Tier One Contractors Are Trapped In The Supply Chain

Tier One Contractors - Featured Image
Construction management

The UK construction is in a continuous torment which can only get worse as time goes by and no bold decisions are taken. The situation where tier one contractors have come to is a strong indication toward that direction. According to Mark Farmer, the creator of the great ‘Modernise Or Die’ report about the future of our industry, tier one contractors are trapped in an unproductive path where subcontractors are running the show.

This is nothing more than the result of inefficient communication between the various construction agents. This troublesome situation has started becoming evident among big players of the industry, as well. Well-respected companies like Interserve and Galliford Try are experiencing this problematic new reality. Based on Farmer’s insight, we have to look for answers in the way that the supply chain has been built.

Tier one contractors are trapped in an unproductive path where subcontractors are running the show 🚧Click To Tweet

The Supply Chain Drama

As we already mentioned, the supply chain has been proved to be a huge pain for construction. The words that Mark Farmer is using while talking at Construction News about the supply chain issue is more than indicative:

“Even in good times, main contractors are no longer in control of their supply chain. The supply chain is so scarce that they are calling the shots, while subcontractors are not even in control of their workforce”.

If we could narrow down a bit the problems that construction is battling against when it comes to the supply chain management, we could sum them up to the following:

Too Much Disruption

Disruption is the number one challenge that the construction supply chain has to face. This results in an extremely confused workforce with no understanding of the project hierarchy and by extension of the project priorities. Broken communication leads eventually to significant delays that cost a lot both in terms of budget and time.

The supply chain drama for tier one contractors
Ineffective Project Planning

Ineffectual project planning simply means inability to keep up with the set deadlines. It doesn’t take much thought to realize how indispensable this is for the progress of a construction project. Improper planning can damage a project in a plethora of ways and sooner or later this will be evident in every different aspect of it.

Additional And Unnecessary Costs

Time is money and in that sense a confused and paralyzed supply chain can be the reason for significant additional costs during the construction process. The construction industry will simply continue bleeding money if we fail to provide a clear-cut orientation to the supply chain. It’s imperative for everyone to be able to act fast and tackle any pricey delays that may emerge.

Want to learn more? Modernise Or Die: The Need For Change In Construction

It becomes understandable then that, tier one contractors have to make a great effort to win back their place in the supply chain. Otherwise, there will be more and more examples of construction companies who are having a hard time moving forward.

The Problem Is Getting Real

Analyzing all the potential problems and malfunctions of the industry on a theoretical level is one thing. However, seeing construction giants struggling with inefficiency and losing vast amounts of resources is another. ‘Modernise or die’ is more topical than ever before. Only during the last months, there have been three very alarming examples about the future of our industry, in case that we don’t proceed to radical changes soon:

Tier one contractors - inefficiency
The Adventure of Interserve

Just two weeks ago, Interserve had to issue a shocking profit warning, while its share price collapsed within the first hour from the announcement. The main factors behind this shaking crisis were poor trading and legacy waste projects. Those two elements played a dramatic role in bringing the company’s performance down and leading eventually to the profit warning. Thankfully, things got a bit calmer during the last days after the appointment of a new chief financial officer. Despite the phenomenally happy-ending, though, the company still is expected to have a £5 million loss by the end of 2017.

 

Galliford Try’s Change of Focus

Last but not least, Galliford Try. A few days ago, Galliford Try announced its intention to step back from large scale infrastructure projects due to the excessive legacy contracts costs. The charge that was introduced in large contracts last May made Galliford Try reconsider its project strategy. This is a strong indication that there simply are too many struggles within our industry and we can’t afford moving forward with a crippled supply chain.

