Insights

Do your customers’ behaviours expose you to risk?

That construction contracts are imbalanced is no secret. Large, dominant main contractors hold the whip hand and they select specialist trades and suppliers based on criteria which they alone choose. It is usually the smaller companies which are compelled to adapt, to find workarounds, to meet programme schedules, to make sure the job gets done. It can be a high wire act - but the balance of power is clear. 

At the other end of the supply chain, subbies rarely have sufficient scale to interrogate their own suppliers, to validate specs, to understand sourcing and consider security of supply. 

These factors all create risks for small and medium-sized subcontractors.

So where does responsibility - and indeed liability - rest when things go wrong? Who owns each part of a project's delivery? And given the disparities in scale, is that reasonable?

Phase 2 of the Grenfell Enquiry is ongoing but the evidence has already made it clear that the actions of construction-industry companies led directly to the 72 lives that were lost in the 2017 disaster. 

What we know is this; the cause of the fire was an electrical fault in a fridge, but the disaster was created by the speed at which the fire was able to spread via the cladding and insulation materials. These products were known to be dangerous and inherently unsuitable for use in high-rise buildings. In fact, it was known that they were highly combustible. But by manipulating the testing and accreditation processes, making false claims about their products and withholding critical information, the suppliers were allowed to market and sell them to some 400 projects around the UK.

Although the enquiry continues, it is already clear what is coming - the practices and behaviours within the end-to-end construction industry will be found to have enabled the disaster and far-reaching recommendations will - and must - be made. Much of the building industry will be compelled to adopt new working practices, embed more effective safeguards and provide greater transparency.

But why did this happen in a huge industry where many knew the dangers. And why were the few that spoke up not heard? It raises important questions; is there something unique about construction businesses? Put another way, could something similar  occur in the food industry or in automotive? If the answer is no, then is construction different?

In some respects, yes it is:

  • The industry is made up of many thousands of small, specialised enterprises operating in an environment that exposes them to the very few, large, generalist contractors - there is a natural imbalance of power in these situations.
  • ‘Value Engineering’ (a euphemism for price reduction) is widely employed as a step in the tendering process; it leads to corner-cutting and increased risk. 
  • Missing tight deadlines frequently triggers the threat of disproportionate and crippling contractual penalties, creating existential pressure on suppliers.
  • A ‘deliver at all costs’ mentality prevails.
  • Combative relationships between contractors, sub-contractors, suppliers are the norm.

But rather than just pointing a finger at the industry's long-standing behaviours, look also at the structures and relationships behind Grenfell’s refurbishment. Did everybody behave with integrity? Was the supply chain coordinated and operating harmoniously? Were incentives for success aligned? Was information shared openly? Did a spirit of collaboration exist? It’s hard to know - yet. But perhaps a quick test would be to ask questions about your own organisation:

  1. How much do you know about your own supply chain and the products you purchase and then install?
  2. Are your salesforce commissions and bonuses providing incentives that are appropriate to high-risk markets?
  3. Does business come from a wide range of sources or are you reliant on only a small number of customers?
  4. Are your commercial contracts balanced and fair to each of the parties involved?
  5. Are you staff actively encouraged to behave with honesty and integrity?

Try it. See what you think. And if you find that you are sometimes taking expedient decisions to satisfy a deadline, or keep a ‘good customer’ happy, or land a game-changing contract, ask yourself ‘could Grenfell happen again?’ Or even worse, is it already out there?

John Tiernan
John
Tiernan
Part-Time Director