A failure to grasp first principles

If you spent a year or so calling into your local coffee shop, paying £2 for your decaffeinated yak’s milk-infused frappuccino and was suddenly presented with a bill for £4 for the same item, you’d quickly notice the change in price.

Similarly, if you had grown accustomed to paying – say – £7 per linear metre for one metre deep trench and then you receive a bid price of £2 this would set your estimator nerves a’tingling.

Human beings quickly grow accustomed to a certain set of parameters and any straying from those parameters is as in-built as the fight or flight response to danger. The default reaction to a sudden and unexpected increase or decrease in a set of familiar figures is based upon experience.

Which makes the Government’s recent announcement of incorrect construction growth figures all the more worrying as it suggests that the bean counters dealing with the data have little or no concept of the subject matter. (Although conspiracy theorists might argue that the mistake was merely an embattled Government seeking a rare if somewhat short-lived positive headline).

As one of the UK’s leading provider of statistics and market data for the construction industry, I fail to see just how such a mistake was made in the first place, or how it managed to percolate through the countless layers of highly-paid, taxpayer-funded analysts, officials, managers and PR types before landing on the desks of incredulous news agencies up and down the country.

Obviously, like The Builders’ Conference, the Office of National Statistics (ONS) would have used colossal computer power to generate the figures in the first place. Computers are a constant source of modern day annoyance but, if there’s one thing they do well, it is number crunching. But that, apparently, is where the ONS and The Builders’ Conference systems start to differ.

All statistical analysis produced and generated by The Builders’ Conference is checked, double-checked and verified by a team of experienced individuals with the background knowledge to look beyond the figures and into how those figures were generated. Based on what we saw last week, the ONS mainframe is linked directly to the desk of a junior public relations person whose sole job is to hit the send button that transmits statistical data – unchecked and untouched by human hands – to a set of media news desks across the land.

The fact that the Office of National Statistics – which, as the name suggest, is responsible for this country’s statistical data gathering and analysis – could make such an almighty cock-up in the face of several years’ information to the contrary beggar’s belief and I sincerely hope that measures have now been put in place to ensure that this mistake is not repeated.

By Royal Appointment

Wednesday marked the first ever corporate day held by The Builders’ Conference at the Guards Polo Club in Windsor, Berkshire.

As usual, Lisa Smith and the team at Crest House had worked tirelessly to pull together a fun day out for some of The Builders’ Conference’s senior officers and key members. The menu was just the right mix of classy and hearty; the weather stayed largely fine; the wine was chilled; and – even to the uninitiated – the sport was an exhilarating spectacle.

But there was something missing; something indefinable; a magic ingredient to provide the icing on an already fabulous cake.

And then, just in time for the final few chukkahs of the day, HRH The Queen accompanied by HRH Prince Phillip arrived to lend the missing majesty to proceedings.

OK, The Queen didn’t quite bestow a “by Royal Appointment” seal on The Builders’ Conference; but her arrival will be talked about for years to come in Conference circles.

Known Unknowns

For all his diplomatic and political accomplishments, the name Donald Rumsfeld will be forever associated with his press statement at the NATO headquarters in 2002: “…there are known “knowns.” There are things we know that we know. There are known unknowns. That is to say there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know. So when we do the best we can and we pull all this information together, and we then say well that’s basically what we see as the situation, that is really only the known knowns and the known unknowns. And each year, we discover a few more of those unknown unknowns…”

At the time he made that speech, the audience scratched its collective head and the media had a field day at Rumsfeld’s expense. But I am starting to know just how he felt.

A key part of the service offered to members of The Builders’ Conference is the collection and collating of construction information. This requires a team of highly-skilled and experienced researchers using a variety of techniques and methods to track down precisely which company has won what contract and from whom.

The clients and individuals that these researchers are required to deal with break loosely into two categories: those that give information freely and in a helpful manner; and those that protect even public domain information like it is a secret dossier on a premiership footballer’s extra-marital activities.

As a result, the conversation between researcher and contract winner generally takes one of two courses: “Yes, we can confirm that we have won Contract A and we’re due to start in two weeks’ time. Oh, by the way, you might also like to know that we have also won Contracts X, Y and Z and here are the details for those”; or “I am sworn to secrecy. May birds peck out my eyes and rabid dogs devour my tongue if I utter a single word on this top secret mission in which we may or may not be involved.”

