In my analysis in Construction News last week I put forward the case that to resolve the unsustainable profit margins that major contractors face, we need to focus on re-balancing risk in procurement.
And it appears that Sir John Armitt, shares these views.
Armitt also suggests that the UK's biggest contractors are "too generalist", which I do agree with.
The challenge of maintaining a generalist approach within any business is evident; the lack of focus on key client needs and requirement leads to a less than exemplar service, and the "grass is always greener" mentality sets in and draws attention away from what the firm already has. What could be a market-leading capability becomes watered down by the need to do more and more for a more diverse client base.
What interests me the most in this article is the reference he makes to some good practice from Ferrovial, Bouygues and Skanska. These firms have successfully competed into the UK market despite being international contractors with interests and a client base likely much broader than some of the top 25 in the CN100.
As the market settles in the eye of the Brexit storm, I do think we will see profit margins improving across the industry, but with the full force of an EU-exit yet to hit, I do believe the worst is yet to come.
Firstly, clients need to come up with procurement methods that spreads risk and prioritises value over cost and bottom line. “With a focus on cost, contractors’ approach is about how can we [remove] staff here, how can we make cuts on plant here, and the net result is the problems we see firms getting into.” Alliancing and framework models used in the public sector seem to be the answer, with Sir John singling out those used in the water sector and those by Highways England and Network Rail as good examples. “With these we will see things finished on time and on budget and, importantly, contractors making better margins.”