What can the industry really learn from Carillion?
Richard Catt analyses the latest Carillion revelations and warns against winning jobs on price alone.
AS I write this article (in April), news is breaking that the total liabilities at the time Carillion went into receivership amounted to £6.9bn. £6.9 BILLION! The receivers are also warning creditors that Carillion had very little in terms of assets and so the message seems to be ‘don’t expect much’.
The extent of this abuse is perhaps what makes it so shocking, but I’m conscious that anecdotally this basic model (and for me where it all starts i.e. pricing jobs at below cost), is rife throughout main contractors and – if we’re honest - even evident in the flooring sector.
Let’s be clear that it’s not illegal, because anti-competition law dictates everyone can price jobs at the level they see fit. Arguably, they could be priced below cost as their business model generates profit at a different point. Maybe a loss leader approach? Or lower overheads, meaning a different model can be operated? To understand my point, look at the fascinating growth of companies such as Lidl and Aldi which have disrupted the previously established supermarket domination and offer a sustainable alternative.
Anti-competition law also means there’s no forum (certainly not in the CFA) where competitors can agree the minimum cost price for installation. It’s a capitalist, free market economy and these freedoms also protect us in many important ways.
But simplistically, I can’t help but ask: What if the motivation is purely greed? Jobs are always undervalued, measures always questioned, payment is always late, retention is withheld (never paid) and quality is almost encouraged to be compromised to squeeze more profit. Should that kind of activity be protected by the same laws? It’s a complex issue in construction, and factors such as the client’s attitude to cost and quality is key, as are aspects such as the way we employ, train, qualify and measure the competence of labour.
Build UK argues we (industry) need to lead a cultural change and set standards that help the client recognise best practice. The CFA advocates a bit of carrot and stick, demanding 30-day payment but at the same time supporting the call for ringfencing retention to ensure it’s not abused. I think we (the CFA) already offer an excellent opportunity for our members to differentiate their businesses in terms of quality. CFA members are vetted against criteria that include; relevant insurances and the ability to provide essential paperwork such as a method statements, risk assessments, health and safety and environmental policies.
These all show best practice. Financial well-being is checked, and evidence of credible commercial flooring activity is also required, as are references. As well as continual support, these elements are audited annually such that the CFA directory represents due diligence that a client might otherwise need to undertake. Displaying the CFA logo helps you stand out from the crowd by indicating to clients you’re providing a high level of quality, service and overall a professional installation.
In addition to using the CFA logo, as another approach to ensuring you don’t have to compete on price alone, I recommend CFA members include a copy of our leaflet ‘Why choose a CFA member?’ with every quotation. Available in hard copy on request, for the digital version see http://www.cfa.org.uk/Contract-Flooring-Association-Information-and-Downloads/. You could even include a statement in quotations that firmly draws attention to CFA membership and what it means, plus any other certification held eg ISO standards and health and safety accreditation. Bring it all deliberately into the equation and challenge those who read your quotation, perhaps with a bullet point list, to compare and contrast the credibility of your business against others.
There will always be someone who offers a cheaper price, so don’t let it be about that alone – not only because credible specialists want to do a good job, but also because we know that in terms of main contractors, the alternative is a Carillion or maybe even a Grenfell.
Richard Catt is ceo of the CFA
IMAGE COPYRIGHT: Elliott Brown