To the vast majority that fall into the former category, can I say a heartfelt thank you from myself and our team of researchers. And to that small minority that insist on living by the “loose lips sink ships” creed, can I say: “Are you mental?”

That information you’re keeping so close to your chest that it’s causing jogger’s nipple syndrome is already running free. Your company has probably supplied its data to any number of other research organisations; it has divulged it to the Office of National Statistics; and it has probably informed a dozen or more sub-contractors to watch for the green light. Hell, it has probably erected a large, corporate-branded hoarding around the site that screams your company’s presence to everyone within a 20 mile radius.

By comparison, the celebrities and public figures that tried and failed to use super injunctions to keep their extra-curricular activities under wraps were veritable masters of secrecy.

Of course, a cynical person would now question: “So, what are you trying to hide, and why?”

I prefer to take a more sanguine stance. Devised by The Builders’ Conference, a non-political and not-for-profit organisation, the BCLive league table shows – in real time – the league position of more than a thousand of the UK’s leading construction companies. That position is dictated purely by the value of contracts won and disclosed, making it a worthwhile and timely free replacement for the sadly defunct Contract Journal CJ50.

So, in the words of Dirty Harry: “You’ve gotta ask yourself one question”. Do you want your company to be seen as successful, its league position underlining the volume of work you have all worked so hard to win; or would you prefer to languish near the foot of the table, clutching your not-very-secret, secret information to you for comfort?

The answer, at present, is another of those unknown unknowns.

Playing into the hands of the lawyers…

Neil Edwards

The effects of the current global economic recession are there for all to see, as is its impact on the UK construction and building industry. We have seen a number of companies large and small vanish from the business, and although the number of contracts let in 2009 and 2010 are remarkably similar, the value of those contracts has leapt off the economic cliff like a lemming on suicide watch.

On the contractor’s side, spend on perceived “luxuries” such as training, health and safety and marketing are all down.

But a bigger concern is the way in which clients and, in particular (although not exclusively) public bodies have reacted to the tightening of the purse strings following the Government’s Comprehensive Spending Review.

Not only are they demanding that contractors work for less to ensure that they don’t exceed their downwardly mobile budget allocations, they are all too often scrimping on the production of pre-contract documentation. As a result, contractors are not only working for less than they were 12 months ago, they are now being burdened with increasing levels of financial risk.

The result? An unholy mess that is often resolved by the only means available – costly arbitration – with both client and contractor losing out financially in a wholly avoidable legal battle.

If clients were to pay a little more to set in place a detailed control document laying out specific demands and requirements prior to commencement of works, the contractor would know precisely what the client expected and when.

And until they realise this, the only people likely to make any money from the beleaguered industry of ours is the lawyers.

UK economy can’t rely on construction’s lead

For more years than I care to remember, the construction industry has been seen as the barometer of the UK economy; and it is true that the sector has an unerring ability to mirror public economic sentiment.

Just recently, however, a number of economic pundits have suggested that, rather than merely reflecting opinion, the construction sector actually has the ability to inform it, even turning around the UK economy’s downward spiral and returning it to profit.

Unfortunately, as 2010 draws to a welcome close, based upon the statistics emanating from The Builders’ Conference, any prospect of construction leading UK PLC back to the promised land of profitability remains but a distant dream.

With just over a month of the year remaining, the annual figures for many regions of the UK make for depressing reading. The North of England is down by around £2.5 billion on the same period last year, the Midlands is down by a further billion, while London – still presumably working towards the 2012 Olympics – is also down by £2.0 billion, making it responsible for some 30 percent of the fall from a country-wide £35 billion in 2009 to the anticipated £29 billion for 2010. East Anglia and the South West also recorded significant drops. In fact, geographically, only Scotland has anything to smile about having enjoyed a £1.5 billion upturn in its fortunes during the past year.

The downturn is equally evident in the market sector figures. Spend on both housing and schools is down by a billion pounds year on year, while spend on infrastructure, railways and roads have all taken a significant hit. It will surprise few to learn that the sectors worst hit are those that benefitted from a major investment as the previous Government attempted to buy itself an extended stay at 10 Downing Street.

