Chair’s Letter: Must Recession mean Regression?

Blog Author: Richard Saxon, CBE

The 2008 recession destroyed a decade of progress in modernising construction practice as everyone reverted to pre-Latham/Egan behaviours. Progressive practice has climbed back in the last decade, but will it all be lost again?

Two recessions ago, in 1992, the government asked Sir Michael Latham to report on how to improve the suffering construction industry. Construction always fares very badly in downturns as public and private clients typically slow or stop investing. Constructors and consultants shed staff and bid low to keep working, reinforcing the race to the bottom. Latham in 1994, followed by Egan in 1998, called for much more collaboration across the industry and leadership from clients too. Legislation to reform payments and dispute resolution was passed. Investment in people and process followed, with Constructing Excellence leading the charge. Safety and sustainability became watchwords. Yet in 2008 the wheels came off again. Demand collapsed and suppliers bought what work there was at loss-making prices, relying on others’ errors to claim back some profit. Trust, money and sustainability evaporated. Another generation of talent was lost to the industry. The default setting of people under stress seems to be to think short-term and to exploit the weakness of others.

Since that collapse, the industry has climbed back slowly but impressively. A Government Chief Construction Adviser was in place from 2009 to 2015, followed by the Construction Leadership Council. Transformative digitalisation policies were set running; modern methods of construction were encouraged. Whole-life-thinking and ‘Procurement for Value’ came into view, with Net-Zero carbon emissions and ‘Environmental, Social and Governance’ policies supported by clients across the board. Innovation, based on research and development and with constructors involved early to influence design, all depends on clients buying for value, not on a lowest capital cost basis. Suppliers must be profitable enough to do the R&D, invest in technological transformation and train and nurture expert staff. Long-termism must reign. The widespread use of Framework Agreements and the arrival of truly collaborative approaches like Project 13 and Insurance-Backed Alliancing augured well.

Now we are in the deepest downswing in 300 years it is hard to see how we will avoid falling backwards all over again. Cost consultants are projecting likely effects on tender prices just like those of 2008. Can anything save us?

Signs of hope are out there. The government clearly sees the value of the construction industry to the economy, enabling growth and quality of life. The high level of spontaneous collaborative working shown during the Covid-19 Nightingale Hospital programme was impressive to everyone. Rather than renewing the austerity of the post 2008 crash, government may well press on with its huge pipeline of economic and social infrastructure, including affordable housing projects, and continue the recent innovations in procurement practice to do so. Net-Zero targets and the Better Buildings Partnership of developers may well survive, as may the reforms flowing from the Hackitt review of building regulation. Concern for the mental and physical health of workers, reinforced by the Covid-19 crisis, may well lead to more offsite and remote working and to better productivity. Digital technologies are flowering, enabling new business models to emerge.

But behaviours have to be watched. Risk aversion must be kept at bay. As Mark Farmer’s Cast Consultancy has recently said “it is imperative that all parties are professional and ethical in all dealings, avoiding bid peddling, Dutch auctions etc”. There are signs that major contractors are being protective of key specialist firms, taking them under their wings rather than, as previously, exploiting their fragility. Some vertical integration of supply chains may result, reversing the damaging fragmentation that fed the vicious cycle so many times before.

On the back of a countercyclical public sector push, private sector investment can revive. There will be many changes from previous norms as the shape of the economy and of cities shifts. Many ideas are in circulation for rebuilding our economy on a better basis, greener and more equitable, which will all demand construction. And there are reasons to hope that, for our industry, this deepest of recessions won’t lead to a repeat of the regressions of the past.