One year on from Carillion – new report reveals ongoing challenges for UK contracting sector

On the one-year anniversary of the administration of Carillion’s dramatic collapse, new research has revealed the realities of working inside the UK contractor market.

The study by international law firm CMS, in conjunction with business research group Explain the Market, canvasses views from executives from 150 companies across the sector to uncover the state of the industry from inside the boardrooms of many of the biggest brands and determine what is needed to address the challenges that continue to threaten the health of the sector.

One year on from Carillion – new report reveals ongoing challenges for UK contracting sector

The study reveals 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. Seventy per cent of UK contractors said that their approach to technology and innovation has changed, while 60% of firms have improved the way they monitor and manage work with other companies. Most of the leading contractor companies (52%) still have confidence in the sector despite the challenges.

However, the bosses of contractor firms reported deep concerns about the way companies are pressured into bidding for projects at cut-throat profit margins - and shouldering most of the risk. Many leaders report serious worries about the widespread problem of ‘suicide bidding’, with some calling for government action.

One top 150 contractor admitted that “a culture of suicide bids… is creating an insidious race to the bottom” while another added “we are proud not to compete on a lowest price basis… but I’m afraid this is simply unavoidable for many decent firms out there”.

One year on from Carillion – new report reveals ongoing challenges for UK contracting sector

Shona Frame

Shona Frame, partner in the construction team at CMS, said: “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.”

As a result of these continuing pressures, 60% of contractor market leaders are concerned about the long-term health of the UK market. The vast majority of respondents agreed that major structural changes are essential for the market to thrive in 2019 and beyond - some urging for a blanket ban on lowest price bidding across the UK.

Some 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. Many executives believed that wholesale changes to the education and training of engineers are critical to driving better productivity.

As one top 150 contractor put it, “…we have under-valued leadership, team working and innovation. Engineering degrees should be broader and feel more like MBA’s”.

Shona Frame said: “A number of challenges have been identified in the research. Many are not new and the issues are complex with multiple stakeholders. However, we are seeing fast-moving developments in approaches to technology and innovation in the industry and there is a real sense that this will drive change not only in working methods but also in the need for collaboration and the benefits this can bring.”

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