As the fallout from the collapse of Carillion is still being felt throughout the sector, senior figures have raised concerns about the underlying structure of the market.
Chief executive of the Institute of Highway Engineers, Richard Hayes, said: ‘The current strategy of government for the last few years has been driven by price and that is starting to show.
‘Over a decade ago there were 6% or 7% returns on contracts, now we are talking about returns of 3% or 4%. What’s the point of doing the work? People may start to think they might as well put the money in the bank.
‘The squeeze is on to get more efficiency and so there is very little flexibility when things go wrong.’
Another senior source suggested that as a result highways contractors might ‘price contracts low, squeezing the Tier 2’s and 3’s, and then win back their own margins through compensation event claims’ against clients.
This would create hidden costs for councils but the source added: ‘A lack of commercial rigour and reduced expertise on the client side in our industry over the last 15 years has unwittingly led to tolerance of that sort of commercial culture and behaviour - we talk about collaboration and shared risk, but in reality we are not transferring any risk at all, just paying more. It needs to change and this could be the event that might get people to think a bit harder about what we are doing.’
Highways Term Maintenance Association chief executive George Lee said Carillion went under because of ‘a combination of factors including, but not exclusively, cash flow and unrealistic margins’.
‘In the highways sector we are seeing a variety of pressures that make it difficult for contractors of all sizes. These pressures include increasingly complex and expensive tendering and contract structures often without any guaranteed work for successful tenderers, constant price pressures that do not reflect the reality of delivering a reliable and efficient service and even cherry picking of low risk activities by clients that they choose to retain, while believing the private sector will happily take on the high risk activities on a tenuous margin.
‘While industry and clients are working to simplify processes and structures, we are, unfortunately, still seeing inconsistent take up or random amendments that undermine the principle of a consistent and standardised approach designed to protect client and contractor and thereby returning us to bespoke and inefficient tendering that doesn’t help either party.’
Chair of the transport board for council directors’ body ADEPT, Mike Ashworth, suggested that in future larger projects will be more likely to be managed through consortium contracts under joint and several arrangements – ‘so other contractors can pick things up when an issue arises’.
This type of contract was chosen by government as it monitored Carillion’s worsening situation, as a way of ensuring continuity of delivery.
Highways England revealed that it had been aware of the Carillion situation ‘for some time’ with sources suggesting concerns were raised in early 2017, months before the stricken firm’s summer profit warnings.
A Highways England spokesperson said: ‘We have been monitoring the situation for some time and Carillion has kept us informed throughout.
‘This has enabled us to develop contingency plans to ensure the continued safe delivery of any schemes that Carillion is involved in on behalf of Highways England.’
The noises from the sector suggest it has been supportive of the Government’s approach. Mr Hayes suggested criticism of the Government for still handing out contracts to Carillion despite concerns was ‘ill-founded’. Most of the sector’s ire has been directed at those at the very top of Carillion.
Several sources suggested it had been a good company to work with but those in charge had done an ‘appalling’ job.
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