Latham's report: Did it change us?

Twenty years ago next month former Tory MP Sir Michael Latham published Constructing the Team, produced after a year of consultation involving every corner of the construction industry. It is impossible to overstate the report’s influence on the debate around how the construction industry works - or should work - in the two decades since its release.

Although there had been previous attempts to reform the industry - with Banwell in 1964 the best known, perhaps - Latham’s report was the first to diagnose the particular problems blighting construction in the early nineties, and came up with a startling prescription: to cut out the adversarial culture in construction and learn to collaborate - client, contractor, subcontractor, consultant - for the common good of the project.

This broad conclusion has been reflected in every serious study into the industry undertaken since - and it was a large part of what enabled Paul Morrell, former chief construction adviser, to boast that his 2011 Construction Strategy contained “virtually no new thinking”. However, the extent to which his conclusions have actually been acted upon is still hotly debated. For some the rhetoric around partnering was simply that - rhetoric, which has been exposed by the behaviour of clients and contractors in the recent recession as simply so much hot air. But for others, Latham’s report was the start of a process of modernising the industry which has - despite set-backs - rendered it unrecognisable from the primitive and antagonistic building sector of the eighties.

To mark the anniversary of the report, Building is taking an in-depth look at the impact it has had, and whether it really did change construction for the better.

Grim reality

Sir Michael Latham was commissioned by the government and the industry on 8 July 1993 to write a report into how the industry could work more effectively. He was asked to consider “current procurement and contractual arrangements” and “current roles, responsibilities and performance of the participants, including the client”. These bland words belied the grim reality he was tasked to tackle.

The situation was stark. The lengthy downturn in the seventies had forced major contractors to sell off many of their businesses and move to a subcontracting model where labour, plant and specialist skills were brought in as needed. On top of this, public sector cuts in the eighties brought rapid de-skilling and fragmentation to what had been a monolithic government client providing around 70% of the industry’s work. In this situation the practice of open tendering resulted in cut-throat bidding with inevitable consequences once the work was won. Then, in the late eighties, recession hit again. Major contractors went to the wall, taking thousands of reliant subcontractors with them, and the industry topped the rate of bankruptcies of any sector of the UK economy.

We’ve had the recession and it’s been jungle warfare out there for five years, with suicidal tendering practices. I’ve been shocked how quickly people have forgotten all the good advice and thinking

Robin Nicholson, Architect

Ian Reeves, now chairman of Constructing Excellence, was then a trained civil engineer and surveyor with experience on some of the UK’s biggest projects, such as Birmingham’s spaghetti junction, and was one of a small number chosen to act as a sounding board by Latham while he researched his piece. Reeves says: “At this time the contractor’s tender price was invariably inadequate to do the job. Hence the contractor either went out of business or spent its life starving its supply chain of cash. Jobs ended up in tears and habitually late. There was a glut of litigation up and down the supply chain.”

These factors created conflict from the start of projects by forcing contractors to confect disputes simply to make a fair return. Chris Hill, now partner at Clark Advisers, formerly head of construction at law firm Norton Rose, says: “Litigation was completely out of control. Projects would regularly be injuncted, such as the construction of No.1 America Square, stopping work until legal debates were worked out. It was out of hand.” David Adamson, a former deputy chair of the Construction Clients Forum set up after Latham’s report, and author of a definitive account of what he calls “the change movement” in construction, says the Conservative government, by instinct unwilling to interfere, was finally convinced to step in after being told the sector was spending more on litigation than on research and development.

Latham called his response Constructing the Team, publishing it in July 1994. He described it as “radical” in its foreword, admitting the issues it raised “provoke profound disagreement throughout the construction process”. He wasn’t wrong.

Because compared with how the industry was working at the time, the picture it painted was little short of revolutionary. At its heart was the concept of teamwork, collaboration and partnering. Get the right legal structure, incentives and culture, he argued, and both client and builder could profit from the construction of a building on time and to budget.

Along the way Latham’s recommendations laid the foundations for a raft of separate initiatives that all flowed from his central view, such as the Considerate Constructors Scheme, which has overseen 75,000 sites in the past two decades; the CSCS card system for construction workers; and centralised pre-qualification through ConstructionLine. He also called on the government to be a better client, and paved the way for a hugely strengthened role for project managers and the inception of Early Contractor Involvement to prevent unrealistic designs being dumped on unwary contractors.

His supporters - of which there remain many - say Constructing the Team transformed the industry. The Construction Industry Board was set up to implement the proposals, with a raft of implementation teams working on specific projects beneath it. Reeves says: “It was [calling for] a complete change of culture, from confrontation to bringing people together. No doubt the industry today is transformed from where it was in the seventies and eighties. Would I have liked it to have gone further? Yes. [But] there has been a dramatic improvement in the number of projects completing on time and to budget.”

At this time the contractor’s tender price was invariably inadequate to do the job. Jobs ended up in tears and habitually late. There was a glut of litigation up and down the supply chain

Ian Reeves, Contructing Excellence

The Latham Report’s most direct outcome - still two years in the making - was the 1996 Housing Grants, Construction and Regeneration Act, dubbed the Hugh Grant act by the civil servants charged with drawing it up. This enacted one of Latham’s recommendations that, 20 years on, is his report’s most stand-out achievement: the introduction of adjudication. Latham wanted to set up a cost-effective alternative to costly and lengthy litigation or arbitration processes that could resolve construction disputes quickly and without recourse to expensive lawyers. The Construction Act put in place the legal underpinning to this, since when over 20,000 disputes have been resolved via adjudicators, though the rate has reduced in recent years. Clark Advisers’ Hill says adjudication has been “absolutely vital” to the sector since Latham, with the system having been exported around the world. Reeves, who helped devise the system through his experience adjudicating the Dartford Tunnel PFI project, agrees. “In my mind it was simple - you needed an independent umpire, who can make a decision in real time. That was the way forward.” Adamson says that in an earlier assessment only around 2% of adjudication decisions have since been challenged in the courts. “Yes, it’s quick and dirty, but it has been seen as pretty fair.”

