COMMERCIAL FOCUS: Construction - Hazards of a skills clash

According to SBF more than two thirds of its members voted against CITB’s proposals regarding the levy. In addition, some 89 per cent of SDF members rejected the proposals. Coming at a time when the industry faces a growing shortage of skilled tradespeople, the rejection has far reaching implications for the future health of the sector, and ultimately for the Scottish government’s aspirations to see 50,000 new homes built in Scotland by 2021.

Commenting on the results of SBF’s polling of members on the levy, SBF Managing Director Vaughan Hart said: “SBF members voted by a factor of two to one to reject CITB’s proposals with feedback from levy payers in Scotland suggesting that industry employers feel increasingly marginalised and overlooked.”
The split between the building sector and the body tasked with overseeing skills development across the UK construction sector is particularly worrying, given the fact that the industry is currently losing significantly more people through retirement than it is recruiting each year.
Hart pointed out that the split is not a reflection of a bias against the cost of training, which everyone in the sector recognises as essential to maintain the health of the sector. Instead, the dissatisfaction stems from a perceived lack of transparency in the way the CITB operates and its perceived remoteness from the sector.

This is borne out by the fact that an overwhelming majority of members (94 per cent) said that they would be more inclined to support a continuation of the current levy and grant system if action were taken to make the governance and operation of the CITB more accountable to Scottish levy payers.

As things stand, however, Hart says that the responses demonstrate a general loss of confidence across the Scottish building industry in CITB’s management of the levy, training and apprenticeships.

“Levy payers cited the recent CITB imposed deregulation and dilution of Scotland’s proud craft apprenticeships as a symptom of the systematic failure and lack of transparency in CITB’s current governance and operational arrangements,” he said.

Hart told The Herald that this last point is particularly worrying for Scottish employers. Under its new, de-regulated framework governing how craft apprentices across Scotland are trained and employed, the CITB has removed the oversight the SBF traditionally provided, in joint consultation with the unions, over the conditions of employment of apprentices.

Unscrupulous employers are now free to sign up an apprentice for the whole four-year period on the minimum wage.

Hart points out that more than 300 Scottish construction companies, who between them collectively employ and train more than 1,500 apprentices, co-signed a letter to the CITB expressing concerns about its new apprentice training framework. The removal of the collectively bargained terms and conditions of employment for apprentices was a particular concern, as was the sense that the new framework would be weak on enforcing training standards.

The new framework brings to an end the existing mandatory requirements for building apprentices to be registered with recognised apprenticeship registration bodies, which includes the Scottish Building Apprenticeship and Training Council (SBATC) and the Scottish Painting and Decorating Apprenticeship Council. The SBATC dates back to 1934 and had overseen apprenticeships from that date. In the longer term, there are also concerns that the new framework could lead to a de-skilling of the industry workforce by opening the door to diluted SVQ Level 2 apprenticeships in the traditional building trades, Hart says.

“Spanning many decades, we have a proud tradition of championing high quality skills, training and career opportunities for the many thousands of young people entering the construction industry each year. All of that is being placed at risk.”

Ian Rogers, the chief executive of the SDF, was equally critical of the CITB’s move. “It is deeply concerning that CITB, who are meant to carry out the industry’s instructions, are acting in this very high-handed and intransigent manner, positioning themselves as working against the wishes of the industry in Scotland,” he said.

The Unite union also made its displeasure known. Steve Dillon, Unite regional coordinating officer commented: “We are extremely concerned by any move to undermine the pay, terms and conditions and skill level of Scottish construction apprentices.”  He called the collective bargaining structure adopted by SBATC “a shining light” to the sector, ensuring that young people entering the industry had the protection of trade union collectivism. That protection has now been removed by CITB, he said.
Hart points out that in previous consultations, SBF members have consistently voted in favour of the CITB’s proposals. The current rejection therefore speaks volumes about the scale of the dissatisfaction with the CITB’s actions.

At the same time, Hart says the industry is very keen to work constructively with the Scottish government to ensure that the industry has a bright future.

“Through a more collaborative approach, I remain positive that there is every opportunity for us to find a distinctly Scottish solution to these issues that will ensure delivery of the high quality skills our industry will need in the years ahead.”

Turning to the Scottish government’s target of building 50,000 new homes by 2021, Hart said that SBF welcomed the initiative, but really wanted to see appropriate funding levels put in place.

“This is particularly important where councils and government are seeing to mandate higher standards of building for affordable housing.

“There can be cost implications for higher standards and such standards should not be achieved by squeezing builders’ margins still further, at a time when Brexit is likely to generate higher materials costs,” he warned.

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VITAL STEPS IN UNCERTAIN TIMES

Given the internecine tussles preoccupying our political parties, the muddied path toward Brexit and an airline industry that is failing to fulfil its basic function (to fly) those in search of certainty in the current economic climate are set for a significant wait.
 

