Report highlights ‘subbie bashing’ in fitout sector

Value-engineering in the finishes, fitout and interiors sector is an “especially insidious” approach by tier one contractors to preserve their profit margins at the specialist’s expense, a report has found.

In Procurement in the Finishes, Fit-Out and Interiors Sector, Stuart Green, professor at the University of Reading, said the £10bn sector should ban the use of non-standard forms of contract.

The report, written in collaboration with trade body Finishes and Interior Sector (FIS) and AMA Research, also says the Construction Act should be amended and aligned with the principles of the Building Safety Act “to prevent indiscriminate risk-dumping”.

Green said the fitout sector is extremely competitive and many subcontractors “routinely experience regressive procurement practices”, complaining of “subbie bashing” and “outright bullying”.

Fitout firms frequently suffer from poor payment practices and “especially insidious is the often-imposed requirement [for sub-contractors] to provide retrospective reductions to the submitted tender price”, Green said.

“This is euphemistically described as ‘value-engineering’,” he added. “The tendering process is characterised by many as a means of ensuring that the submitted prices meet a predetermined budget.”

Several firms interviewed by Green said tier one contractors adopted such procurement practices “primarily as a means of preserving their own profit margin”.

However, Green added that other interviewees “were equally keen to cite examples of good practice [which] tended to come from situations where fitout contractors work directly for end users”.

The academic said many main contractors rely on the same pool of skilled labour and so struggle to maintain any unique competitive advantage based on quality – leaving them to instead compete on cost, even though “this is not the way they would choose to operate if they were given a choice”.

Among his other recommendations were that subcontractors and suppliers named in the initial tender “will be those to whom the work is awarded”, as clients could then discover the extent to which main contractors consistently work with stable delivery teams.

Green said more emphasis should be given to the involvement of subcontractors in front-end construction scheduling and planning.

In a foreword to the report, developer Peter Rogers, a partner at Lipton Rogers Developments, said Green’s findings highlight that the industry uses “a procurement model that undermines intent and limits innovation.

“[This report highlights] a model built on mitigation rather than management of risk, a broken model that from the outset creates unequal and adversarial relationships that ultimately means we are seldom the sum of our parts.”

Rogers added: “I have a real concern with standard contracts because as soon as they have been amended, they are no longer standard and someone is seeking to offload risk onto those they see as mere ‘subcontractors’.

“There is too much effort in managing the contract rather than the construction process and ensuring the quality of the product.”

He added that an emphasis on modern methods of construction in procurement should not only be concerned with offsite fabrication, and demanded “a modern and inclusive approach to supply chain management, one that is built on trust, respect and collaboration”.

FIS chief executive Iain Mcllwee stated: “The key to unlocking the potential of construction and unleashing the culture change that we need in the finishes and interiors sector sits squarely in procurement.

“That isn’t a revelation. Virtually every report written about the construction process has raised concerns about procurement practices that facilitate a race to the bottom and create adversarial relationships and it crops up in almost every conversation I have about improving the sector.

“This is felt most acutely in our sector which absolutely sits at the whip end of construction when programmes and budgets are stretched or there is huge pressure to get the work done to leverage the value of a building.”

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