Exclusive: Laing O’Rourke is in talks with blue-chip clients over long-term orders for projects from its advanced manufacturing facility in Steetley, as equity partners also look to invest in a new plant at the East Midlands site.
In an exclusive interview with Construction News to be published in full tomorrow, Ray O’Rourke revealed two parties were in talks to take an equity stake in a second facility at the contractor’s Explore Industrial Park (pictured), a project the company put on hold last year before it revealed a £245.6m loss in December.
The company is in “no rush” to proceed with the second facility at Steetley, Mr O’Rourke said, as it wanted to ensure demand was secured before proceeding, having seen £2.7bn ripped out of its order book in 2009/10 following construction of its first advanced manufacturing facility a decade ago.
Laing O’Rourke is in negotiations with blue-chip clients about participating in ‘offtake agreements’, similar to those used in the oil and gas industries, whereby companies would “be persuaded to sign up to take a quota of product on a per annum basis over a five to 10-year period”, Mr O’Rourke said.
Moving industry forward
Ray O’Rourke pointed to the automotive industry and the gains it has made as a precedent the construction industry should draw inspiration from.
“We all have obligations to move the industry forward. People say we want health and safety. Why not get the designers to think about it? Why don’t they worry about the health of our workforce and stop all this manual intervention that goes on, because it’s medieval.
“A lot of conversations go on about health and safety, about people in construction, and that irritates me at times. There’s a lot of people saying we have to have more women in construction, working in the field. And while I agree with the ideal – it’s a great ideal to have, unless we change the way we deliver our projects it’s never going to happen.
“It’s not like we don’t have a parallel. Take the productivity gains in the automotive industry from where it was in the 1960s and 70s and it’s phenomenal.
“Our industry enables society. When you get up in the morning, you have a shower designed by architects and engineers. Engineers are the only people who will solve global warming.
“We get what we seek, so it’s about time to raise the profile of what we do and that our people were rewarded so we’re not losing so many people out of academia to banking, law, accountancy, because the rewards programmes are not right.
“If we improve productivity it will help. Then we need to get away from risk being dumped onto organisations not capable of carrying it, this adversarial nature. That’s a wonderful platform to start the full year 2018 on.”
Laing O’Rourke is attempting to persuade clients of its Design for Manufacture and Assembly 70:60:30 approach to construction, whereby 70 per cent pre-assembly would reduce labour hours by 60 per cent and produce a 30 per cent saving on the programme time.
“Look at all of the noise coming out from government about housing; the fact that the industry has a massive capital programme starting off with nuclear, High Speed 2, airports expansion; and couple that with Brexit,” Mr O’Rourke said.
“Having a strategy that requires extraordinarily fewer people in the field is a good strategy – everybody can see it but it just has to take effect. Some of our blue-chip clients absolutely want us to deliver DfMA 70:60:30.”
Mr O’Rourke declined to comment on the identity of those in the discussions, but blue-chip clients Laing O’Rourke is already working with include Heathrow, HS2 and EDF Energy as the £3bn main civils contractor on Hinkley Point C with Bouygues.
He said: “Everybody sees that this is the way of the future. It’s a case of who is going to take a step forward. We have had a number of parties interested in joining the funding [including] two parties who could take an equity position.
“In summary though, we’re not in a rush to take it forward; we need to finish this year’s trading. We are profitable and need to deliver the profits we set out to do last April.”
Mark Farmer, author of last year’s Modernise or Die report hailed the talks.
He said: “Laing O’Rourke’s facility in Steetley was one of the first industry examples of how cutting edge technology could be deployed further downstream into the construction process beyond the normal products supply chain. It has struggled, in quite a high-profile way, to deliver the vision of its owner because it has not been able to take its proposition to market at scale.
“This pending announcement could be a milestone as the market sentiment is fundamentally changing due to new drivers for change. A new client engaged approach is a model for scalable industrialisation in construction through introducing ‘off-take’ type agreements that we see in other sectors. Aggregated, long term acyclical demand is what is really needed here, not fragile ‘boom and bust’ partnerships. This alignment of capacity investment and sustainable end client is crucial to drive construction modernisation.”
Laing O’Rourke incurred losses of £245.6m in the year to 31 March 2016, revealed in December, and has held talks over the sale of its Australian arm.
Despite holding talks with four “serious” bidders, Mr O’Rourke said terms couldn’t be agreed with any of the parties. He added that some had used the talks as a “stalking horse to buy the group, but the group is not for sale”.
To read the full and exclusive interview with Ray O’Rourke on Brexit, the group’s problem job in Canada, his future and much more, see CN online tomorrow.
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