Copronet says the construction industry must ‘stand together’ with subcontractors, as contractors demand rate reductions amid Covid-19 worries
You might have seen the news story that Bellway Homes has asked its subcontractors to reduce their rates by 5%. Well, of course they have. They have hungry shareholders who will be keen to see the share price and dividend continue to climb.
They probably also have an incentive-based reward scheme for their more senior employees. After all, who can forget the gravy train at Persimmon when senior management shared a bonus pool of £500m!
It seems a complete paradox to the team here that at a time when it is imperative that we all stand together, the big boys flex their bargaining muscle. No doubt, some of the subcontractors involved will grudgingly accept the proposal and view it as yet another indirect tax on remaining in business. For others though, it may well prove a step too far and they will throw in the towel.
Nor does such a request sit very comfortably alongside the recently launched Construction Talent Retention Scheme.
It is also worth bearing in mind that the housebuilding industry has a bit of a chequered reputation when it comes to delivering a quality finished product. So, at the same time that subcontractors are being asked to raise their game in terms of quality, they are being asked to do so for less money. It does not take a genius to work out that the subcontractor will try and find ways to recoup some of their losses from this arrangement and that will come at the expense of quality surely. Corners will be cut.
It is subcontractors who carry out 80% of all construction activity. In the housebuilding sector, this is closer to 100%. It is the subcontractors who end up with the majority of risk on their shoulders with onerous warranties and contractual obligations. And of course, some make an extremely handsome living. Others though, especially in the current climate, are hanging on by their fingertips.
Other industries work closely with their supply chain, especially as sustainability and ethical behaviour climb up the corporate agenda. But this does not seem to be the case in the construction industry where the supply chain is viewed as a cheap means of securing working capital.
Our view is that those who truly look after their supply chain, especially now, will become favoured employers. Those that don’t might start finding their pool of resources starting to dwindle.