but in the complex world of applications, valuations, pay less notices and certification the invoice is not .  The guidance is actually fairly cut and dry:

  1. For construction contracts in scope of the Housing Grants, Construction and Regeneration Act 1996 or the Construction Contracts (Northern Ireland) Order 1996, businesses must use the earliest point at which they have notice of an amount for payment.
  2. This would generally be the date they receive an application for payment or, in cases where there is no application for payment, the date on which they receive a payment notice (or default payment notice) or on which they issue a payment notice – whichever is earliest. Day 1 of the time taken to pay will be the day after the day on which the business has this notice.

but, guidance is not regulation and frankly there are no meaningful checks and balances on how people are reporting.  In fact in our digging, it was identified that there have been only 18 investigations and no prosecutions.  Without proper checks and balances and strong enforcement, regulation is about as useful as a chocolate teapot!

Aren’t we supposed to be getting rid of retention by 2025?

The CLC roadmap to zero retentions does say that they should be phased out no later than 2025, but like so many ‘Roadmaps’ we seem to have lost the road!! I remain concerned that retention debate often gets derailed by trying to solve two problems at once.  For me there are two distinct parts to this debate:

1.  the underlying concept of retention – how we work, as a sector, manage trust and quality with clients to evolve away from retention and ultimately how our Standard form Contracts support this evolution.

2.  how they are fairly and consistently deployed within the supply chain – a key conclusion from our research is that they aren’t and the further down the supply chain, the less likely you are to actually get your retention.

I know it is more nuanced than that in terms of why and whether people have claimed, but for whatever reason the retention isn’t cascading smoothly (certainly not automatically).  If you think of certain parts of our market, the low margin means that the tier one is making around 3% profit on average – the value of retention effectively sit at their approximate profit.  Whilst there is a cash concern that more might be held against than they hold, the motivation for the less scrupulous in the supply chain, the difference between the 33% of main contractors and 14% of specialists always securing retention is about 19% of profit.  For this reason FIS can continue to advocate for the ultimate abolition of retention, but in the interim, to ensure that retentions are protected and AUTOMATICALLY RELEASED based on a defined date (rather than abstract event).

So what do we need you to do?

The purpose of this post is not to rant about things we all know, but to emphasise that FIS reserach is helping to inform a debate which is happening and there does now seem geniune interest from Government in addressing  some of these issues and  appreciation that continued nefarious practices in construction undermine the cultural changes that they want to see.  This is where you come in…

Full details of the Payment Practices and Performance Regulations 2017 consultation here

You can respond via the webiste or by copying and adapting (where you feel necessary) below in an email to the consultation questions to responsiblepaymentculture@beis.gov.uk (by 11.45pm 28th April 2023).

We have with colleagues representing specialists set down a template response that you can be downloaded below, but remember this is your response so do feel free to edit/ammend and add any personal comments or experience to help support understanding and change.

You can download the FIS template response here

Please do send us your response so we can factor in any additional points to the core FIS input on this.  Thanks for your support – together we are stronger.

Iain McIlwee
CEO, Finishes and Interiors Sector

PS  Through this process we are always looking for feedback on our Procurement Research recently completed with the University of Reading that may help you with your response.

PPS For support in managing your contractual responsibility, including the new Best Practice Guide that FIS has helped develop with the CICV in Scotland  and standard Terms and Conditions launched in 2023.

 

Amendments to the Payment Practices and Performance Regulations 2017

Amendments to the Payment Practices and Performance Regulations 2017

This week Kevin Hollinrake MP, Minister for Enterprise, Markets and Small Business Government opened a consultation into Payment Practices and Performance Regulations 2017.  The consultation is looking primarily at whether the Regulations should be extended beyond their current expiry date of 6 April 2024. It also provides an opportunity to consult on other potential amendments and improvements to the Regulations resulting from the views expressed by those who responded to the recent statutory review.

The consultation sets out proposals on:

  • amending the expiry date to extend the Regulations beyond 6 April 2024
  • including an additional value reporting metric
  • referencing payment reporting in a company’s director’s report
  • a clarification of how supply chain finance is reported
  • including a new metric on disputed invoices
  • retention payments in the construction sector

FIS fed into the initial review via the Small Business Commissioner and will be responding to the consultation on behalf of our membership.

