RLB ROUNDTABLE SUPPLY CHAIN

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Rider Levett Bucknall | SUPPLY CHAIN – 2016

RLB ROUNDTABLE SUPPLY CHAIN A project can live or die on the strength of its supply chain. From bricks to steelwork, a problem at any stage can dramatically affect project completion; often creating a knock-on effect that can leave a project behind schedule and over budget. At RLB, we advise our clients to get close to their supply chain; to maintain relationships and identify any potential problems before they can have an effect. We chose six subcontractors, covering a number of key construction packages, to speak about the issues currently affecting them and to help identify the key to a happy, and efficient, supply chain. LABOUR AND TRAINING Much has been made of the skills shortage in the construction industry, and the problem is often exacerbated in the more specialist trades. Bricklayers, for example, have been in short supply for years, with Jon Whitlock noticing a sharp reduction after the 2008 recession. Some of our panel noted that, following the recession, a lot of migrant labour left Britain and there was a reduction in immigration. This has had a knock-on effect that has been particularly severe in the last 18 months, with the potential to be made worse with Brexit looming large over the future of migrant workers in the U.K. The general view around the table, however, maintains that the work ethic of migrant workers is fantastic. Indeed, a potential reduction in migration following Brexit will make skilled labourers already in the U.K. all the more valuable.

the other career options available to school leavers: "A lack of government support has left apprenticeships as unattractive, while more and more people are pushed towards university and the security in obtaining a degree. A change to the school rating system to show trade careers and apprentices placed could have a positive impact". Ann Bentley of RLB is quick to point out that the average person in the construction industry "earns 25% more than the average person in the population as a whole," and there must be a shift in perception among school leavers who will often take an unskilled job in the retail sector, for example, rather than start an apprenticeship and gain experience on the job. Jonathan Ducker of Kingspan points to the inadequacy of government funded training: "we used to outsource, but changes in government policy often meant courses couldn't find sufficient numbers to run". This has resulted in a need to provide further internal training and, when combined with paying the CITB levy, a duplication in training costs.

Nevertheless, if migrant labour is unable to make up for the skills shortage we must look internally, to the failures of our training and education systems. MJ When asked how we could educate Lonsdale's Gary Herbert struggles to find and change ideas about a career reliable apprentices, often finding only in the construction industry, Ann a small percentage able to complete pointed out that there is still a lack of the full course of their apprenticeships. understanding amongst Members of To combat this he will look to siblings Parliament, "a tiny percentage of MPs and relatives of workers already in have a background in construction". the business; "this helps with loyalty and creates a sense of Ultimately, these THE AVERAGE shared ownership in the problems are an PERSON IN THE company". inherent part of the boom and bust nature CONSTRUCTION Jon believes that a of the construction INDUSTRY EARNS poor perception of the industry. Gary notes 25% MORE THAN THE that the government industry by potential AVERAGE PERSON IN wants the construction recruits is part of the THE POPULATION AS industry to rely on problem, especially when compared to PAYE workers, which is A WHOLE

difficult in a cyclical industry. PAYMENT TERMS Certainty on timing of payment is hugely important for subcontractors. Delays to agreed payment timings and unjustified deductions adversely impact business profitability and cash flow. Subcontractors sometimes feel they are subjected to sharp practice by main contractors and are, to some degree, used to “fund” projects. A good reputation is important. In a buoyant market, where subcontractors can pick and choose their projects, they will gravitate towards projects and clients whom they can rely on for fair treatment. Our subcontractors indicated that payment terms in the market vary wildly; with a small minority of clients / contractors paying quickly while, at

BREXIT FOCUS The effects of Brexit on the construction industry have been thoroughly discussed in the media, with most predicting a negative impact. Our contractors seemed cautiously optimistic. In an industry where up to 80% of the workforce is often made up from migrant labour, the consensus was that skilled workers would stay in the U.K. The main issues were tied into currency fluctuations, and the ability to accurately price jobs that required imported supplies. This can work both ways, however, and a strengthening pound could lead to increased profit.

Rider Levett Bucknall | SUPPLY CHAIN – 2016

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See an increased use of project bank accounts / retention bonds in lieu of retentions

A reinforcement of employment taxation law

A realistic, coherent government plan for BIM

Reduction in the use of heavily amended forms of contract

To address the lack of quality vocational training

A series of joined up policies to encourage energy reduction

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6 CHANGES OUR SUPPLY CHAIN WOULD LIKE TO SEE the other end of the spectrum, some projects feature extended payment terms of up to 100 days. Adherence to contracted terms (whatever they may be) is also vitally important, so that subcontractors can manage and maintain their business.

from the norm, these methods are fair and offer security for both parties. The view of the supply chain is that they would like to see them adopted more widely across the industry.

The restrictions in the labour market over the past decade is also a key The simplest solution is to factor in driving the industry towards contractually enforce main more off-site manufacture. There is, contractors to mirror their payment however, a reluctance by clients and terms down the supply main contractors to PROJECT BANK chain. Apart from facilitate payment for attracting the best off-site work. ACCOUNTS AND subcontractors this can RETENTION BONDS help in ensuring the This is particularly OFFER SECURITY solvency of the supply relevant to facades FOR BOTH PARTIES chain for the project and M&E installations, duration. which between them can account for up to 50% of a typical The subject of retentions is not a construction project. The ongoing popular one around the table, but reluctance to pay for off-site materials they can be particularly problematic is putting further pressure on these for subcontractors involved in the specialist subcontractors. early stages of a project. Irvine Whitlock has been involved in projects Billy Field of Dane highlights the issue: where they have completed their "Our supplies are stored off-site, often package in the early phases. Because for months; and builders only want to retention release is linked to overall pay for supplies that arrive on site". project completion, however, they Storing supplies in this way results in have, on some occasions, had to wait Dane having to make large outlays over a year for their retention to be that won't be reimbursed for months. released. It is not unheard of for some "Everyone wants pre-fabrication, but more unscrupulous main contractors there are no payments to protect it - it to sit on subcontractor retentions for needs to be written into the contract". several years and beyond. With an increasing use of preFor many of our subcontractors, the fabrication becoming the norm, solution to retention woes already Clients must take a more progressive exists: "Project bank accounts and approach to properly administered retention bonds work brilliantly, in lieu off-site payments if they are to attract of traditional retentions". Although far the best in the supply chain.

THE PROCUREMENT PROCESS Whilst not unanimous, the general view of the group was that pricing levels were unlikely to reduce in the short to medium term. The main concern was the impact the weakening of sterling will have on input costs. In particular there are prescribed cost increases in steel supply set out for the rest of the year. The main advice, from Billy, is to "get the contractor involved early," to advise on efficient design options and buildability prior to issue of a project for tendering. Subcontractors are increasingly seeing tender packages coming to the market “too early” with insufficient detail and coordination. Whilst clients may view this as a saving in design costs, and increased speed to market, the reality is often a lack of cost certainly due to extensive post contract variations. This is ultimately detrimental to achieving the best cost and programme for the end user. This roundtable was chaired by Anthony Chudleigh, RLB, with contributions from: Ann Bentley (RLB) Jonathan Ducker (Kingspan - Insulation) Billy Field (Dane - Facades) Gary Herbert (MJ Lonsdale - MEP) Paul Lonergan (RLB) Glyn Shepperson (Shipley Structures) Dave Smith (JF Hunt - Demolition / Enabling) Jon Whitlock (Irvine Whitlock - Brickwork / Stonework specialists)