Latham’s ambition was not just to improve the way disputes were resolved, but to stop disputes arising in the first place by instituting teamwork between the different parties. This was where partnering (at one extreme) came in, alongside his recommendation that the public sector use what was at the time an unknown suite of construction contracts, called the NEC, which were designed to stop claims ever arising. Vitally, the NEC suite of contracts included provisions which obliged any party to alert the other as soon as any problems arose, or lose the right to later base a claim on the problem.

Since Latham’s recommendation NEC has become the contract of choice for major public sector projects, with the Olympics, Crossrail and HS2 all basing their procurement around it. Olympic Delivery Authority chair Sir John Armitt described it as the “hero” that ensured delivery of the Olympics on time and to budget, and Hill says the number of disputes arising from it has been “remarkably low”.

Backlash

Nevertheless, this is also where Latham’s legacy starts to become contentious. The introduction of NEC met with a barrage of hostility from the legal profession at the time, and suffered criticism in legal judgments since. While the NEC suite is now well-used, it is still far from being the industry’s default form of contract. According to a 2010 survey by the RICS - the most recent figures available - just 7% of contracts are NEC, though the contract made up 26% of the value of work as NEC projects tend to be much larger.

Latham’s supporters point out that more common contract forms such as JCT, have been forced to adopt some of his collaborative ethos. However, the RICS survey shows that the fullest form of collaboration envisaged by Latham - partnering, where effective joint ventures are set up to deliver projects - is barely used at all. In its survey just 1% of contracts were formal partnering agreements.

The backlash by the legal profession against Latham’s report also ultimately prevented one of his more radical proposals - the idea that each project should have a trust fund set up to guarantee payment in the event of contractor insolvency - from making it into law.

Maybe the pendulum’s swung back away from collaboration, but the industry is definitely working better. You used to remember a contract of it went well, now you remember it if it goes badly

Peter Higgins, NEC Contracts Board

Central to working out whether the Latham report was successful in instituting a collaboration culture change has been the experience of the past five years of recession, where many clients moved away from Latham- and Egan-inspired “framework” contracts (though Latham never used this term) and returned to lowest cost tendering, often with just one bid stage. Architect Robin Nicholson, who was involved in the CIC at the time of the Latham report, says the recession exposed the fact many clients had simply paid lip-service to collaboration. “We’ve had the recession and it’s been jungle warfare out there for five years, with suicidal tendering practices. I’ve been really shocked at how quickly people have forgotten all the good advice and thinking.”

Paul Morrell - a big supporter of partnering - admits it remains a “work in progress”. Construction lawyer Rupert Choat, barrister at Atkins Chambers, says the rise of adjudication, allowing quicker and less painful dispute resolution, should not hide the fact that the industry is still, essentially, adversarial. “Disputes are being managed more cost effectively. But you don’t hear partnering mentioned now. And there’s little evidence the industry is less adversarial in terms of the claims being sought, in the sense of the disputes either avoided or resolved.” The figures from the Technology and Construction Court’s most recent annual report would seem to agree: while they don’t run back to 1994, they indicate a slowly rising number of claims reaching the court between 2004 and 2012, with over 457 in that year. Choat also says the jury is out on whether the measures in the 1996 Construction Act designed to improve payment to suppliers have worked. “It’s been like plugging holes in a sieve - the act has left open plenty of other ways for contractors to get round it, such as by extending payment terms.”

There is, likewise, little anecdotal evidence of the wider public sector becoming a better client, and even Latham’s most ardent supporters accept that his pledge to reduce costs by 30% by 2000 was not met.

Nevertheless many - even some lawyers - are more optimistic about the Latham report’s influence. Hill says: “Latham’s big themes, that value wasn’t to be found in the lowest price, and that collaboration could bring improvement, that really did happen. And the interesting thing is that while some clients terminated frameworks, by and large the process as a whole survived the recession.” Peter Higgins, member of the NEC’s contracts board, says: “You do get a cyclical movement, and maybe the pendulum’s swung back away from collaboration, but the industry is definitely working better. You used to remember a contract if it went well, now you remember it if it goes badly.”

Reeves agrees: “Was there bad behaviour in the recession? Lying? Screwing down of the supply chain? Of course, yes. But in the big repeat clients, the Land Securities and British Lands, there’s no doubt that recognition of Latham’s ideas is embedded. Yes, people revert to some bad behaviour, but if anyone says nothing has changed, they just don’t know the industry in depth.”

With little data available on the number of construction projects that run over time and over budget, the point will doubtless remain one to be hotly debated. But David Adamson agrees with Reeves’ analysis. “For me the biggest change is, if you speak to a guy on a Friday afternoon after a week running a site and say ‘did you enjoy your week?’ the answer now is more than likely to be ‘yes’. Twenty years ago that wasn’t the case. It was a poisonous atmosphere because of the way people were having to work.” Of course this will not be the case on every site, but where it is, Latham has the right to feel very proud.

Latham report: Don Ward’s verdicts on implementing the recommendations

Sir Michael Latham’s report ran to 131 pages and contained 53 distinct recommendations. It resulted immediately in the creation of the Construction Industry Board to implement its findings. Don Ward (pictured) was the first chief executive of the CIB, and he estimates that 39 of the recommendations have been achieved, with the industry now in a better position than it was in 33 of those areas. On the right, Ward, now chief executive of Constructing Excellence, picks Latham’s 17 most significant recommendations, and assesses the success - or otherwise - of the industry in implementing them.