Examination of Witnesses (Questions 480-499)
CONSTRUCTION CLIENTS'
GROUP, BAA
15 JANUARY 2008
Q480 Mr Wright: You did mention you
were going to give us the figures on the take-up of the Charter.
Mr Cunningham: Bear with me a
minute and I will give you the figures. Currently there are 305
client organisations that are signed up to the Construction Clients'
Charter. Do you want me to break that down further?
Q481 Mr Wright: In terms of the break-down,
would it be fair to say that the majority of them are housing
associations.
Mr Cunningham: It is fair to say
that, yes.
Q482 Mr Wright: Why would that be,
do you think?
Mr Cunningham: The main reason
for that is that the Housing Corporation saw the Construction
Clients' Charter as being the mechanism to implement Egan across
their new build programme and, as a result of that, they requested
any housing association or RSL (Registered Social Landlord) to
get charter status to get access to new build funds. That is exactly
why that happened.
Q483 Mr Wright: Three hundred and
five seems a pretty little figure to me. What would be the potential,
would you say, that you could achieve against signing up to this
Charter?
Mr Cunningham: We need to get
significantly higher than that. Rather than me talk about numbers,
in terms of numbers of client organisations that are signing up
to it, I would rather talk in terms of percentage of value, and
really that is what we need to be looking at, influencing the
significant value, and, obviously, the public sector has a significantly
high value turnover within the construction output.
Q484 Mr Wright: The public sector
has got that. What would you say are the numbers of central government
and local authorities that have actually signed up?
Mr Cunningham: There are currently
four local authorities signed up, and the only central government
client that has signed up is the Highways Agency. As I said earlier,
that to me is hugely disappointing. We have just undertaken a
review of the Charter and the feedback that we have had is that
the process is too bureaucratic, there is too much red tape and
barriers to usage are too high. That is why we have not had take-up
outside of the housing associations or social housing sector.
We have also been looking at updating the content of the Charter,
because currently it is aligned only with the original Egan Report
in 1998, and we have been doing that with the 2012 Construction
Commitments. On the back of this activity the Housing Corporation
have already utilised, they have "social housed", the
Construction Commitments specific to their requirements and they
are rolling that out now across their social housing new build
programme again. What we have done since then is developed a process
whereby we can engage both the clients in the process and also
the supply chain organisations, to get them signed up to the Commitments
and then a process of measuring their performance, diagnosing
how they are doing to make sure that they attain a specific standard
of activity and, if they are not maintaining those standards,
they will not get charter status. What we have tried to do, or
what we are doing is putting a process in place which minimises
the barriers to entry but still puts a formal process around delivering
better value for the construction client.
Q485 Mr Wright: So in language terms,
are you saying you want to water down the Charter to make it more
acceptable?
Mr Cunningham: No, we would not
water anything down. That would be detrimental to what we are
trying to do across the sector. What we are trying to do is to
develop something which is (a) more up-to-date, (b) is more relevant
and (c) is more accessible to frequent and occasional clients
and is not just being used by one specific sector within the industry
because it is mandatory for them to do so. We want this to engage
all clients and supply chain organisations, and provide the consistency
that we want and really make a difference across the sector.
Q486 Mr Wright: Have you taken any
measurements of the construction clients who have actually signed
up to the Charter? What are the benefits they have achieved from
that?
Mr Cunningham: We have not done
any formal measurement of what benefits have been achieved. What
we have done is undertaken this formal review. Those that have
implemented the Charter as it currently stands have derived significant
benefits. However, on the counter side to that, because the current
process is fairly complicated and bureaucratic, there is evidence
that some housing associations have taken on consultants specifically
to get them charter status—so it has become a tick-box exercise
rather than something that really is changing the way that they
procure their construction activity—and that is why we have
had to address it with the review.
Q487 Mr Wright: Has any organisation
withdrawn from the Charter since you signed up?
Mr Cunningham: Yes.
Q488 Mr Wright: Is it significant
numbers, and what were the reasons given?
