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ABBA lyrics and broken business models

Lucy Alderson

Admittedly, there aren’t many correlations you can draw between the construction industry and 70s Swedish pop sensation ABBA.

However, the lyrics from one particular song perfectly summarise a series of fundamental and interwoven problems firms up and down the supply chain face:

“I work all night, I work all day, to pay the bills I have to pay / Ain’t it sad.

“And still there never seems to be a single penny left for me / That’s too bad.”

Main contractors operating on knife-edge margins are constantly seeking ways to cut costs on projects to maximise what little profit they expect to make.

Subcontractors are often hit as a result, put under pressure to increase project margins – perhaps by using cheaper materials or trimming the programme to reduce labour costs.

This week Claire Curtis-Thomas, boss of industry certification and inspection body the British Board of Agrément, discussed this issue at a select committee hearing on Dame Hackitt’s review of Building Regulations.

She outlined how unsustainable main contractor margins can snowball down the supply chain, and how this culture of driving down price often starts at the top with the client – particularly in the public sector. 

Individuals working in procurement at local government level “don’t really understand the complexity of what it is they are seeking to procure”, Ms Curtis-Thomas suggested, adding that they often started from the position of securing best price over best quality.

As a result, she argued, clients were putting pressure on main contractors to cut costs, with this pressure inevitably cascading down the supply chain.

Projects running into problems only exacerbates the issue, Ms Curtis-Brown noted. “When you’re working with companies that are effectively running at a loss before you start, you have to ask, ‘What if something goes wrong, where are the means to address this?’.”

These “means” can take the form of poor payment practices adopted by main contractors.

The fact that the issues cited by Ms Curtis-Brown cascade down the supply chain highlights that the clients at the top are crucial to any solutions.

Those within clients who are responsible for tendering projects need to understand what the construction industry is facing if the procurement process is to improve.

Clients such as Network Rail are taking matters into their own hands, banning the use of retentions and mandated 28-day payment terms on CP6 – as revealed by CN last week.

With clients stepping in to set the standards, contractors will have no choice but to comply with the rules – or risk losing out on future work.

After all, central to this is, of course: money, money, money.

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