The problems with infrastructure

It’s surely stating the obvious to say that investment in infrastructure is good for the economy. After all, good transport networks, flood protection, utilities and communications are taken for granted as the bedrock of our quality of life. More than that, without it, building the new homes the country badly needs would be impossible, and enhancing our infrastructure is central to the competitiveness of UK plc. So, what’s the problem, and what can be done about it?

On the one hand, one need only look at the many schemes that have been cancelled or delayed to recognise that there is something wrong with how we go about procuring, creating and maintaining the vital infrastructure the public demands. While there have been some recent successes, such as the Elizabeth Line and Thames Tideway Tunnel in London, how can it be that only one reservoir of scale, Carsington Water in Derbyshire, has been built in over 30 years? And will changes in the Planning and Infrastructure Bill improve the situation?

Yes, infrastructure is expensive and planning requires patience and care, but they aren’t the only reasons there’s a problem. At the heart of this is a lack of understanding of the benefits of investing in infrastructure. By the time HS2 got its message right, that it was less about shaving off a little time between London and the north than both increasing freight and passenger capacity on the east and west coast lines and reducing freight traffic on the M6 and M1, it was too late to save the scheme north of Birmingham.

On the other hand, politicians and clients seem to have little awareness of the increasing fragility of the supply chain of civil engineering contractors, those firms with the capability to create and maintain our infrastructure. Carillion may be the best known casualty, but numerous SMEs throughout the UK have gone under or, at best, struggled to keep going over the last decade. Despite the lion’s share of their work being for the public good, rather than to be sold, the civil engineering sector is in a parlous state due to a combination of factors: primarily, financial, contractual, and skills-related.

Not only do contractors work to paper-thin profit margins, on average less than 1%, they are hamstrung by both a growing list of client demands and the imposition of a welter of unplanned costs. Despite civil engineering having little to do with building high rise towers, by being lumped together with the rest of the construction sector it has had to cope with huge increases in professional indemnity insurance that are a consequence of the Grenfell fire. The last Government raised fuel costs for contractors by making it illegal for red diesel to be used for any commercial activity other than agriculture (despite the fact that it’s impossible to determine whether building a farm track or land drainage is agriculture or civil engineering).

Contracts are fraught with risks for the contractor, all too often involving lengthy and expensive legal battles. With regard to delays, for example, they face the prospect of being sued for liquidated damages. In terms of the types of contracts used, if a client opts for a lump sum contract (e.g. NEC option A), the contractor stands most of the financial risk, whereas target cost contracts (e.g. NEC option C) offer a gain share arrangement that is beneficial to both client and contractor. Yet, that does not address the continued use of retentions that are sometimes as high as ten percent of the total cost of the works.

In terms of skills, there may be plenty to commend the Government’s recent white paper, Restoring control over the immigration system, in its bid to create more apprenticeships, together with the £600 million that has been allocated to construction training. Yet, apprenticeships are only created by business demand and, without certainty of workload, an employer is both unable to offer places or guarantee that an individual will be able to complete their apprenticeship.

So, what’s to be done? First, there must be greater recognition of the importance of the civil engineering sector to the lives of everyone. For skills, clients should be encouraged to smooth their workstreams and frameworks to give their supply chains greater continuity of workload, rather than the boom and bust cycles that are all too often a feature of how they currently procure infrastructure works. At the same time, detailed intelligence of what skills, at what level, in which locations, over a given timescale, needs to be made available to schools, training providers, careers advisors and job centres.

With regard to financial and contractual matters, the principles within the Procurement Act, in conjunction with The Construction Playbook, must be acted upon. And greater adoption by clients of the Enterprise Model (known as Project 13) would boost certainty and productivity in delivery, improve whole life outcomes in operation and support a more sustainable, innovative, highly skilled industry.

Without that, we would fail the remarkable legacy of Brindley, Brunel, Smeaton and Telford, the great engineers whose names adorn the portals of the Institution of Civil Engineers, yet who today would struggle to build almost anything at all.

Guy Lawson is Principal at Business Critical, and a former director of CECA North West (until July 2021).

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