Mr Cunningham: The numbers have
only been recently because of the Housing Corporation's shift
in policy to move away from the Charter and more towards the Commitments,
which is where we are moving forward as well. So, as their reviews
have come up for the Charter, some organisations have opted out
of it as a result of the Housing Corporation now making it non-mandatory,
which backs the reason why we have done the review in the first
place,and supports why we are doing it.
Q489 Chairman: As you began to answer
this section of questions you began to offer a break-down. I do
not want a detailed break-down of numbers necessarily, unless
it easy to do, but are government departments and local authorities
on the list of those who signed? How many of them?
Mr Cunningham: I did answer that
question.
Q490 Chairman: I did not hear; sorry.
Mr Cunningham: Four and one. The
one central government organisation is the Highways Agency.
Q491 Chairman: Who have a reputation
for being a particularly good public sector client.
Mr Cunningham: Yes, and we actually
have a member from the Highways Agency who sits on the CCG Board,
and they have been integral in the review process.
Chairman: Sorry for being repetitive.
We move now to Terminal 5, Mr Wolstenholme.
Q492 Roger Berry: Yes, Mr Wolstenholme,
it is your turn. Good morning. Terminal 5 is widely regarded as
being a success story. Is that true and, if so, why?
Mr Wolstenholme: Yes, it is a
success story. At 4.00 a.m. on 27 March this year T5 will be open.
It will be on time, it will be on budget and it will set new standards
for quality, and I believe it has moved the industry benchmarks
for health and safety. Why has it been a success? I put this down
to two principal reasons, and it is no coincidence that a lot
of the debate and discussion so far has been around the client
role. One is that I think we have understood over many years of
being a construction client the importance of the role of being
a client; so a strong client body, strong leadership, a very clear
brief and, I think, effective governance over that process is
the first element. The second element, I think, is that we have
been able to create an environment for success for the large and
extensive supply chain that has been taken on to deliver the actual
physical work. Success, I think, in that in developing the T5
agreement (the Terminal 5 agreement), we looked very hard across
12 programmes of similar size and scale and saw three root cause
failures. It is about behaviour and process in the whole arena
of delivering projects, it is about managing risk and opportunity
and it is about accepting change as the norm, and for that reason
you have a choice as to which form of contract you go down. Either
what we call transactional contracts that tend to need certainty
at the beginning, that will have a lot of conflict that goes with
it and, therefore, potential for claims, where you go down a relational
type contract which is very much about partnering, about engaging
into graded teams and about managing the risk appropriately with
those people who are able to do it. I think a strong client setting
the realm of success has been the root of the success of T5.
Q493 Roger Berry: As you have suggested,
it is commonly stated that the key factor was the decision of
BAA to carry all the risk. Was this, in fact, the case? Is this
actually what happened? Can you say a bit more about the reasons
for that?
Mr Wolstenholme: If you looked
across those 12 benchmarked programmes that we looked at, some
big in the public sector, some in the private, both at home and
internationally, the norm that we could project forward was that
there was a likelihood or a chance of our project being a million
pounds over budget, being a year late, but not setting the quality
standards at opening day and, indeed, killing many people. In
order to protect ourselves against that risk (and at the time
we were capitalised probably as a six billion pound business,
T5 was worth 4.3 billion), the best chance we had to mitigate
those sorts of risks was to take a completely different attitude.
In answer to the question, "Did we take that view?",
yes, 80:20 of the scope has been delivered in a cost reimbursable
style where we have taken integrated teams. T5 is not just a terminal;
T5 is 16 separate projects. Each of those projects has a separate
risk profile and we developed the brief and the integrated team
from each of those separate risk profiles and by doing so allocated
very clear targets, became extremely proficient in understanding
programme and cost controls and monitored the potential for risk
to crystallise on a sometimes daily, and certainly weekly, basis.
Q494 Roger Berry: Why do you think
other projects have not adopted this approach?
Mr Wolstenholme: I think if you
look at BAA, we have been in the game of managing large programmes
of work for a number of years right now. We are just about to
enter what we call our third generation of "framework supplier
agreement". You need to have the discussion around the occasional
or the sort of serial, if you like, client. It is about the capability
you have within that client organisation to take on risk in a
different way. We would not encourage client bodies or organisations
who do not have a considerable amount of experience in developing
the relationships, in understanding how you manage risk in this
particular way, of necessarily taking on a T5 agreement type approach.