All in all, the figures here at The Builders’ Conference suggest that we’re back to 2008 levels of activity. They also suggest that if economists are looking for a sector to lead the economy out of recession, they may be looking in the wrong place.

Some Questions Merit More Questions

It will come as no surprise to anyone from the construction industry that margins are down across the board throughout the sector. Desperate to keep men and machines working, the construction sector has done what all market sectors do in a time of economic crisis: it has slashed its rates whilst attempting to offer its customers ever greater levels of added value in order to remain solvent.

Of course, such a reduction in price was predictable; and the fact that it may take many years to ramp prices back up to an acceptable level is equally evident.

But what few people seem to have recognised during our recessionary clamour for work is the stealthy encroachment of a “big brother” mentality that is being forced upon an industry punch-drunk from repeated economic blows to the head. And while low prices will slowly but surely give way to sensible profit margins in the months and years to come, our universal acceptance of these intrusive practices today sets a worrying precedent for our business tomorrow.

Take, for example, the dreaded pre-qualification questionnaire (PQQ). It has been around for years and gets ever more cumbersome and time-consuming by the day. An increasing number of main contractors are now insisting that you use their own unique PQQ in order to qualify for their tender list. This means more and more paperwork for everyone in the construction supply chain, often purely to satisfy an office administrator at Company A who likes to check your address first while his/her opposite number at Company B wants your insurance details front and centre. Desperate to make it onto both tender lists, subcontractors continue to fall over themselves to spend time filling in PQQ A in one way and then PQQ B in a slightly different way. And, let’s be honest, if a major contractor today insisted that you would only make it onto their preferred supplier list if you provided your company MD’s inside leg measurement, the vast majority in this industry would be reaching for the tape measure.

More intrusive yet is the growing use of Criminal Records Bureau (CRB) checks on construction personnel. Setting aside the fact that the rules governing the use of CRB checks specifically stipulates that they are appropriate only when workers might have “significant access to vulnerable persons”, these checks are increasingly becoming an accepted part of the construction procurement process. But on what basis? Under what criterion would a worker with a positive CRB check be refused access to a site? Where is this information stored and can it be used by an employer against an employee? And while CRB checks might be appropriate for individuals working for a prolonged period in, say, a school environment, what place do they have in the construction of a new housing development on a Greenfield site?

Unfortunately, having taken one hell of a beating in recent months, this industry currently has its guard down. And in our desperate need for work, and without a strong and vocal trade union to call these inquisitions in question and fight the industry’s corner, we are in serious danger of going like lambs to the slaughter down a one way road of administration and bureaucracy.

Did we honestly expect an instant cure?

So Messrs Cameron and Clegg – the most unlikely marriage since Michael Jackson and Lisa-Marie Presley – have been sharing their common-law house at Number 10 Downing Street for 100 days. Chances are that Samantha Cameron has by now thrown out the horse-hair sofas and tartan wall hangings left behind by the previous incumbents, replacing them with something a little more Notting Hill chic. But did we honestly expect her husband to achieve such sweeping changes in the health of the UK economy?

Regardless of which colour of the political spectrum you hold dear, it is plain to see that the Cameron/Clegg coalition has inherited a chalice more poisonous than a tabloid journalist’s breath. The UK economy, along with those of great swathes of the world, was decimated by the meltdown of the banking system and the resulting global recession. It was always going to take more than the switching of rosette colours and a few well-meaning political sound-bites to set the nation back on the road to recovery. Anyone that thought otherwise was surely drinking too liberally from a constantly half-full glass.

For a more realistic view of how long such change takes, we only need to look across the Atlantic. For all the bluster of his “can we change, yes we can” election rhetoric, Barack Obama has had his feet under the desk in the Oval Office for well over 18 months now and yet his much-lauded stimulus funding is only now trickling down to America’s blue collar workers. To expect David Cameron to achieve in 100 days what President Obama is still working on after 500 or more is as ludicrous as it is unreasonable.