That includes the construction industry, with the Purchasing Managers’ Index showing that activity in the sector had contracted for the first time in 13 months in September, with a “steep fall” in civil engineering work.
According to Manus Quigg and Louise Shiels, partners in Brodies’ construction group, there is a growing imperative for those in the industry to seize what certainty they can in uncertain times. “If you’re a developer you try to achieve certainty in your project out-turn costs (the final cost of a building project).

“And if you’re a contractor you want to make sure that you maximise your return on that project and don’t expose yourself to risk – and that includes insolvency in the supply chain,” says Quigg.

“Achieving certainty begins with having a proper contract in place and exercising good contract administration. If you don’t, the risk is non-payment, exposure to damages, and the potential for prolonged litigation.”

Shiels says: “Failure to serve payment notices can mean that you have to pay a contractor what they have applied for, rather than what you believe they are due. In some forms of contract this overpayment is not remedied until the end of a project, which can be a year or more down the line. By then there is the added risk that the contractor may no longer be in business.”

Quigg adds that ‘onerous terms’ are another significant hazard, including the formidable ‘fitness for purpose’ clause. “If you warrant that a building will last for 25 years, that’s a fitness for purpose obligation, virtually a guarantee, whereas if you say: ‘I will exercise reasonable skill and care in this project’ that’s a much lower standard.

“Fitness for purpose is, ‘the doctor guaranteeing that the patient will always get better’ – which is why it is particularly onerous and many insurers will not insure that risk. Losing insurance cover when faced with high value claims could have serious consequences for a business.”

Shiels says that almost every major dispute in the sector now involves a claim for extensions of time and delay damages. “Time claims are expensive to pursue and defend and the outcome can be uncertain because they rely on forensic analysis of how long the project actually took and how long it should have taken. It is important therefore, not to sign up to a programme at the start of the contract which you believe to be overly challenging.

“Take new-build student accommodation for example. If the accommodation is not ready for the start of term, damages can extend to paying for alternative accommodation and even the resulting transportation costs for student travel. In one instance a university had the right to refuse to accept the accommodation until the start of the next academic year.”

Most construction disputes are resolved by adjudication which was introduced by the 1996 Construction Act to achieve a resolution within 28 days provided by a third party-man of skill.

Brodies has five or six adjudications running at any one time. Shiels explains: “An adjudicator is a construction professional such as a quantity surveyor, or an architect and he or she receives submissions within quite a short period from which they have to form a decision. It’s admittedly quick but is seen as ‘rough justice’ and we do see parties challenging those decisions in court on occasion.”

Quigg says: “Court decisions can take up to two years to reach a final determination as the process is more thorough and considered. However, all of these risks can be reduced or avoided. Having a proper contract and proper contract administration gives you the best chance to achieve the certainty you are looking for in an uncertain market.”

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A WELCOME START - BUT WE NEED MORE

The Scottish government’s promise to spend £3 billion providing 50,000 new affordable homes over the course of this parliament opened a door of opportunity to house builders in recovering from the effects of the last recession. But welcome as the announcement was, could
we do better?

Calum Murray, director at the construction and manufacturing company CCG, believes we can and should. And while he’s heartened by figures showing that more than 10,600 new starts were approved to June this year he says: “That level is still lower than pre-recession so the market has fallen back and there’s some way to go.

“There is an acknowledged housing crisis with approaching 200,000 people on the housing waiting list, so while these numbers show a positive direction of travel we can do more.”

He adds that affordable housing is also key to CCG’s business, representing some 70 per cent of group’s turnover. And the business has taken the initiative by looking both to new geographic areas of growth and to fresh ways of forging working partnerships.

"We are seeing more one-to-one engagement and that will result in the reduction of the tender workload,” says Murray. “For example, we have established a unique working relationship with East Ayrshire Council which will see us deliver more than 280 homes over the next three years across nine sites.

“That has been a direct consequence of the government’s housing targets and East Ayrshire’s recognition that to achieve these targets we need a different approach. It’s also a recognition that there are resources that we can bring to the table to bolster their own, which have been eroded by funding cuts.”

Last month CCG took on 22 apprentices, bringing its complement to 70 – some 10 per cent of a workforce of 650. The rationale is simple: “With an ageing population in Scotland combined with the need to build more homes, one of the biggest single challenges we have is a skills shortage”.

The company’s USP, he says is that CCG is a construction company with a manufacturing capability. “The drivers were the government’s sustainability agenda and a recognition that a skills and labour shortage would be a major issue in the industry so we made a £12 million investment in an off-site manufacturing facility which is a semi-automated production line capable of producing up to 2,500 houses a year.”

Sustainability also prompted a focus on timber systems. “Timber is inherently sustainable and the only form of construction that can deliver on the climate change agenda,” he says. And to underline that, CCG is on site at Ellerslie Road in Yoker building the tallest timber structure in Scotland.

“It’s seven stories, with 42 flats which will provide affordable accommodation for residents of Sanctuary Scotland housing association with a superstructure fully constructed from Cross Laminated Timber which was crane erected in 12 weeks,” says Murray, who is optimistic about the opportunities for construction.

“The government’s commitment to 50,000 homes aligned with the present demand would only suggest that the sector is going to benefit from an uplift in activity in the next few years.”