FIS continues to speak out on poor practice witnessed in construction (see recent article in Construction News – FIS CEO calls out Payment Practices).  We will be also be drawing on research recently conducted with the University of Reading that has highlighted “46% of subcontractors reported waiting for 40-59 days in comparison to only 24% of main contractors. Perhaps most strikingly, only 6% of specialist subcontractors reported being paid within 30 days.”

Specifically on retentions the consultation is exploring:

Question 6: Do you agree that the Regulations should be amended so that payment practice and performance reports should include information on the standard retention payment terms in qualifying construction contracts?

Question 7: Do you agree that the Regulations should be amended so that payment practice and performance reports should include statistical information on retention payments?

But, it should open up an opportunity to raise more broadly concerns over retentions and our response will draw on questions raised in the research conducted with the University of Reading.

If you are interested in feeding directly into the consultation, you can access all the information here.  Please do send a copy of any response or thoughts that you would like embraced in the FIS response to iainmcilwee@thefis.org.  Equally if you want to talk through your views, don’t hesitate to call Iain on 0121 707 0077.

You can see the current FIS position on retentions here along with our wider approach to concerns over procurement and payment fairness in the sector.

 

Drilling into payment issues in Scotland

Drilling into payment issues in Scotland

FIS has supported CICV (a collaborative construction trade body in Scotland) in developing a new major new survey to help establish an overview of the current state of payments and cashflow in the Scottish construction industry.

Created by the CICV’s Pipeline & Commercial sub-group, the answers will help us shape a strategy to address ongoing issues, in consultation with the Construction Leadership Forum and The Scottish Government.

Commenting on the survey, FIS CEO Iain McIlwee stated:

“This is another important piece of work that the CICV is doing and it is great to see a genuine focus on collaboration across the wider sector once more being emodied through this group.  With the Government’s Payment review announced, we need to be honest about where we are as an industry – this is something we at FIS will really be stepping up the ante on this year.  Getting to the real data will help spotlight real concerns and instruct how legislation (and behaviours) need to change. Poor payment practices and process management around payment are a cancer at the core of construction. Please share your data so together we can drive change.”

FIS encourage anyone who works in construction to take part in the survey, which closes on 27 January and can be accessed here.

All answers are confidential.

December 2022 FIS CEO calls out Payment Practices
To fnd out more about FIS Campaigning in this area click here.

New Case Starts to Give Fresh Insight into Construction Claims

New Case Starts to Give Fresh Insight into Construction Claims

The case of LDC (PORTFOLIO ONE) LIMITED vs (1) GEORGE DOWNING CONSTRUCTION LIMITED (GDC) EUROPEAN SHEETING LIMITED (ESL).  Starts to give fresh insights into how claims will be heard in the new compliance landscape.

The case related to external wall works carried out by ESL under a sub contract to GMD Developments Ltd (the main contractor).  Both contractors were retained on a design and build basis and both issued collateral Deeds of Warranty dated 17 October 2008 in favour of the then employer, GMD. Those Deeds of Warranty were subsequently assigned by GMD to LDC (the employer).

The works related to three blocks, each over 18m high, and each with a different configuration of external wall cladding.  In each case, on the inside of the external wall cladding there is a breather membrane and Structural Insulated Panels (“SIPs”). The SIPs were fixed to the structural concrete frame of each block. The case is built on the fact that that following water ingress issues and subsequent investigations into the as-built Property, it was discovered that:

  • There are several defects in the external wall construction of the composite cladding elevations which have led to water ingress and deterioration of the SIPs.
  • There are fire barrier and fire stopping issues on all elevations; including in relation to the cavity barrier provision between the outer face of the SIPs and the rear face of the cladding panels on the Cor-ten elevations, and between the rear of the SIPs and the concrete slab and between SIPs, on all elevations.

Other material factors were that GMD had already agreed to a settlement of £17,650,000 with LDC, so the judgement being sought was related to LDC’s claim against ESL in the sum of £21,152,198.87 calculated as follows:

  • Cost of remedial works: £16,457,825.87; and
  • Loss of Income: £4,694,373.00; and
  • Downing’s claim for an indemnity and/or contribution against ESL in the sum of£17,650,000 together with Downing’s reasonable costs of defending the claim brought against it by LDC

The Judge found in favour of the Claimant and ESL were required to meet the full costs.  The case raises a number of issues.

