Chain full of weak links

The overall winner of the JCT student essay competition, of which I was part of the judging panel, was Richard Hope. He is a student at Nottingham Trent, reading quantity surveying and construction commercial management. I liked his willingness to poke gurus in the eye. He poked Sir John Egan. If I remember rightly, Sir John reckoned he knew the construction industry and knew how to cut capital costs, improve predictability and productivity, and eradicate defects. He also knew how to import into our industry “lean” production techniques pioneered by the car industry and partnering approach to business. Come to think of it, I had one of Sir John’s lean Jaguar cars. My garage pleaded with me to get shot of it - too lean they said after I wrote another cheque.

Richard Hope grappled with “supply chain management”, an Eganism, and asked how it was doing in construction? The idea, he says, is to take clients, main contractor, subcontractors, sub-subcontractor, suppliers and manufacturers and “develop integration by establishing trust, reducing the distance between firms by improving communications and collaborative engagement and finally by alignment of systems and processes”. Snag is, the construction industry “remains characterised by adversarial practices
and disjointed supply relationships”. Are we stumped?

Is the ‘win-win’ mantra really both win-win for client and contractor? It could be argued that that’s just what egan wanted you to think

Seemingly, the “lean thinking” is all about those Japanese car-makers creating the supply chain of high performance, quality, time frames, lower inventory - then adding the notion of partnering. We don’t quite rise to all this. Instead we focus on surviving. Odd, isn’t it? We have tried however. We come up with snazzy slogans: Movement for Innovation (we called it M4I); Building Down Barriers; and Procure 21. Even JCT got in on the act with a contract document called JCT Constructing Excellence. Its idea is to contractually oblige collaborative working and integrated teams within the supply chain to eradicate waste. But after all this, our essayist says rather diplomatically, our industry hasn’t fully established a strong supply chain management ethic.

He adds: “It is questionable at this point if SCM has a place in the future of construction.”

But Richard Hope doesn’t give up. He likes the idea of the supply chain being kept together over time, project to project. (I have the picture of a chain gang of plasterers, bricklayers, chippies and Mr Egan) He also likes designers and constructors being brought together. He recognises that there is no such thing as a supply chain for one-off supply. And that’s precisely how our fragmented industry does things. Clients do not have limitless work. Many small firms clamour for work in fierce competition and hardly any margin. But decades of umpteen learned reports point to benefits for construction by repeat business with key clients including savings in time and cost, prompt problem resolution, agreed profit margin and incentives to make savings.

Our essayist then pulls up sharp. He asks if the win-win mantra really is win-win for both client and contractor? He says: “It could be argued that’s what Egan wanted you to think.” Egan was employed by the public sector, the largest UK client, and created for them a concept of increased value and lower cost - of course Egan will try to make it look appealing to the contractor.

Mr Hope hasn’t finished yet. He goes on: “How can a contractor’s main concern be the same as a client?” The contractor’s goal is to make a profit. On the other hand, he says: “The SCM machine has been developed to benefit the client only, in particular the public sector.” Interestingly our essayist argues that western suppliers (as opposed to Japanese) are mainly opportunistic and don’t see any incentive in committing to relationships. He says it’s only if you recognise that SCM can improve our sector and make it a better place to work in - in other words, more reputable and willing to compromise winkling out a profit by exploiting the supply chain - that we achieve the “greater good of our industry”. SCM, he concludes, is only client beneficial. And since contractors these days can’t afford to be picky with clients the future will be SCM.

The essay doesn’t overlook the subcontract end of things, either. He has fathomed that construction has a long way to go in engendering trust down to these folk. Traditionally there has always been an adversarial, arms length approach taken with subcontractors and suppliers, in his view. Hardly any research on SCM has been done on small to medium enterprises.

The SMEs lack both the capital and the skills required to come into more sophisticated procurement systems. They are limited to traditional price competition, taking no part in supply chain continuous relationships. I think he means subcontractors do work regularly for main contractors but fight each time for a rock bottom price.

So, he says in his essay that SCM has not been as successful as anticipated. That’s his view and he’s this year’s winner. Altogether, 80 people submitted a paper. Well done JCT
for creating some debate and for awarding some handsome prizes.

It might be that next year Sir John Egan will put up some good ideas. Come on Sir John, any prize on the top shelf.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple