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Paul Sheffield on the government's faults and why Kier is capping its bids

Having worked his way up from being a civil engineering graduate to chief executive of Kier in his three decades with the company, Paul Sheffield is well-placed to offer a view on the impact of changes in government policies.

He sits at the top of a firm that is putting self-imposed caps on the size of contracts it bids for and placing a lot of its faith in sectors such as power and energy, which are beset by uncertainty.

But it’s a strategy that appears to be paying dividends, as Kier continues to post solid results as contracts slowly re-emerge, including the £80m Wakefield waste plant deal secured this month, three years after being named preferred bidder.

Mr Sheffield is clear in his views on how industry and government need to work together to bring a return to growth, having sat on a government procurement task group last year.

He has also been invited to join 17 leading figures on the industry advisory panel created by chief construction adviser Peter Hansford, which will devise a long-term industrial strategy for the sector.

Engine of recovery

“I think my view of the coalition is that they almost have too many ideas,” he says. “A huge number of ideas and not enough horsepower under the bonnet to put the detail behind the plan and make it work.

“I think in many ways we would probably benefit from fewer initiatives and making sure we can focus on the delivery of those we talk about.”

“My view of the coalition is they almost have too many ideas and not enough horsepower under the bonnet”

It’s a criticism that he extends to the desire in the Department for Business, Innovation & Skills to increase housebuilding. “I think Vince [Cable] recognises that parts of construction can make a huge impact on the nation’s ability to generate jobs and wealth,” Mr Sheffield says.

“The part of the industry he is particularly enthusiastic about is housing. He’s frustrated that the housebuilding industry isn’t building more but the reality is that the industry will build as fast as end-users fill them up.

“If you can’t get buyers the industry won’t build it. I’m not quite sure he has got the connection between mortgage availability and the speed at which the private sector will build.”

Blacklisting needs tackling

Paul Sheffield has said Kier does not use blacklists, and told CN it did not consult any for contracts on Crossrail, but admitted the issue needs to be tackled by the industry.

Speaking the day after shadow business secretary Chuka Umunna called for contractors to compensate blacklisting victims, Mr Sheffield said it was an “interesting idea” but stopped short of pledging his support.

“There’s a lot of water to flow under the bridge in terms of evidence and what the genuine impact was, and to be quite frank that would be very difficult to gauge. It’s an interesting idea.”

He admits industry needs to tackle how it deals with blacklisting, as it tries to promote a positive image through campaigns such as Creating Britain’s Future.

While he says it is “virtually impossible” to prove a negative and provide evidence that Kier did not use blacklists for Crossrail, he insists his perception of blacklisting is that it is historic, though he adds “I can’t speak for the whole industry on that”.

Mr Sheffield is seeking to play a central part in the reforms to the industry after launching the UK Contractors Group-led Creating Britain’s Future campaign in London last year and in Manchester last week.

But while he is keen to help shape the industry’s future, he is aware that closer to home times continue to be hard for contractors, including his own.

Late last year, Kier announced it was conducting a “further review of construction operations” as the market continued to struggle.

“We’re not pulling back; we are taking market share but the value of the market is probably falling back”

But he says Kier is being selective when it comes to bids and putting its faith in sectors where he believes the firm is a market leader. “Kier is very robust, but frustrated that we can’t create the growth we have ambition to [create],” he says.

“The priority today is making sure we protect the business against the economic backdrop and don’t go chasing pipedreams and chasing prices down in an increasingly competitive market.”

Recent months have seen the government appear to prioritise investment in certain sectors, such as highways, energy and rail. “The autumn statement allocated £1 billion [to highways], the major schemes are identified, but it’s not something of great interest to us,” Mr Sheffield says.

“There’s a small number of quite big schemes, but others have got a much better track record and pedigree in building that sort of thing, so it’s not a key focus for us.

“Highways has not been part of our strategy for the last decade and now is not the time to get into an area where other people are quite strong and they could be fighting for work.”

Nuclear wait ‘damaging’ industry

It’s the uncertainty over the future of Hinkley Point C that is the problem, rather than the decision itself, Mr Sheffield says.

Kier and Bam Nuttall have been appointed for preliminary works and earthworks in deals worth more than £100m. Laing O’Rourke and Bouygues are preferred bidders for the main civils contracts, worth more than £2bn and due to be signed next year.

