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The direct approach
Our Richard Selby writes for Local Government Executive magazine on how local authorities could improve their construction contracts.
Transport for London (TfL) has recently announced it will work with small firms for the £330m redevelopment of 70 of its train stations, something construction expert Richard Selby believes local authorities could learn from.
London Underground (LU) has recently selected more than 20 small to medium-sized enterprise (SME) contractors, and three multi-discipline design firms, to bring a new collaborative approach to its £330m modernisation programme. The work will see 70 stations refurbished and maintained to a common standard that it hopes will result in no further work being required for at least 10 years.
By selecting and working with over 20 SMEs to complete the work, LU has reduced the chances of stifled communications affecting its supply chains. This is a problem that has become increasingly typical within large construction contracts of late – where it is not uncommon to have up to 70 subcontractors working together in four or five-tier structures for one client.
By choosing to work with smaller firms, LU has put great craftsmanship at the top of its agenda, stating that it believes it is “the key to the success of any infrastructure project” – and I believe local authorities can learn from this results-driven approach by directly engaging with subcontractors in all construction work.
Now I’m not suggesting that all local authorities should stop working with larger main contractors – far from it – but engaging with their subcontractors early, in addition to their main contractor firm, can improve the efficiency of projects.
When communicating through a main contractor, there is a risk – and often a reality – that messages can be misinterpreted, leading to misunderstandings, differing expectations and even disputes.
Direct communication with subcontractors reduces that risk, as talking to those on the ground helps the client to gain a better understanding of the challenges associated with the project. By communicating with the subcontractors at an early stage, clients will become more aware of the task ahead, helping them keep up to date on progress and fully aware of any hitches that could delay the process.
Without this direct communication channel, both the client and the subcontractor are at risk of increased costs. Alongside the penalty fees incurred by construction firms for lateness, local authorities – all too keen to avoid upsetting their service users by delaying work – could be forced into hiring a new contractor to complete the work at an increased cost.
Direct negotiation with subcontractors would also encourage more SMEs to come forward and compete for public sector contracts against larger competition, stimulating a culture of more innovative practices to complete work – saving the public sector money and helping smaller companies grow.
Local governments should also be careful to choose main contractors with a good reputation for paying their subcontractors on time – like the majority of firms we work with. Just last year, nearly three quarters of all subcontractors were paid beyond 30 days after the completion of the project. These results have led to the Construction Leadership Council launching a charter that commits the Government and wider public sector, major contractors and clients to pay all suppliers within 30 days from 2018.
More immediately, as of this year, the agreement forces clients and main contractors who sign up to the charter to pay all suppliers within 60 days immediately. This will then be reduced to 45 days from June 2015 and to 30 days in January 2018.
To encourage more SMEs to bid for public sector contracts, it is advisable that all local authorities insist that their main suppliers are signed up to the charter.
Only time will tell how successful the charter will prove for SMEs when working with local authorities but we already know there is significant value to be gained from engaging with them as early as possible in the work process.
By connecting with all suppliers early, local authorities can take greater control of their projects, mitigating risks and building closer relationships between sub-contractors and main contractors, ultimately saving time and money for clients, while producing a higher standard of work.