The first is that it was heard despite the fact ESL are currently in Liquidation.  This means that any liability is likely to be met via a Professional Indemnity claim against the collateral warranty.   What is not clear is whether cover is commensurate with the claim or whether any subsequent claim could be brought against duty holders associated with ESL to meet any shortfall.  The judgement itself is silent on this, but new legal precedence has been created by the Building Liability Order is yet to be tested.  On this aspect, this may not be the last we hear from this case.

The second is that it was 15 years ago  – remember the Defective Premises Act now allows retrospective claims to go back 30 years (reverting to 15 years on jobs that started after the Building Safety Act was introduced in 2022).

Another important point is that the case rests not on whether the cladding needed to be removed due to the original selection of the SIPS system (it was replaced with SFS), but to address moisture ingress creating structural issues and uncovering fire safety concerns during investigation.  Consequently this judgment makes no reference to initial manufacturer claims.  Worth dwelling on is that whilst, for the purposes of remediation a new cladding system was selected and the judgment made reference to “post-Grenfell enhanced Regulation”, the premise of the case is that the works themselves fell short of the requirements due to moisture ingress creating structural concerns and residual fire safety concerns related to changes to the specification during the construction process. In her findings the Judge, Ms Buehrlen KV, concurred that it was more cost effective to replace the entire system and SFS was a better alternative in the wake of new guidance.  The comments from Technical Witness Mr Fung are interesting in the reference whether the need to replace was proportionate, but the defence seemed to rest on the fact that any remedial encapsulation would not represent a tested solution. The whole case doesn’t really get into the original specification and whether the potential would be a need to replace regardless due to new cladding legislation.  It is what we don’t know here that stands out here.

Another and perhaps the most significant aspect of the case is that a design change was pivotal to the judgement and attempts to caveat changes by ESL were not accepted.  This judgement centred on design detailing (i.e. missing verticle fire breaks and EPSM Membrane based on the original Architectural Specification) and workmanship (i.e. missing fixings and issues with the horizontal fire breaks) associated with the original cladding specification.  Failings and subsequent damage caused by water ingress to the original cladding system meant it was deemed to be structurally unsound and there were concerns about the fire safety raised.

ESL claim that they were instructed to omit the vertical cavity barriers and EPDM included in the Architectural Specification.  We are not party to where, how and why the decision was made around removing fire breaks, but ESL did as a result of the claim that they were “instructed to omit” attempt to exclude the provision of fire breaks from their contractual responsibility.  The judgement refers to emails and ESL in their original defence maintained that they were not responsible for the design of cavity barriers and they were instructed to omit the EPDM which caused or contributed to the water ingress issues.  Much we don’t know, but if there was pressure put on them to value engineer, a buildability issue was uncovered or whether any external advice was provided, it was not recorded and presented in a manner that convinced the judge that ESL were not ultimately responsible.  The Judge determined that these elements were intrinsic to the “design of the cladding and rainscreen” to deliver compliance and so regardless of the attempt to exclude and ESL was left with the liability.  The balance between these elements and workmanship issues was not discussed.

In conclusion the judge references the details from the Mulalley case in so far as “Building Regulation Compliance” falls under “Reasonable Skill and Care” in design and meetiing “All Statutory Requirements” in the case of the D&B Sub Contract.  The judge determined that the attempts to caveat elements of the design doesn’t supersede a contractual obligation to meet “All Statutory Requirements”.   It is unclear to me in the judgement how or why these decisions were reached.

Whilst the full implications of this judgement are yet to be determined, it does throw up some concerns for sub-contractors both in terms of the potential for legacy claims, underpins the need to ensure any change to the specification is appropriately signed off and to exercise caution in terms of the assumption that an express caveat releases a party from their core contractual requirements.

This article was prepared by Iain McIlwee and provided in good faith based on initial reading, FIS Lawyers will be looking in more detail at the full implications of this case and potential precedent set.

This judgement has not, at the time of writing been uploaded to the BAILII website, but will appear here imminently, if you are interested to read the full transcript in the interim email iainmcilwee@thefis.org