Interestingly, there was a question previously about Emirates
versus Wembley. If you look at when the risk was transferred to
the supply chain, you have different levels of certainty. Our
business is to understand our risk and to make sure that when
it is appropriate to pass that risk to a supply chain, then you
choose your moment carefully with your eyes open, as it were.
By taking the T5 approach, we knew that there would be changes
made, we knew that the size and complexity and the integration
required and the environment within which we were working was
best suited to a model that was reimbursable style, and for that
reason, as I said, 80% of the work that we procured through T5
was delivered through that method.
Q495 Roger Berry: Unite, the trade
union—and I had better declare an interest, I am a member
of the trade union—heaped praise on BAA, they heaped praise
on the Terminal 5 project and the way that it was handled, in
particular the way that the contractor's workforce used direct
labour, provided training, promoted good health and safety practice,
to which you have referred already. Why did BAA take that approach?
Mr Wolstenholme: Quite apart from
the risk, beyond defining "the what" of the 16 projects
and, therefore, the programme called Terminal 5, we had to manage
the risk of "the how", and "the how" in part
was generating an environment where between eight and 10,000 construction
workers could have a stable platform for delivering more than
just a job. This created for them a career opportunity, if you
like. There are three elements that you have mentioned there.
One is direct labour, correlation between those organisations
that take on predominantly their own labour force; they have loyalties
towards their organisation and they have pride in their work.
I am not saying that others do not, but the correlation is actually
quite strong and, therefore, we chose a model that sought to maximise
the number of people that were directly employed right across
the organisation. In practice what we have achieved is probably
around 80%. So it is very difficult, the way people choose to
be employed in the industry, to get 100%, and not helpful to want
to get there, quite frankly, because there are some elements of
that work that you do not want to do. In terms of training, as
I said, more than just a job. For many people T5 has been an opportunity
to work for a continuous period of up to four or five years and
for that we have taken a range of different attitudes towards
training (either on the job training, taking people from the local
community, starting earlier with schools, providing apprenticeships,
providing mature bursaries) and all this, I think, has enabled
us to create this stable environment. The third element, which
is my own personal campaign of the last four years, is to do something
different with health and safety. If you want to create a stable
environment and create a dialogue, create a conversation with
your organisations and your workforce, then you had better have
them perceive you as really worrying about their health and safety.
For this reason, we have put in place what we have called IIF
(an incident and injury-free programme). We asked all the leaders
of our principal suppliers and their principal sub-suppliers to
engage in a leadership training course to create an environment
where you could eliminate incident and injury. This was more of
a state of mind, acting as role models, acting as representatives,
and the experience and the results that we got, it probably took
us a year or 18 months to change the culture, to create this tipping
point where things began to happen differently, and slowly, through
the workers' feedback, 70-75% of people said, "This is the
safest site I have ever worked on"—the safest, not
a safe site, the safest—and by creating this dialogue one
then gained permission beyond safety to talk about cost, to talk
about programme, to talk about quality having first dealt with
things that mattered to people. If you go back to the unions,
we spent four or five years meeting the unions on a regular basis,
understanding what their concerns were, seeing what the common
links were between us as a major construction client and what
the industry's issues were, and by dealing with that we also created
a stable platform for industrial relations; so you look after
their welfare, you create training opportunities, you create a
career rather than just a transient job, you look after the health
and safety and actually you can begin to expect, with this big
picture view, a much better, stable environment for your eight
to 12,000 people.
Q496 Roger Berry: Would you argue
that, whatever the nature of the contract, whatever the approach
of the client, the advantages you have just stated for direct
employment, provision of training, attention to health and safety,
those principles, the arguments you have made there, presumably,
would apply across the piece?
Mr Wolstenholme: It is interesting
where the supply chain starts training the clients and where the
client is expected to create a role model and create change for
itself. I actually believe if you are a client like BAA, or Tesco,
or serial providers of major infrastructure programmes or, indeed,
public sector clients, then you have an accountability and responsibility
to create environments to move the industry forward. Where you
are a one-off client, then actually I think you should expect
the supply chain to come with some clues and some answers to what
you are probably only going to do once in your life, but there
is absolutely no reason why. The moral arguments for improving
health and safety is unquestionable; the business case risk few
people understand. It costs huge amounts of money to have casualties
on site, both in time and cost and quality, and people have often
observed well, you have got to be at BAA to put in a health centre.
