Tell us about yourself and a headline overview of Osborne?
I’ve been with Osborne for 4 years now, firstly in the role of Supply Chain Director to our construction business before moving to my current, central role as Group Head of Supply Chain. Prior to joining Osborne, I spent a year working on Balfour Beatty CSUK’s supply chain development programme. I have also worked as a consultant with a number of construction businesses, developing their supply chains and also on building business development strategies with a number of sub-contractors. Those relationships were born out of the work I did with them, during my 7 years with Wates from 2004 – 2011.
Osborne as a business is approx. £300m turnover. The split of this turnover is across three major areas of activity – Construction 41%, Infrastructure, Rail & Highways 37%, 16% in our Communities’ business which is planned and reactive maintenance service for social housing and also new build residential for social landlords. The balance of our turnover is through our developments and offsite SIPs fabrication and erection businesses
What are the current views on the construction industry and some of the key events ahead, Brexit looming etc?
Brexit is an interesting phenomenon! It is a difficult one to unpick because as a contractor out there bidding for work, we’ve seen a mixture of genuine concern and a little bit of opportunism whereby funders may be thinking, “is it worth hedging our bets and if we threaten to cancel schemes because of Brexit, might we force a downturn in price?”. They are trying to squeeze the market around the Brexit worse case scenarios. We also have got several genuine influencers, the obvious one being around labour movement particularly for skilled trades, although our own research indicates that none of our major subcontractors see it as having a big impact. Equally, while there is concern around the exchange rate or the continuity of goods and services between UK and Europe, I think the reality is that the majority of European suppliers will want to preserve good quality business relationships with UK firms irrespective of the Brussels party line! It seems a bit of a nonsense for the EU to make trading difficult between Europe and the UK, because they will be potentially taking food out of the mouths of those member states, to whom the UK is a significant customer.
From an Osborne perspective, I think that trying to collect intelligence on the potential Brexit Effect on our supply chain, has highlighted our lack of understanding and visibility of the origins of our materials and products, and how they are sourced.
Brexit aside, is there anything else of particular interest in the industry at the moment?
We don’t see any particular movement in the market in terms of a downturn in interest. We are seeing a squeeze on rates by some prospective clients, but we were going to see that anyway. The market waters are muddied because you typically get this cycle. Following the last recession we inevitably moved swiftly from a buyers to a sellers’ market, and that tends to drive more two stage tendering, more negotiation and then as the market flattens out there’s a tipping point whereby it seems to power moves over to the buyer who say “why don’t we do single stage, competitive tendering again”.
I don’t see anything at the moment or any significant feedback from our own supply chain that suggests they are seeing anything other than quite commonly a preference to try and fix prices between now to 2019 when there is a feeling that Brexit might impact on prices. The challenge is finding a balance that keeps us competitive in today’s market but gives our rates some degree of future proofing for tomorrow’s.
As a main contractor, key supply chain partners must be key? How key are façade specialists for you as a business?
You are absolutely right and there is a recognition throughout the business that supply chain management and supply chain relationship management specifically, is an absolute pre-requisite of success. I think that while we still have people in the business at grass roots level, at site level, that may still see it as a master and slave relationship, the reality is that we recognise the skills and expertise is invested in our supply chain and we have become too dependent at times in terms of that. It is very difficult for our own site managers for example, to have the level of detailed knowledge and technical expertise to fully verify the quality of complex specialist works, and facades is a great example of that. It’s not massively accessible when you are putting the stuff up. Yes, there are certain parts easier than others for us to visually inspect, but it reinforces the fact that we need closer self regulating partner type relationships with key trades such as envelope, which is so critical to the progress and the programme. We need that certainty and assurance that we have got someone that has our interests at heart and see their success inexorably linked to our success, at every stage of the project, from supporting our bid to minimising defects and supporting our aftercare team. I think with the relationships we have developed over the last few years with our preferred supply chain, which represents about 50% of our spend, we are fostering that quality of relationship and are able to offer statistical evidence of this.
Most of our high value/technical trades such as façade contractors like yourselves do recognise that design is a real USP and what you have to offer is rarely tapped into enough by Main Contractor’s. That is a constant source of frustration and it perplexes me quite often – why it is we have employed you as an expert, but we don’t choose to leverage any of the most valuable commodity that you have to offer which is your technical expertise?
What do you see as the main challenges facing façade contractors at the moment?