The Greatest Troubles Of Tier One Contractors

All the aforementioned examples are pretty enlightening in regards to where the industry is heading if we don’t manage to set crystal-clear roles and invest in process transparency. In order to achieve that, we have to comprehend first the various challenges that tier one contractors are currently facing:

tier one contractors problems
Lack Of Clear Hierarchy

The absence of straightforward hierarchy is one of the biggest problems that main contractors have to resolve on a constant basis. Mark Farmer is smartly underlining that, at the moment, tier one contractors are nothing more than process managers and as a consequence the supply chain appears to be more powerful than them. And he continues with brutal honesty by stating that, tier one contractors can request for changes, such as workforce increase or task acceleration, but subcontractors could simply say no.

No Direct Control On The Supply Chain

As a continuation of the first remark, this essential lack of saying on the supply chain demonstrates that fragmented communication is potentially the number one threat for tier one contractors. There are simply too many, smaller or bigger, decision-makers and this situation creates a chaos in the whole project process. Every decision has to pass by many different people and many different project layers. No direct control on the chain for the main contractors whatsoever.

Fragmented communication is the biggest threat for tier one contractors 💬Click To Tweet
Project Performance

In today’s world, less is more! The advent of new technologies and the continuous request for further industry development have raised the complexity of construction projects. For that reason, main contractors have to make a very carefully elaborated project selection in order to feel safe that they will be able to complete it on time and without going over budget. Galliford Try is an excellent example of this new reality.

Worker Shortage

The augmented project perplexity has created more challenges in terms of workforce resources, too. There is an imminent need for highly skilled and technological savvy workers who are very scarce. That is one more obstacle in the endeavor of tier one contractors to keep the supply chain under control. Nonetheless, the expected increase of young workforce during the upcoming years can alleviate this issue significantly.

Too Much Paperwork

Paperwork is without exaggeration one of the biggest nightmares for everyone in construction. Tier one contractors have to know how to keep track of everything around their projects in a detailed and accurate way. Until very recently, this meant countless hours of ‘pen and paper’ work. The arrival of construction software and especially of digital tools that can provide real-time updates have offered tremendous help against this huge struggle.

Tier one contractors have to know how to keep track of everything around their projects in a detailed and accurate way.
Risk Mitigation

Being able to comprehend and eventually mitigate the risks around a construction project is hard. When we are talking about an industry that is facing serious supply chain problems, it gets even harder since there can be no clear picture of the existing situation. The absence of trust between main contractors and subcontractors can make it much more difficult for both sides to identify emerging risks and tackle any potential threats for the projects.

Correct Project Pricing

Knowing how to price your construction projects correctly also is vital. If you provide a low price estimation you are in danger of losing a lot in terms of budget. Similarly, if you price it too high then you will potentially lose the project. That’s why, you have to be aware of what should be done and how with great precision. Otherwise, there is a good chance that you will get in big budget trouble as soon as you start working on the project.

The Other Side Of The Same Coin

Despite the concerns that Mark Farmer has expressed, there are people in the industry who appear to have a different opinion regarding the power that subcontractors possess. Rudi Klein, Chief Executive of Specialist Engineering Contractors Group, believes the tier one contractors are still those who make all the decision in construction.

In his recent interview for Construction News, Klein voiced serious concerns regarding the capitalization problems that main contractors are currently facing and he added that maintaining the structure of the supply chain in its current form is not sustainable. With that in mind, he also underlined that horrendous consequences are awaiting for the whole industry if some of those construction giants collapse.

Nonetheless, the bright side, according to Klein, has to do with the fact that the UK government finally appears to invest more attention on the problems that tier one contractors are facing. The health of the industry is bad and the first priority/concern for the government is to help big contractors to deliver large-scale infrastructure projects.

Conclusion

In a few words, it has become apparent that the UK construction is battling against its own distorted and highly inefficient self. The supply chain is in the heart of the problem and tier one contractors seem to be trapped in a decision-making labyrinth. A re-adjustment of the supply chain in combination with an extensive effort for boosting the industry’s efficiency can be the path to safety and success for construction. In GenieBelt, we are confident that we can help in this tremendous effort.

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