Law firm CMS, in conjunction with business research group Explain the Market, interviewed senior decision makers representing 15 companies from across the sector to find out how they are faring.
It found that contractors’ margins were under “immense pressure” and that 60% of those surveyed were concerned about the long-term health of the UK market.
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Meanwhile, CMS said many respondents had expressed worries about the problem of suicide bidding, with some calling on the government to take action.
“A culture of suicide bids…is creating an insidious race to the bottom,” one told the survey. Another top 150 contractor commented: “We are not proud to compete on a lowest price basis but I am afraid this is simply unavoidable for many decent firms out there.”
And another warned that firms were being forced to take on too much risk: “Government has a lot to answer for. Local and national. We can’t go on being expected to take all the risk on our shoulders,” they said.
The study found that in the 12 months since the Carillion collapse, companies have made major changes to working practices in an effort to improve scrutiny and rely more on technology. Some 70% said their approach to technology and innovation has changed, while 60% say they have improved the way they monitor and manage work with other companies. Most of the learning contractors (52%) still have confidence in the sector despite the challenges.
But Shona Frame, partner in the construction team at CMS warned: “The liquidation of Carillion showed that the concept of ‘too big to fail’ does not hold good in construction. This appeared to inject fresh urgency into discussions as to payment security. At a political level we have seen a number of initiatives – but the key issues of tenders being decided on ‘lowest price’ rather than quality of the finished product and whole life-cycle cost and contractors operating on cut-throat margins do not yet seem to have changed.”
Guy Shone, CEO Explain the Market, added: “One year after Carillion’s epic collapse it is clear from people on the inside that many major concerns remain unresolved. The very biggest firms are surviving on capital strength, but everyone is seriously worried about how the market still seems set up to create a culture of suicide bidding.”
During the survey, some contractors called for a blanket ban on lowest price bidding across the UK. Others suggested that new guidance on how firms can share knowledge on productivity, innovation and analytics without falling foul of anti-competitive regulation could support the industry.
Meanwhile, many executives believe that wholesale changes to the education and training of engineers are critical to driving better productivity, CMS said. “We have under-valued leadership, team working and innovation. Engineering degrees should be broader and feel more like MBAs,” one executive told CMS.
