By Mark Allen, Director
The 15th January 2018 was a momentous and shocking (though not surprising) day with the announcement that Carillion, the second largest construction company in the UK had gone into liquidation. The signs had been there, with three previous profit warnings over 2017, the share price plummeting, and indeed the markets even betting against their survival since 2013! This has of course led to questions over why public sector contracts continued to be awarded to the company throughout 2017, but that is for others to discuss…
Now I am not, of course, saying our company was in any way comparable with Carillion at the time they ceased to exist: they had 43,000 staff worldwide, literally a thousand times the number of staff at Allen Archaeology! However, commercial archaeology is intrinsically linked to the construction sector; indeed its format of tendering for work is based on that of the construction industry. In addition, many archaeological contractors are likely to have been subcontractors on Carillion schemes across the UK, and, unless their financial contract was with a third party (e.g. the public sector), then they are almost certainly going to receive no reimbursement for invoices submitted or work yet to be invoiced for. There will not only be a financial impact but also a loss to archaeology as projects are shut down part way through, potentially leaving significant volumes of new data that will not be assessed or analysed or published, making it practically meaningless.
It has been written that Carillion continued with the ‘recession mind-set’ that prevailed after the financial crash of 2008, when the construction industry, and indeed archaeology, were hit particularly hard. Although many companies have moved forward over the last decade, not all have done so, and Carillion’s continual pursuit of this strategy resulted in serious ‘suicidal’ pricing shortfalls to keep the order book growing, the staff working and supply chains intact, whatever the cost. They piled on too much debt, chasing new business to make up for the shortfalls of cash caused by losses from the high risks that they continued to take.
Carillion sites across the country shut down immediately on the 15th January, and their once competitors have been quoted as saying they would only take on many of the contracts with a 20% uplift in price, such was the artificially low price that Carillion had offered to undertake the work.
So why was Carillion given so much work, when many insiders in the industry were particularly concerned with their practices? Simply put, money. Large public sector (and indeed many of the larger private sector) schemes usually require at least a Pre-Qualification Questionnaire (PQQ) to be prepared by the tenderer. A large portion of the PQQ is focussed on showing the company’s suitability and experience for undertaking the work but usually anything from 40-60% of the tender package is focused on the bottom line, i.e. the overall price the company is willing to do the work for. There has been further criticism that many of those in the public sector reviewing PQQs do not have sufficient training or experience to do this, so the bottom line cost has carried some weight with the rest of the PQQ. After all, the lower the construction budget the higher the chance the overall project will be completed, as the construction element is almost without question the largest portion of the project finances.
The high risk approach of slashing potential profit to the bone or accepting a ‘loss leader’ in the hope of further work, or even a loss just to keep staff busy, simply must stop if there is going to be a healthy construction industry moving forward.
Now to here I realise I have focussed solely on the construction sector; however all of the above relates to the commercial archaeology sector too, albeit the financial values are somewhat lower.
Far too many times in the past when a contract has been awarded to a competitor, and the client has provided the range of (anonymous) quotations for the work, it has been shocking to see how low the winning bid has been, often significantly lower than all other quotations. You may think that this is sour grapes, but far from it. We are never going to win every contract, but the alarm bells should ring when three tenders are almost identical and one is, for example, half the price. This means that the winning contractor has decided to take on a lot more risk than any of their competitors, i.e. that they hope that significantly less archaeology will be encountered than the other tenderers have predicted. This is not because they know anything different, all known information on the archaeology is provided in the tender package and the answers to any queries during the tender stage are made available to all interested companies. They may be lucky, but it is more likely that they will not be, so they either make a loss, push for compensation events to recover additional money from the client (resulting in an unhappy client), or the archaeology suffers.
Whatever the case, the practice perpetuates the race to the bottom mentality, as competitive tendering forces companies to try to match or beat their rivals. This also sustains the continuous concerns over the levels of wages within the industry, as wages can only be set at levels that the company can afford.
We are living in a time where there is serious investment in public infrastructure projects such as HS2 and the Thames Tideway Tunnel, as well as a good level of private sector work, so it should be seen as an opportunity for the industry to stay busy with a fair price for work of high standard, to be treated with respect by the construction industry and not just viewed as a hindrance, and most importantly to use this opportunity to improve our standing in the sector allowing us to provide more archaeologists jobs, job security and higher wages, in line with their qualifications and experiences.