Understanding the construction ecosystem

So, we are a very significant construction client. But that also means we need to understand the construction sector as it is in reality. We are used to dealing with main or framework contractors, but 98% of construction consists of small and medium-sized enterprises (SMEs). Virtually everything we want to do flows through them.

To square the triangle of doom – building new homes, decarbonising existing ones and hardwiring building safety into our operations – within our constraints requires a construction supply chain that can invest in productivity, innovation, quality, capacity and capability. 

“To square the triangle of doom – building new homes, decarbonising existing ones and hardwiring building safety into our operations – within our constraints requires a construction supply chain that can invest in productivity, innovation, quality, capacity and capability”

Given the predominance of SMEs, these investment decisions sit at that level. But, given the nature of SMEs, this also happens to be investment in jobs, skills, training and employability in the communities in which we operate. Unless there is commercial reward for the outcomes from that investment, it just doesn’t make sense for them to do what we need them to do.

To understand why, look at their ecosystem. Most operate in a low-margin, short-term, cost and compliance-driven world, dominated by risk-dumping, margin-slicing and poor payment and contract terms.

They operate in the most volatile sector of our economy; when an ISG or Carillion go under, they destroy multiple businesses underneath them. Cash is preserved for survival, not invested in the skills, jobs, innovation and productivity that drives better outcomes for clients.

Given that this is how construction operates by default, how do you know you aren’t part of it? Unless you are consciously developing structures and partnerships that counteract the norm, you can assume you are getting the norm. And that norm destroys the value and opportunity you need to exploit to translate your client intent – why you are investing, what transformation you are trying to drive – into the effective delivery of outcomes.

“As construction clients, we serve our tenants, communities and the taxpayer badly by habitually asking for more, rather than challenging ourselves to act in a much more active and sophisticated manner”

As construction clients, we serve our tenants, communities and the taxpayer badly by habitually asking for more, rather than challenging ourselves to act in a much more active and sophisticated manner. Cost and compliance are baselines, not outcomes. While the Procurement Act 2023 will make some aspects slightly easier, it isn’t going to tell you how to do this better. That remains our job.

There is enormous latent value in our supply chains; most SMEs want reward for the extent to which they can use their skills and experience to create value for clients.

As Richard Rumelt, a writer on business strategy and professor emeritus of the UCLA Anderson School of Management, says, “The concept of cost is tricky. People talk as if products have costs, but that is shorthand easily leading to confusion. Choices, not products, have costs.”

Let’s take a step back and think through what good-quality, active, sophisticated, outcome-focused construction clienting looks like, because that could be transformative for our sector, and much more meaningful for our tenants and communities.

Tom Jarman, director, Low Carbon Journey