Of course, the Cameron/Clegg coalition is certainly not above criticism. The predictable freezing of the Building Schools for the Future programme was still akin to kicking a man when he’s down. And the Government’s ongoing failure to recognise that a pound spent on construction is £2.84 gained by the UK economy is a matter that we must all address as a matter of urgency.

But, the fact is that the UK economy is in a hole and, although the measures set in place are harsh, it finally appears that we have at last stopped digging ourselves in ever deeper. That said, as anyone involved in the groundworks business will tell you, it’s going to take more than 100 days to backfill a hole of that magnitude.

Bad, but perhaps not totally

For those of us that keep a watchful eye upon the macro-economic picture as a guide to likely shifts in this industry of ours, the Coalition government’s decision to pull the rug from under the Building Schools for the Future (BSF) programme came as no great surprise. David Cameron and Nick Clegg have inherited a financial black hole from the previous incumbent of Number 10 Downing Street. And, like the little Dutch boy who shoved his finger in a hole in a dyke to hold back the sea, the two of them are taking desperate measures to prevent this country being swamped by the financial tide.

The freezing of the BSF programme – latterly, one of the few areas of construction activity where Gordon Brown’s last-ditch spending had a positive effect upon UK construction – has of course been greeted with much wailing and gnashing of teeth within the construction sector and the last vestiges of media that still serves it.

But just how bad is this bad news? Well, there can be no doubt that the freezing of the BSF programme will hit the industry and hit it hard. However, its impact is unlikely to be universal and, through no design of Messrs Cameron and Clegg, it might actually help redress the balance of power here in the UK construction and building sector.

For all its good intentions, the BSF programme – like all such framework initiatives – favoured the large national organisations with the manpower and financial clout to take on multi-million pound and multi-contract works. The dismantling of the BSF scheme might yet prove to be good news for those smaller contractors with a proven track record in the education sector that saw their livelihood undermined by the rigorous demands of the BSF framework.

And what of UK PLC ; taxpayers like you and I whose hard-earned tax contributions were underpinning this ambitious scheme to ensure that the country stayed ahead of the technological curve in the coming months and years. Will we be getting a better bang for our buck?

Almost certainly. For while framework agreements work in the government’s favour by being relatively easy to manage and administer, they tend to create multiple layers of management, contractors, sub-contractors and specialist contractors with every tier looking to make a profit from the efforts of those immediately below them on the food chain. By allowing these sub and specialist contractors to compete on a level playing field with the UK construction elite, the coalition government has – perhaps inadvertently – given thousands of smaller contractors and opportunity to win work that had, until recently, been closed to them. And the competition that this will instill is likely to ensure that UK taxpayers see their education money spent more prudently.

So yes, the BSF news was bad; but, perhaps, not all bad.

Open letter to George Osborne

Mr George Osborne
Chancellor of the Exchequer
11 Downing Street
London

Re: Your forthcoming emergency budget…

Dear Mr Osborne,

Please forgive me for this intrusion. I realise that you’re a very busy man and that you’re currently doing your best to dig UK PLC out of a deep, dark financial hole created by the banking sector, an unprecedented global recession, and by the previous incumbents of your current official home.

However, since you are working on an emergency budget that is likely to impact upon the industry that I represent and love, I thought I would drop you a quick line to offer you advice before you do anything rash on 22 June 2010. And I would preface my remarks by reminding you that, according to Building magazine, every £1 spent on construction generates £2.84 for the UK economy:

1. The construction industry is the UK’s largest single employer and any fiscal decisions you take that impact upon the construction industry will ultimately impact upon a huge number of other sectors from the equipment and materials suppliers we rely upon through the retailers where we spend our hard-earned cash to the parents that want school places, patients that want hospitals and drivers who need the roads that we build.

2. Our latest statistics suggest that there has been a sharp falling off in tenders within the housing association and affordable housing sector. Now, as a private individual I realise that if there’s no money in the bank, I can’t afford to put a conservatory on the back of my house. But the situation in the affordable housing sector is far more complex and far-reaching. For one thing, the UK continues to have a shortfall in the number of available housing, a fact that can only be addressed by a continued investment in the housing market or a moratorium on procreation. Moreover, reducing or freezing funding to the affordable housing associations impacts upon planning consents for private housing, driving up the value of existing housing and, therefore, driving up inflation. While the country remains in the grip of recession, I would strongly urge you to consider a relaxation of planning law to encourage private house-builders to maintain their construction programmes.

