From food manufacturing to construction the current strong market growth is leading to supply chain strain. The theme is repeated across the trade press, Tom Fitzpatrick said “Subcontractor rates have increased at the steepest rate for more than 17 years” highlighting the crux of the issue for the project management / construction sector in his article ‘Main Contractors ‘taking a thrashing’ As Subbie Rates Continue to Rise’ in Construction News.
This is not unsurprising with hundreds of construction businesses going into administration each year over the last 5 years (301 in 2012 alone), severely reducing capacity in the market. Now that there appears to be a real uplift in the sector there is a squeeze on the supply chain.
If main contractors are going to combat rising prices while working out contracts won at the bottom of the market then there is a real need to shift from an adversarial supply chain to one of collaboration. If this is done effectively you can start to get efficiencies where 1+1=3. Time spent carefully planning the project with the supply chain, getting their buy-in to the plan, ensuring progress is measured rigorously and problems are solved not with workarounds and firefighting, but with proper sustainable fixes, will pay dividends. It is also the case that efficient projects with well managed plans will attract the best sub-contractors creating a virtuous circle where the best main contractors get the best subbie teams and therefore the best value.
Project teams need to move away from just thinking about the build phase and consider projects from end to end – design to handover. Everyone in each part of the process needs to understand what they have to do, what is their responsibility and what the impact is when they do not deliver. There is likely to be a sustained period where subbie prices remain stubbornly high while capacity catches up with demand.
Business Development Director