Main contractors must ensure they better understand their exposure to their supply chain from the very day workers arrive on site, according to Crossrail’s programme supply chain manager.
John Mead was speaking at CN’s Forecasting for Construction event today.
He shared the stage with Balfour Beatty construction chief Mike Peasland, Bam Nuttall CEO Steve Fox and PwC engineering and construction leader Jonathan Hook.
Mr Mead said Crossrail has spent £5 billion on contracts so far, yet “not much of that” has reached the supply chain. He expects money to “cascade down” over the next few years.
“[Working with people you don’t know] is the surest way to hurt your business”
Steve Fox, CEO Bam Nuttall
He said Crossrail knows its exposure to its tier one contractors, but questioned whether the same could be said for main contractors.
“I don’t think it’s always understood at tier one,” he warned, adding that “a failure there [down the chain] could obviously derail the programme”.
Mr Mead said this is a particular concern outside of the multi-billion-pound joint venture partnerships on the contracts.
“You can go down one level in the supply chain and you can very quickly go to a very small organisation that does not have that comfort of a finance director,” he said.
He also said main contractors are holding onto cash and extending their payment periods.
“But down the supply chain the payment periods are staying the same; that’s not going to help,” he said.
“I think there’s this dichotomy and we are trying to address it with the use of project bank accounts [PBAs].”
Mr Hook echoed the concerns over supply chain risk, saying 2013 is likely to see many more failures.
But he described PBAs as a “double-edged sword”, meaning main contractors will have to look both at how they manage their cash, and at whether they can hold onto it in the way they do at present.
He warned that main contractors may have to work that financial impact into their bids.
Mr Hook added that main contractors and clients will also need to become more interventionist to ensure they are protecting themselves.
Mr Peasland warned the audience against basing their business plans on government policy, which he said “changes at a whim”.
But he said companies need to see where they can transfer skills to different markets, while not moving too far away from their core business.
Mr Fox also said companies need to avoid a “scatter-gun approach” to work, and focus on the right markets for their businesses.
He said relationships are central, adding that working with and for people you do not know is the “surest way to hurt your business”.
Mr Fox also warned that there has been a “huge return” to pay-led bidding, rather than quality.