They are culling their supply chains and demanding cash from those that are left, but are main contractors really as bad as the big bad wolf? Roxane McMeeken listens to both sides of the argument

The age-old battle between main contractors and their suppliers has opened up a new front. 鈥淭his 鈥榙o what I say鈥� attitude will end up putting us out of business,鈥� moans one specialist, who has been dropped by three main contractors in the past 18 months.

It is not hard to work out what he means by 鈥渄o what I say鈥� attitude. Main contractors are culling the lists of specialists they will work with and subjecting them to unprecedented scrutiny. Many are asking them to sign up to an array of costly accreditation schemes, as well as taking part in unpaid extra-curricular activities.

Bovis Lend Lease, for example, has announced that subcontractors must join its Achilles scheme before it will use them. This involves meeting a range of criteria ranging from standards on sustainability to safety 鈥� and coughing up 拢3,000 for the privilege.

Then there are the housebuilders, such as Taylor Wimpey and Barratt, that have in the past month asked for 5% off their bills. Our subbie reckons all this is 鈥渦nprofessional and unfair鈥�.

But main contractors say they, too, are feeling squeezed by demanding clients and the darkening economic outlook. They argue that for specialists prepared to go the extra mile, they will offer to better their payment practices and concede the early involvement in projects that specialists have long been battling for.

Costain is among those contractors in the throes of a major overhaul of its supply chain. The firm is dramatically cutting the number of specialists it uses 鈥� from 18,000 to between 2,000 and 3,000 by the end of the year. It has already streamlined its M&E suppliers down to three firms: Shepherd Engineering Services, NG Bailey and Lorne Stewart. Envelope specialists have been narrowed down to Prater, Lakesmere and Red Architectural and envelope manufacturers have been cut to only Metal Technologies and Sch眉co.

Andrew Wyllie, Costain鈥檚 chief executive, says the move is being driven by clients. 鈥淥ur customers are looking for more for less all the time. So we have to offer enhanced services for lower prices.鈥�

The man in charge is procurement director Chris Squires. He says the threat of recession is another driver. 鈥淚 am worried about insolvencies in the specialist market, and I want to weed out small, fly-by-night organisations. We want to work with fewer, quality contractors.鈥� He admits that in many cases this will mean dropping 鈥渨hite van man鈥� in favour of bigger companies, although smaller outfits may still be used for regional jobs.

Our customers are looking for more for less all the time. So we have to offer enhanced services for lower prices

Andrew Wyllie, Costain

The selection process is tough. Squires is looking at turnover, profits and track record, as you would expect, and he is using risk analyst Dun and Bradstreet to carry out credit checks.

But he also wants to make sure that Costain is an important customer for its subbies 鈥� but not too important. 鈥淲e want to be responsible for between 10% and 25% of their turnover.鈥�

If you get through the selection process, Squires says Costain will offer the partnering that specialists want so badly. 鈥淲e want people to work with us in a joined-up team.鈥� He adds that Costain will not arrogantly dictate the way this works. Instead it is being thrashed out through a series of workshops, which specialists have been invited to attend to discuss how they could improve working practices.

A similar operation is under way at Wates. It is called the Closer to Fewer strategy and it is being masterminded by group commercial director Andrew Laird. Like Costain, Wates is renegotiating contracts and narrowing down the number of subbies it uses. It has already cut them from 4,000 to 3,000 and is hoping to reach 1,500 by 2012. Currently 80% of its spend is with 500 suppliers.

Laird is dividing up the specialists on Wates鈥檚 list into three ascending categories, each offering more benefits. These are 鈥渁pproved鈥�, 鈥減referred鈥� and, the holy grail, 鈥渟trategic partner鈥�. To win approved status, a specialist has to pass a relatively basic online test called TIVA. This involves completing a questionnaire that asks about the firm鈥檚 competence and policies on health and safety.

To move up to preferred status, they must prove that 鈥渢heir vision and values match those of Wates鈥�, says Laird. This means trying out on a Wates job and being assessed by the project manager during and after the work. The project manager then writes a report on the specialists鈥� performance on cost, value, innovation and health and safety.

Pass this and Wates will weigh up whether you could become a strategic partner. Firms with that status have to show a commitment to a long-term relationship with Wates, openness towards finding solutions for clients and the ability to innovate.

