Anna Stewart: The successor

This month marks a momentous shift in power at the UK’s largest privately-held contractor, Laing O’Rourke, as Ray O’Rourke’s long-time right-hand woman Anna Stewart (see box below) takes the reins as group chief executive.

The move is the first time Ray O’Rourke has entrusted the business to anybody else since he founded R O’Rourke & Sons in 1978. During that time O’Rourke, through the audacious takeover of Laing Construction in 2001, has turned the one-time concrete subbie into a £3.5bn-turnover international construction powerhouse, and one of the most innovative firms in the sector.

But the appointment comes at a very difficult time for UK construction firms, and Laing O’Rourke is no exception. The notoriously secretive firm, which has slashed 8,000 staff in just three years, is a very different beast from most in the sector. Its focus on prefabrication and “self-delivery” instead of using subcontractors, marks it out from its competitors. One rival chief executive says: “I have huge admiration for Ray O’Rourke. Laing O’Rourke has been the contractor of the last decade, the one that’s changed the industry.”

It is largely its commitment to innovation that has given it this impact. But with workloads falling in the UK, there are those who whisper that these innovations, which are most effective when dealing with large, reliable volumes of work, could be an albatross around the company’s neck.

An impressive roster

Whatever the economic conditions, Laing O’Rourke has not lost the ability to construct complex buildings to incredibly high standards. Hanif Kara, co-founder of engineer AKT II, which is working with the firm on the Francis Crick institute, a hugely complex £450m medical research centre in London, says it is one of just three or four contractors that could undertake such a building. “To build complex buildings you need people who can bring together ideology and technical expertise, and Laing O’Rourke can do that. It is the real deal.”

Its expertise in building information modelling (BIM) has played a big part in its recent success, expertise it is putting to use on the £340m construction job for the Cheesegrater in the City and the high-profile £95m Manchester Library project, a BIM exemplar. Last year the firm also, in joint venture with Bouygues, secured the £2bn job to build a nuclear plant at Hinkley in Somerset, a project that, if it goes ahead, will provide a pipeline of work for its UK civils business for years to come.

Moreover, Laing O’Rourke has adapted to the changing market in the last five years by expanding internationally, with operations in Europe, the Middle East, Australia and Canada. Although its 2012 accounts do not make clear how much of its income derives from overseas, they do show its Australasian business alone has doubled in three years, from 18% of group revenue in 2009 to 39% in the year to 31 March 2012, with over £1.38bn in sales.

Stewart’s task

This expansion, however, has not been without its difficulties. Indeed, fixing the Australasian business, which missed targets and made a loss of £39m in 2012, may be the most pressing job in Stewart’s in-tray. Laing O’Rourke’s most recent results said the business suffered a “series of delays in contract schedules” due to industrial relations tensions and economic uncertainties, compounded by “legacy commercial terms” on pre-2011 contracts and restructuring costs. The firm said it has taken “decisive actions necessary to close out the performance issues on legacy projects”.

Stewart may also seek to steady the ship in terms of management changes, despite a company spokesperson’s claim to Building that Laing O’Rourke employees have a long average service. Since the departure of one-time heir apparent Tony Douglas in 2009, a large number of senior staff have left the business, including luminaries such as Olympic construction director Howard Shiplee, group asset optimisation and supply chain director Roger Seshan, development and design director Ross Gates and architectural director Mark Shirburne-Davies in 2013 alone.

However, of greater long-term importance to the group could be the view that Stewart takes on Laing O’Rourke’s “self-delivery” model. This sees it hold specialist skills within the group, rather than engaging subcontractors to build out projects. Through subsidiary firms such as Austrak, Emirates Precast and Bison, which provide precast concrete products; Crown House, which provides M&E services; and plant subcontractor Select, Laing O’Rourke is one of the very few contractors that can build out jobs that it wins. Most avoid this business model because of fears it could leave them inflexible and financially exposed when workloads fall. But Laing O’Rourke, supported by the government’s push for a more “integrated” industry, has always been proud of this differentiation. Indeed, the company’s vision is partly to “challenge and change construction”.

To build complex buildings you need people who can bring together ideology and technical expertise, and Laing O’Rourke can do that. It is the real deal

Hanif Kara, AKT II

However, competitors allege this commitment to self-delivery is costing Laing O’Rourke when it comes to tendering in the current market, particularly given the lack of large iconic schemes that suit Laing O’Rourke’s high-level skillset. Two senior figures from rival contractors, who declined to be named, said the company was struggling to meet clients’ demands that it produce competitive quotes for subcontract packages, potentially ruling it out of tenders. They say this is because specialists have no incentive to provide quotes as they assume the firm won’t give them the work.

A spokesperson denied this was a problem, and said the company’s steady order book, at £8.2bn in 2012, showed clients weren’t put off: “Our self-delivery model provides our clients with value and surety of delivery and is complemented by strong supply chain partners with whom we have excellent relationships.”

Aligned with this issue is the firm’s £100m investment in state-of-the-art prefabrication factories, including those at its Explore Industrial Park in Steetley, Nottinghamshire - what it calls “Design for Manufacture and Assembly” (DfMA). The firm listed establishing DfMA “as our core delivery approach” as a key objective in 2012, and an end-to-end review of the business conducted in the same year committed it to increasing its manufacturing capabilities and moving towards using DfMA and off-site manufacturing as standard. Competitors allege the facility is an expensive folly that has not seen the volume of work to justify the investment. The firm denies this, and says output at the plant doubled between 2011 and 2012, though it refuses to state the volume.

Whatever the truth, some rivals and consultants that work with Laing O’Rourke allege the firm tries to press clients into using prefabricated solutions at every opportunity, even when the client expresses no interest. One consultant who works with the firm says: “As an independent consultant, what bothers me is you have to fight them not to use precast concrete, even when it’s not the best solution. It’s like they’ve invested so much [in Steetley] they’ve got to find a use for it.”

Laing O’Rourke again denies this. A spokesperson said: “We seek to offer the most appropriate engineering solution to each project. We are, however, committed to our design for manufacture and assembly philosophy and believe that it will bring far-reaching benefits to the industry.”

With Laing O’Rourke actually growing pre-tax profit in 2012, before exceptional items, Stewart can start her reign by building from a position of strength. But with the pipeline of PFI projects that were once Laing O’Rourke’s bread and butter now largely dried up - the recent £237m Alder Hey Hospital win notwithstanding - and the pipeline of major jobs looking weaker overall, the firm needs to ensure it doesn’t alienate potential clients by a desire to push its bespoke technology.