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CN Summit: Keltbray, FK Group and Keller UK leaders discuss the state of the market

Construction News brought FK Group chief executive Francis Keenan, Keller UK managing director Jim De Waele and Keltbray chief executive Brendan Kerr together at the CN Summit 2016 to discuss the state of the market.

They discuss issues including: the relative merits of clients using tier one contractors or going directly to specialists in procurement; profit margins and skills.

Subcontractor panel:

FK: Francis Keenan - FK Group chief executive

JDW: Jim De Waele - Keller UK managing director

BK: Brendan Kerr - Keltbray chief executive

… the role of main contractors

FK: “In terms of the main contractor, they are the management contractor. In terms of where the capital that’s needed to reinvest, the subcontractors need to make that profit available and need to reinvest back into the business. Whether that be in design, evolution of BIM design that is now very prominent in our sector, investment in people, I think that’s where that comes from.

BK: “Main contractors are a very important part of the business but they are most known as consultancy type businesses where they pull together all the specialist trades. The last ten to twenty years, we’ve seen the introduction of construction management.

“We’re trade contractors and specialist contractors – it’s not really fair to call us subcontractors any more. We provide a big part of the specialist element of the project and for that we take bigger risks… and heavier investment and that justifies the reward.”

JDW: “There is still a place for the principal contractor. I don’t think there is an appetite for specialists to do the whole project.”

BK: “It’s about apportioning risk in the right place. The main contractor takes an overall risk. They then reapportion the risk to the right person and the right specialist contractor to deal with that. That protects the supply chain rather than changing it.

“I don’t think main contractors are worried that they’re going to be cut out. That’s the model that’s been in place and for years and I can’t see it changing.”

JDW: “I think the difference in the future is that the client wants to know about the entirety of the team delivering the project. They want to know about the supply chain. They want to know about who they are appointing to deliver the job.

“The argument is whether that is best delivered through a principal contractor having all of those capabilities in-house, or whether other principal contractors can form a team early on in the project and convince a client that their execution model is impeccable.”

BK: The industry is very cyclical. Do main construction companies have the time to invest in plant, machinery, training and resourcing?

“Without a shadow of a doubt, main contractors do play an important role. They bring a holistic umbrella of guidance over all of us. The integration between our trades needs to be ordered and managed and we don’t have the skills to do that.”

FK: “We are one of the largest subcontractors in our sector. However, when you go down another tier below in revenue terms, you’ll find that a main contractor has a much biger role to play when it comes to smaller specialist subcontractors. So there is still a role for main contractors, it just depends on the project.”

… the fight for skills

FK: “The labour market is extremely tight. Skills is one of the biggest problems we face. The central London labour market is mainly made up of European labour. In terms of the specialist skillsets that we have, it is either an aging population or an Eastern European population.

JDW: “My big area of concern in terms of labour of movement is the delivery of major construction schemes. If you think about Crossrail, which was a big boost to the geotechnical industry, we had to increase our workforce by 25 per cent to deliver that project.

“We did that by recruiting in the UK and supplementing in from our European colleagues. We have approximately 450 people in the UK, in Europe there is 3,500 so there is a pool to draw upon. The issues around freedom of movement are critical in terms of what will happen.

“When I go into Europe, I sense quite a lot of animosity in some regions and fear in Eastern Europe in particular. They’re concerned about us being seen as the ‘nasty isle’, and whether people will want to come and work here in the future.

“When we’re talking with our European coleagues, we have to be careful about our language. We have to give them the right impression that we are open for business despite the political rhetoric, because if we’re going to build things like HS2, we need them.

“One of the fantastic features of the UK is how we have integrated immigrants over years, and the feeling now is that it is being turned back.

BK: I think that we can supplement our labour force with migrant labour and get fantastic skilled labour coming out of Eastern Europe to help supplement the work force here. But we need to make the construction industry a better and more interesting industry to go into.

“Because of the importance of our industry in the UK, we have to make it a better industry to work in. That’s more training, more apprentices.

“We haven’t encouraged people to be plumbers, electricians, carpenters. We have unemployment in the UK and we need to get our own people to work.

FK: I think we sometimes overplay manual labour. We’ve got four apprentices that have been training in 3D model and design. We need to train our people and make our industry more attractive. We need to show what’s on offer.

“We’ve got a diversity programme to try to encourage more women into our business and more diversity across our business but it is a challenge. The fact there is no recognised GCSE in construction and CITB and NVQ don’t apply to our specialism – we have to make it up ourselves.

“As an industry, we have to get together and address that skills shortage.”

… the Autumn Statement

BK: “Drop the stamp duty. I think that it has completely destroyed residential development. It is preventing people from moving.

(Asked does he think that stamp duty has had a bigger effect on global + commercial property market than Brexit has, Mr Kerr responded “yes”).

JDW: “Confirm investment in infrastructure, particularly HS2. It’s going to be very important to the geotechnical sector – it will almost increase by 50 per cent.

“I would like to see commitment to project bank accounts.

“My experience of geotechnics globally is that our market engages and takes higher risks than any other territory I think (with the exception of Australia).

“The terms and conditions of the contract are far more varied than a lot of other European countries where we work. They have modelled terms and conditions that make it very instinctive so that we know [each] position in the supply chain which I can only say is a good thing.”

… diversity

BK: “25 to 30 per cent of our staff are from a cross-section of communities. Probably 10 per cent women. I’m going to say something controversial here. The construction industry has aspects that I don’t truly believe are really interesting for the female gender.

FK: “I don’t think we should be focusing on the manual side of work, I think we should be focusing on how to make things more digital and how do we turn our industry from bricks into clicks. How do we make the industry more appealing to a wider section of communities? We can only do that through changing the skillset, training people and looking for different solutions to problems.

… digital disruption

JDW: “Digitalisation is coming to construction, and coming quite quickly. Tier twos are ready for BIM, but we find there is a barrier to this in terms of our connection with the client.

“For example, we have been talking to High Speed 2 for at least 18 months about the tier two capacity in the geotechnic sector to contribute to BIM. But they neglect that decision as to how to engage with the tier twos up to the tier ones and I fear that it rather slows down progress.”

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