3. Another area of the construction industry that has seen a sharp decline from the first to second quarters of 2010 is in schools, colleges and universities. Now there can be little doubt that some of that downturn is merely the market finding a level again after the pre-election increase in spend in this area by your predecessor as a last-ditch attempt to secure some much-needed votes. But the fact remains that the level of spend in this sector is actually well below that of the same period last year, in the very depths of recession. With much of our manufacturing base now sadly consigned to the pages of history, the future prosperity of UK PLC will hinge upon the export of knowledge and skills. If we are to compete on the world stage in the information age, we will need a highly-skilled, highly-educated workforce; a workforce that can only be provided by an ongoing investment in schools, colleges and universities, even if that is achieved by a wider use of private investment in academy schools.

So before you pack up that battered briefcase of yours (and, by the way, I know that times are hard but surely it’s time to replace that with an iPad…?) and head for the House of Commons on Tuesday, please bear in mind that the construction industry is the backbone, the blood, the sweat and tears of the UK economy. And whatever ripples you create here may well become a tsunami in other sectors of the UK economy. So please be kind.

Yours Sincerely
Neil Edwards
Chief Executive
The Builders’ Conference

Loose Lips Sink Ships…

When the polling stations opened on 6 May, no-one could have predicted the incredible tumult that was to follow. Certainly, political pundits had foreseen a hung parliament but few had envisaged a Conservative/Liberal Democrat coalition. Following an impressive performance in at least two of the three televised debates, everyone expected Nick Clegg’s party to make substantial gains, yet they actually lost ground. And no-one, least of all the Electoral Commission, could have foreseen UK residents being denied their right to vote because of a short supply of ballot papers.

Against this backdrop of volatility, one factor stood like a beacon of certainty in a sea of unpredictability: the imminent cutting of public sector finance.

As The Builders’ Conference statistics have shown, Gordon Brown’s government used an injection of public service finance as a last-ditch attempt to win some much-needed additional votes in the run-up to the election. But it was a level that simply could not be maintained. And the manifestoes of the Conservative and Liberal Democrats both contained more cuts than a Wes Craven movie.

So when the honeymoon period is over and the dust has settled on one of the most keenly fought, closest-run and at times calamitous elections in recent memory, the UK construction industry is likely to find itself once again staring down the barrel of a shortfall in workload.

But while there is likely to be a cold wind blowing across the public sector landscape, there is no reason for this to be another economic ice age. In fact, the move away from Punch & Judy, two-party politics might ultimately prove to be the stabilising factor that the UK economy has needed for the past two years.

Regardless of traditional political leanings, most pundits agree that David Cameron has the potential to steer UK PLC through the choppy economic waters of a (hopefully) post-recession period. Nick Clegg should act as an additional check and conscience, advising Cameron against buying anything marked with the word nuclear and reminding him that wars only win votes when they can be won within a fortnight and when there are no British casualties. And, credit where it’s due, Vince Cable is certainly not the worst person to be charged with bringing the banks back in line.

Here in the UK construction sector, therefore, we are standing on the brink. The huge amounts of money targeted at schools and hospitals in recent months is going to be subject to intense scrutiny at best and total freezing at worst. But the major economies of the world (notably China and the US) are now on a marked upward trend; we at last have a degree of (albeit probably temporary) political stability and certainty; and sterling remains weak against most other currencies. Together, this provides precisely the kind of backdrop required to attract inward investment and to enhance private sector confidence and growth.

But having just survived the worst recession in living memory, confidence and the economy remain fragile and MUST be handled with enormous care. In fact, one unexpected trading statement could all too easily make the economic nightmare scenario – the double-dip recession – a painful reality.

So while the new coalition Government gets its feet under the desk and David Cameron becomes accustomed to looking at the House of Commons from a slightly different vantage point, let’s not talk ourselves down and into another period of recession. Let’s talk our industry and our country up towards another period of sustained (and hopefully sustainable) growth.

Remember: loose lips sink ships.