We can show you statistics and key performance indicators that
give you a strong business case to do this (keep your workers
on site, if they get themselves injured in any way deal with them
absolutely on the spot) and, whilst they were slightly sceptical
about seeking the reason why we wanted to give them medical experiences
for safety critical operatives, after a period of time they realised
we were doing it because we care about their health. I think this
is transferable, I think different peoples within this sector
in different circumstances should create the need for this, but
I think there is ample evidence now that the construction industry
takes health very seriously. I think there is a huge movement
and improvement, even though sometimes these do not mirror themselves
in the headline statistics, about us becoming a safer industry,
but this is about leadership, and if you have got leaders who
care and understand about these things, then stuff will happen
and changes will be made.
Q497 Roger Berry: Your comments about
the evidence in relation to direct employment and training you
would present equally strongly.
Mr Wolstenholme: The industry
in the late eighties and early nineties went from a directly employed
model to one that was predominantly subcontracting. I believe
there is evidence of the cycle changing and those organisations
that are moving down that way will reap benefits beyond which
I think a purely self-employed engine can sustain.
Q498 Chairman: Yet on the other outstanding
successful construction project in London that we have heard about
so much, the Emirates Stadium, the contractor largely used bogus
self-employed labour rather than direct employed labour, yet produced
a good project.
Mr Wolstenholme: This is not the
only constituent that makes up good successful projects. I would
say the overriding success of Emirates is obviously a client who
knew exactly what it wanted. There was a period of time when the
clients, the consultants, the contractors worked together in a
sense in a risk-free environment before the risk of delivering
that programme was passed on, and when you have got clear briefs
and clear targets, then of course people from different employment
models can work successfully. I believe you had first-rate suppliers
there whose ethos, independent to whether they were directly employed,
apply the same rules of training, the same rules of health and
safety; so if you can get that stable environment, you can bridge
some of the uncertainties that directly employed versus agency
labour provides.
Q499 Mr Clapham: Given the experience
of Terminal 5, where you are bringing together 16 projects, of
course you come into that whole area of financial products, of
insurance. Do you feel that the financial products and the insurance
are sufficiently developed to generally cover all of the insurance
industry, and did you have experience of this at all in Terminal
5?
Mr Wolstenholme: Yes. The financial
products within this context for BAA were fairly simple. BAA paid
directly for all of the work delivered on site. I think the model
around our insurance products was very interesting. Because we
had created an environment where we encouraged integrated teams
to come together, you do not have this sort of segmented approach
that for so many years has dogged our industry of a client, a
consultant team designing and a contracting team taking on whatever
comes out of that process. It is normally imperfect and it is
the blame culture that goes around: "Who is wrong, who is
imperfect, why I should create a claim?", that required the
insurance world to allocate blame and to spend an awful lot of
its time wondering who was at fault. The insurance product that
we have developed, or developed alongside the industry, was if
you are going to work in an integrated team, for example this
team, and you all represent different parts of your industry and
it is an environment within which you can work together, then
it is much more likely that you need to allocate blame to move
the project on and, therefore, the form of PI insurance (public
indemnity insurance) did not require us to allocate blame because
we could prove that that was a much better way to work from now.
Are there the sophisticated insurance products out there to do
that? I do not believe the industry has moved on fast enough—there
is some doubt, I think—to match an integrated team form
of working. Does the financial and the insurance industry seek
to catch up? Probably not, is my view.
Mr Cunningham: Can I just put
an answer in there. We are actually collecting evidence at the
moment on whether that can actually work. There are a series of
BERR sponsored demonstration projects, the first one being of
Southport Infirmary up on Merseyside, working in that type of
way so that we can capture the evidence and the knowledge of the
impact that working in that way is having so that we can then
utilise that to develop the products that are out there in the
market and disseminate that as best practice out to the sector
as well.
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