I think it is often very difficult to make like for like comparisons during the tender process. This is an area we have struggled with in the past, from our perspective I don’t think a lot of Main Contractors see any difference between a Colorminium or competitor who might be a much smaller business that doesn’t have the same capabilities, resources or business strength. We will send the same enquiry to a number of contractors, but if you look at their profiles they can be quite diverse in terms of their size, scope and experience. I don’t think that’s entirely a negative, because I think it comes back to something we spoke about before this interview, which was around the importance and significance of the relationship. There are certain subcontractors that I would say probably don’t have as much of the resourcing as some others, but actually we would say they are still a good and reliable contractor because of the level of commitment they are willing to give us. The biggest challenge for Main Contractors is understanding the difference between a good relationship and just purely having leverage. Historically main contractors have tended to steer away from sub-contractors that they perceive as are too powerful and who are prepared to challenge and robustly fight their corner if needs be. That sort of master and slave mentality is quite a destructive thing, because it creates a mind set of “how can I get the upper hand, or is this guy going to get the upper hand on me?” That’s a real handicap for us in terms of actually having proper discussions, people being honest, people saying this is a problem how are we going to resolve it, rather than who are we going to blame? With our Façade Contractors, it is a bit of a mixed bag, but I do think we see value from using repeat relationships and using them across the business. The challenge for us, is we have 30 project managers across all our businesses, and each one has his own relationships and is reluctant to accept the references from even his peers! So bridging that gap is a challenge, but that is probably one of things we have been successful at doing by creating these formalised relationships under the trading agreement with people like Colorminium.
As a main contractor, what are the top concerns you have when placing a subcontract for the façade? What are your views on early involvement and single sourcing?
I guess one of the biggest challenges is always around understanding the full range of interfaces, because what we have done traditionally is we take packages, and we deal with that package in isolation. Façades is one of those packages, where we actually need to be having a number of conversations with all of the interfacing trades, to understand those relative dynamics and interfaces. And where we are getting better at this, is to look at who has worked with who, and not just look at our relationship with them but also look at their relationships in terms of interacting with their other key trades on projects, and that is something we are very keen to try and develop more of to understand those dynamics on site. Who are the people you like working with? Who are the people that make your life a bit easier? And who are the people that understand how you work? One of the things we do need to do and it’s certainly high on my agenda at the moment, is to create more workshops for our supply chain to interact with each other and understand exactly why you do the things you do that we as the main contractor perceive as counter productive?
In your opinion, why is it so difficult for façade contractors to survive and what takes them down?
My experience has been two-fold really, one is the amount of power that is often vested in the profile extruders and manufacturers. They seem to be at times a law unto themselves and probably the most recent one we saw go was exactly because of that. That firm had ordered some materials, they came late, his main contractor wasn’t prepared to wait and pushed the button on him and he fell over, he was over exposed. As a main contractor we spend a bit more time looking at finances, and how they are going to finance their supply chain and that’s probably one of the reasons we have less smaller contractors now and more larger ones in tow. Typically, we see that the trades that seem to be most fragile are carpentry and brickwork, because they tend to be high labour, and not used to managing a lot of material costs. M&E firms seem to be the most robust, simply because M&E has a high proportion of value vested in material (often as much as 60% of the subcontract value) and therefore they are used to planning and managing money and managing those materials. The second thing we need to look at is what other commitments our sub-contractors have and look at their programmes. Again, strong relationships build trust and transparency, which is what we want from our key trades.
A subcontractor’s cashflow across other projects for example. If they have multiple large jobs running simultaneously there is a risk that they will be over stretched and that will impact on finances, labour and productivity. The idea that it is the sub-contractor’s problem is an approach that doesn’t work long term, and it doesn’t provide us with assurance or mitigate risk, in fact it increases risk.
Are you saying the ability of a façade contractor that might have grown from something small is at risk in a highly exposed market?
What I’ve seen is façade companies, particularly curtain walling companies, expand very rapidly and not always in a controlled fashion. There are a number of contributory factors. Firstly smaller subcontractors with lower overheads can be price competitive. Smaller subcontractors will often be pricing multiple projects to increase their probability of appointment. On site, smaller subcontractors can be perceived as more agile and flexible and less contractual than their larger competitors. Profile extruders are sales driven and can be keen to extend lines of credit demanded by a growing subcontractor. I have certainly experienced instances where all these elements converge to create a ‘perfect storm’ with a small subcontractor winning multiple projects, on small margins and over extended credit, stretching cash flow paper thin. It’s fine while everything is going to programme, but the frailties of such subcontractors can be quickly exposed if there is a delay to the project or an interruption in payments. Often their Experian report will show a trail of this happening, where there are such marked peaks and troughs in their supplier payment reliability, which indicates cashflow problems. We, as main contractors, need to take more ownership of our supply chain, in terms of them delivering for us and making sure they are fit to do that. It’s a challenge because the smaller firms are the most cost competitive, they are the ones you want to appoint, our QS’s want them to be the ones, but we do need to stand back and be objective, and make that most difficult of reconciliations between lowest price and best value based upon the subcontractors capability to add value at every stage of the project, consistently and sustainably. In this respect Colorminium’s business profile and the relationship we have developed is a valuable bench mark.