Wates also holds 鈥淐ommunity Days鈥� when subbies are invited to help the firm with quick, socially responsible projects such as painting a care home. Laird says this is not compulsory, but it is clear that if you want to be a strategic partner you should take part.

We are also being asked to refurbish marketing suites for on-site sales centres for free. You can鈥檛 complain too much鈥�

 

Again, the trade-off for specialists that meet the stringent requirements is a better deal from Wates. The firm has also held workshops where specialists were invited to suggest what the deal should entail.

Laird says: 鈥淭hey want to be paid on time, for the future workload coming from us to be made clear to them and they want to be involved in projects early on.鈥� For top-tier contractors, Wates promises all three.

Morgan Ashurst has a similar programme in place. It has slashed its list of specialists from 3,000 to 500 and plans to drop more. It is also arranging them in tiers. There are four: unapproved, approved, preferred and strategic, and they are based on performance and the strength of their relationship with Morgan Ashurst.

And the trade-off? Supply chain development manager Andy King says: 鈥淲e are moving towards a retention-free environment.鈥� He adds: 鈥淭here are a lot of meaningless platitudes around supply chain management but this is different.鈥�

The specialists say that while more is being demanded of them, the promised rewards are not materialising. Warren Hand is managing director of Breyer Specialist Roofing. He says: 鈥淭here are some good contractors out there 鈥� Lovells and Wates are superb. They don鈥檛 necessarily pay on time but they do pay regularly.鈥�

But he resents being forced to sign up to a plethora of costly accreditation schemes. 鈥淵ou do one accreditation and then you find that a main contractor uses a different one and wants you to sign up to that. You end up saying, hang on, we have this one and it鈥檚 the same. I think it鈥檚 pretty tough but we have to go along with it 鈥� if you don鈥檛 sign up, someone else will.鈥�

He admits, however, that certain main contractors have asked too much and he now refuses to work for them. Specialists, it seems, will only be pushed so far.

 

Specialist cases 1

Martin Burton contract manager at heating engineer HW Sladdens Commercial

You have to jump through some fairly stringent hoops to get work these days. Often it鈥檚 not just enough to be a member of the Heating and Ventilating Contractors鈥� Association.

We are also members of Construction Line but contractors still want us to go through their own prequalification processes. I would have thought it was enough to be with Construction Line but it鈥檚 not. It鈥檚 madness.

The worst thing is that you jump through all their hoops and join the accreditation schemes they want to you to, but in the end it鈥檚 often simply lowest price wins.

It鈥檚 really disappointing that all the work that is going into collaboration is not being taken up by more of the main contractors. The mechanisms for partnering between the specialists and the rest of the project team are there but they are not being taken up.

Being a member of the 好色先生TV Services Competence Accreditation, for example, should be a good thing because it means you can self-certify and be involved in projects from day one, but it is not being enforced by 好色先生TV Control 鈥� which means only two companies in the South-east have signed up.

Specialist cases 2

Lee Fitzgerald director, Dennis Cox 好色先生TV Services

Last week three members of my team were tied up running a stall at a recruitment fair for a client. We weren鈥檛 paid for it and it didn鈥檛 lead to anything for us. We are only a 60-person, 拢20m turnover firm, so it was a complete waste of time for people who could have been working.

This type of thing is definitely a trend. We 鈥榲e been on that job for seven years and we haven鈥檛 had to do anything like that before. We are also being asked to refurbish marketing suites for on-site sales centres for free.

You can鈥檛 complain too much, because there鈥檚 an understanding that if you do it, you鈥檒l get work on their next big scheme. But winning more work can be more trouble than it鈥檚 worth. Of the 拢480,000 we have locked up in retentions, about 拢100,000 is more than four months overdue.

We don鈥檛 have a problem getting the original 50% of the retention. It tends to be when you go back one or two years later and say, 鈥榊ou owe me the other 50% and you haven鈥檛 said there were any defects, so you need to pay me鈥�. The main contractor tends to say it鈥檚 because they鈥檝e not been paid by the client.

We use a lot of smaller subcontractors that simply are not big enough to carry retentions. So we don鈥檛 pass them down. We pay them but then we don鈥檛 get paid.

We also get squeezed when a client or architect demands that we use a certain supplier. If we haven鈥檛 usedJoe Bloggs Lighting before, they鈥檒l say they want拢10,000 upfront before they鈥檒l start making the light fittings. But we don鈥檛 get paid upfront so we just have to find the money.

Postscript

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