Mr Sheffield admits he doesn’t know when a decision will be clarified, as talks continue over contracts between the energy giant and the DECC, but says there is “nothing we can do” to influence EDF’s decision.

He says: “EDF has spent a huge amount of money on getting to where it is but that’s not to say it won’t pull out if it doesn’t get the right answer. From industry’s point of view we just want a decision.

“If EDF does go ahead then there are billions-worth of infrastructure work in the South-west that will start,” he says. “If it pulls out you can be reasonably assured that investment is going to be redirected into other form of energy, whether it’s gas, biomass or wind.

“At the moment everyone is just waiting and that’s what’s damaging. We are really focused on picking up as much as we can around the peripheral infrastructure work, which will be worth another £2bn.

“We are focusing on projects likely to be won through engineering excellence rather than cheap pricing and looking very carefully at joint ventures.”

Earlier this month CN revealed that Balfour Beatty, Bam Construct, Carillion and Skanska have been shortlisted to build the UK headquarters of internet search giant Google at King’s Cross.

Kier was a surprise exclusion, given that alongside Bam Construct and Carillion it is one of the principal contractors for the developer, King’s Cross Central Limited Partnership.

Self-imposed limits

But Mr Sheffield insists that the contractor chose to exclude itself, as part of its strict bidding caps.

“We pulled ourselves out some time ago despite the close relationship we have with [development manager] Argent,” he says. “On the building side we put a self-imposed limit of £150m to £200m in project value.

“Historically we have not been in the market of the multi-hundred million pound projects, it’s not something we have wanted to get into.

“And when you have half a dozen other companies out there who probably have a longer track record of people who have been involved in those, then your chances of winning are going to be much slimmer.”

“On the building side we put a self-imposed limit of £150m to £200m in project value”

Kier is focused on economic infrastructure rather than social, so if the firm is excluding itself from big highways contracts and the Google HQ job, what does Mr Sheffield see as its strengths?

He bristles at the suggestion that Kier is worse off than its bigger rivals, and is keen to point out that while sectors such as education and health have shrunk massivelyover the past three to four years, Kier is maintaining market share in those sectors.

“On the building side, there is nobody with a better track record than we have in education, health, commercial office buildings,” he says. “We’re not pulling back; we are taking market share but the value of the market is probably falling back. We’re doing more health work today than we were two years ago, despite the fact the market has shrunk by 20 per cent.

“On the major infrastructure side, we have a market-leading position in power. The range of contacts we have and capability are probably better than anyone.”

He says the education market “has shrunk enormously since Michael Gove put the axe through it, but it still accounts for 30 per cent of our work” from 40 per cent “a few years ago”.

So as he keeps a tight rein on Kier’s bids to protect the company in difficult times, Mr Sheffield is bullish about its prospects and keen to emphasise the areas where he feels they can dominate.

As he takes his seat on the advisory panel for the industry’s industrial strategy, he will be reminding government of the need for stability.

Paul Sheffield on…

Bids: Our bidding teams are exceptionally busy on the infrastructure side and a courageous decision for us today is what not to bid. They tend to be £20m to £80m projects. We’ve probably got access to more frameworks than anyone else. There are one or two that have been awarded and don’t give work but I think they’re in the minority. By and large they are a very efficient way of getting work to start.

Regions: There is a very delicate balance between market penetration across the regions and the location of offices. It’s something we are very sensitive to, making sure we are seen to be local. But every month, every quarter, we constantly review what we can see coming ahead in an area. We have to look at the work coming through the front door and adjust the size of our teams to suit it. I see 2013 as no different to 2012: we will continue to review and make sure we are fit for purpose.

Housing: I think there is a housing policy but it’s different to the policy that existed two years ago, which is different to the policy that existed two years before that. Every time we change a policy the inertia will always take two years for government and industry to catch up and deliver, so if all you’re ever doing is changing things you’ll never actually achieve anything.

Localism: It is a lovely idea but getting consensus about what should or shouldn’t be built will always be fraught with difficulty, so I do think you need to have some diktat where it says, whether it’s a windfarm, bypass, housing estate, it is going to be built in that area; now you have to decide the ‘least worst’ option for its actual location. Otherwise people will never want that development.

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