No pain, No gain

Dennis Lenard smiles: “People say: ‘Oh, it’s not a bloody Australian telling us what to do’.” As with the governing bodies of football, swimming and cricket, the DTI looked outside of the UK to bring in a heavyweight figure to coach the construction industry and raise it to international standards.

An academic and successful businessman by background, Lenard has been chief executive of Constructing Excellence since the body was formed in July 2003, a result of the merger between Rethinking Construction and Construction Best Practice. Since then Lenard’s major argument has been that the greatest obstacle to the UK’s development plans has been its lack of focus on infrastructure. In short, the UK’s thinking has been back-to-front, opening up development land before the necessary physical infrastructure, like roads, and social infrastructure, such as schools, have been set up to make that community work.

“The main drive has been to get housing built,” Lenard explains. “Infrastructure is lagging behind. It should be infrastructure first, housing second.” Warming to his theme, Lenard argues that this issue has an impact on just about every element of government policy: “It’s why you have an immigration policy. It’s not because there are not enough places to stay, but that there is not enough infrastructure to support people coming into the country.”

Bloody Australian.

Yet the industry does seem to have finally started to agree with him. Lenard set up an infrastructure taskforce, which met for the first time in December 2004. The CE boss has been able to attract an impressive array of figures to the taskforce, including major clients Peter Woolliscroft, the head of construction at NHS Estates, and Steve Rowsell, head of procurement at the Highways Agency. Rowsell emphasises the need for such a heavyweight group: “There are so many plans across infrastructure. They are so challenging at a time when government is increasingly looking for improving value for money to meet the needs of the public.”

The importance of CE is summed up by this initiative. Ideally, government would set up the group and be more directly involved in its discussions. But political realities intervene, and CE is able to take up the mantle: “We asked the construction minister (Nigel Griffiths) to consider setting it up, but there’s an election coming up, so the government has other things to think about. He’s supportive, but we’ve got to do it instead. We will hit it hard. Infrastructure is one of the things we haven’t attacked in the construction industry.”

Lenard hopes to hand over a report to government on the taskforce’s initial findings by the end of February 2005. Not exactly a shy, retiring bloke, Lenard drops plenty of hints on what some of these conclusions will be. “I’m sick of these people sitting on land banks, waiting for government to put in infrastructure free of cost. A lot of developers sit on land banks because they want to control the supply, and only release it once the infrastructure is built so the values go sky high.”

Your bill, sir

The nub of Lenard’s argument is that people and businesses near new infrastructure should help pay for its development. Why should they get a free lunch?

I’m sick of people sitting on land banks, waiting for government to put in infrastructure for free

The sheer size of government infrastructure projects, be it the social programme to redevelop every secondary school in the country, or the physical needs of east London to mount a truly effective Olympic bid, mean that new funding ideas like these need to be developed: “We can’t keep funding massive PFI and PPP projects through operational income (such as payments for facilities management work). The cost of operating facilities is growing beyond inflation.”

There are several reasons for this inflation-busting cost. An obvious one is the cost of operation per staff member. Contractors have been used to making a decent profit on staff wages because of their high productivity rates. This is slowly being eroded by higher taxes and higher National Insurance payments. To make these vital infrastructure projects attractive to contractors and their shareholders, they need to have some help financing them.

The funding scheme that Lenard describes is known as ‘asset value capture’. Major businesses, such as developer British Land and retail giant Tesco, have been critical of the idea, arguing that a tax on rising property values is an inexact science at best, arbitrary at worst. Last year, Canary Wharf Group adviser Robert John was widely quoted as saying: “It would be welcomed only by lawyers and agents mindful of the riches they could harvest.”

The bloody Australian shakes his head at what he clearly considers an unpragmatic view. Crossrail is the obvious example. The cross London rail link has been hailed as the solution to the capital’s commuter crisis for the best part of two decades because it could carry 600,000 passengers per day. Yet it only reached the Queen’s Speech last November. At £9.25bn, it will account for 15-20% of all construction output until completion in 2013. Government is willing to pay for barely a quarter of the cost due to other funding prioroties, such as the construction of 100 new hospitals by 2010.

Funding-regime change

Property in the Crossrail area is estimated at more than £100bn. The construction of the project will lift these values by 10%. Lenard thinks that business will only be able to enjoy this financial gain through a little financial pain: “For years we have been waiting for this project. They have to contribute. What’s the alternative? If they do not contribute it won’t get done. Then, everybody bleeds.”

The funding issue is dear to Lenard’s heart. He sees it as one of the biggest barriers to a vibrant, well-regarded industry: “We need a different style of leadership. The funding has got be shared in a different way. Look at Building Schools for the Future (the secondary schools rebuilding programme): just half of it is going to be PFI (because of the lack of equity available in the financial markets). With Jarvis being in the press every week there is also a lack of confidence in the PFI. We are going to have to find ways of getting that confidence back.”

A bloody Australian he might be, a supporter of UK Construction PLC Dennis Lenard certainly is.