Carillion could be wake-up call industry needs, says public procurement boss

Monday 15 January 2018 will forever be remembered as a dark day in the history of UK construction when one of the country’s industry giants announced it would be liquidating and potentially making 20,000 of its employees redundant. While it may have come as a shock to some, others in the industry had predicted tough times were looming as the ‘race to the bottom’ approach that many firms adopt continued.

With 28 years of experience in the public sector and heading up an organisation that has over 800 clients and delivers 2,000 projects a year, Mark Robinson, chief executive of the procurement group Scape, was one of those best placed to foresee a ‘big player’ going under. 

With Carillion being one of Scape’s many framework partners, Robinson identified the difficulties at the firm at a much earlier stage and he believes the way the industry operates was to blame.

“The race to the bottom approach that so many companies apply was always going to hurt the industry and a big player,” he told me. “We didn’t know at the time who that would be but unfortunately it’s been Carillion, one of the biggest. My first thought was for the 20,000 people that are employed by Carillion and what are they going to do because they’ve got partners, families, mortgages and potentially they will be out of work,” he said.

Robinson said he hoped that the after-effects of Carillion’s fall are not too long-lasting. “I’m hoping none of the major supply chains go out of business because of this,” he says. “SME’s could be really hurt if they have a big contract with Carillion and it was their primary source of work. But the ripples have only just started. We still don’t know the full extent of what’s going to happen because projects have shut down, clients don’t know when they will resume and the supply chain is wondering when they are going to get paid next so the industry will feel the effects for the next few months at least,” Robinson said.

A radical change in the way the industry operates has been put forward by many to prevent a reoccurrence of the Carillion collapse. Poor procurement practices are to blame according to Robinson and he believes companies should abide by three golden rules of procurement while being made to pay clients within 30 days.

“Any Scape project - and we have 1,400 on our books at any one time - don’t have retention payments,” Robinson said. “We recognise that is a cash flow for our supply chain and they all have to adhere to a 30-day payment rule and the average is about 19 days at the minute. This should be set across the board, we have been doing it for ten years, why isn’t everyone else doing it? It comes down to poor procurement practices, people think procurement in the construction industry is easy and it isn’t. It’s hard, it’s taken us a number of years to get to a position where you are procuring properly.”

The golden rules of procurement that Robinson says Scape abide by to ensure developments don’t overrun and become over budget are:

1. Make sure the brief is right - Robinson says 99% of problems with the project are caused because people don’t spend enough time making sure they know what they want in terms of end goals. 
2. Reviewing procure options - Procurers need to find the best solution for a particular client and provide an objective view. They should review all options.
3. Get the supply chain who are contracted to do a project in as early as possible - People with the expertise should be round the table at the earliest possible stage, according to the Scape boss. Even before the design stage, the people who provide the best advice should be involved straight away.

But Carillion’s collapse may be the very unfortunate wake-up call needed by the industry moving forward. “I can’t comment on the rest of the public sector, but we have never had a claim or a challenge against one of our frameworks,” the Scape boss said. “There will be some good procurement and some bad procurement but there needs to be legislation that they must not procure in a way that could potentially put money and especially tax-payers’ money at risk. It should not happen. If it’s a wake-up call then fair enough, but the warning signs have been there for a while - people have just chosen to ignore them.”

During his 28 years in the sector, Robinson has seen many different changes with how companies procure. He believes private and public procurement have learnt lessons from one another in terms of being more successful. On selecting their own partners within frameworks, Robinson says Scape has adopted a third principle to the traditional most important components when delivering a project. 

“Price and a bit of quality have always been king but we take a more balanced view and have introduced a third quality on any decision we make, which is social value. I believe that it’s the differentiator between a really good project and a fantastic one. We are always looking at what will it bring to the community, what legacy does it leave and have SMEs or local people benefitted from the project,” he said.

Despite all the challenges facing the industry, Robinson is optimistic about the outlook for 2018. The start of the year saw the procurement group announce its regional construction framework which will see 11 partners deliver projects with a combined value of £1.1bn over four years. The framework partners will include a number of SMEs operating within the Midlands and the east of England.

“We are really pleased about the regional construction framework,” said Robinson. “We have got 11 fantastic partners on board and 2018 will see us establishing and embedding that new framework and I’m sure it’s going to be a success,” he says.