What does Essential Living’s move to scrap its main contractor framework tell us about the outlook for tier one contractors?
The developer, which is still at the early stages of carving out a niche for itself as a private rented specialist, this week said it would do the construction management of its schemes itself and procure directly with subcontractors and suppliers.
Essential Living’s construction director Ray Theakston said the decision to get rid of the framework was taken to give the developer “greater control over problems” and more “hands-on” control of cost and risk “which we are no longer willing to pay for using a main contractor”.
“Industry-watchers have for several months been saying that they think the market is turning, particularly in London”
Not holding back, he went on to assert that design-and-build contracts were “on the rack” and stated that Essential Living believed the market had reached a tipping point.
At the same time, the developer terminated its contract with Brookfield Multiplex – one of the main contractors on the framework – to build its 395-home Infinity Towers project in Canary Wharf.
Essential Living is the second client in two weeks to go public with its wish to procure directly from subcontractors – Gatwick said last week it would be doing the same in some cases – for example escalator and lift suppliers, which makes sense.
Shifting face of industry
The tectonic plates under the construction industry are shifting. Industry-watchers have for several months been saying that they think the market is turning, particularly in London, and the evidence is mounting. The question will be how contractors deal with those shifts.
When the industry is in the throes of recession, all that matters is coming out of it. Once the worst is over, the focus shifts to managing the transition back to growth – and we’ve seen several of the UK’s biggest contractors struggle over the last five years to jettison the jobs they priced when the market was at its lowest.
“More and more developers are choosing to wait until the market cools, and contractors may find they need to adjust their pricing”
Last year, clients were incentivising contractors to bid for major jobs such as Battersea Power Station. Now, more and more developers are choosing to wait until the market cools, and contractors may find they need to adjust their pricing – and their attitude.
The industry has been here before of course. This is not panic stations, but it is a prompt: how will your actions as a business affect your own bottom line – and the wider market? Don’t miss the moment or you could miss your chance.