Peter Lewis, chief operating officer of Shepherd Engineering Services, says there are good opportunities out there despite the recession but suicidal tendering tactics are a constant threat.
As one of Europe's largest privately owned firms, and with a strong presence in many parts of the construction supply chain, the Shepherd Group is well placed to gauge prospects for the future. However, Lewis, COO of the group's M&E arm Shepherd Engineering Services, says only a crystal ball could give you all the answers.

'We continue to do relatively well considering, but that's largely because of the fact that we maintain a very strong customer focus and a balanced portfolio in those sectors that are active,' he explains. 'We also believe in aiming for a mix in the size of our projects, rather than getting excited about the very large ones. Too many big projects (£50 million to £100 million) often lead you off an even bigger cliff when they are finished!'

£750 million turnover Shepherd Group was founded in 1890 and includes, among other subsidiaries Shepherd Construction and Portakabin. It employs 3,500 staff. SES is a substantial business in its own right, particularly for the m&e sector, with a turnover of £135 million and more than 700 employees. It retains its headquarters in York, but has nationwide coverage with regional offices for London and the south east, the west and central region, and the north. It also has an FM business maintaining facilities throughout the country - a number of which SES helped to build.

Workloads

Lewis believes the secret is keeping your eyes fixed two years ahead. 'This is actually quite a difficult thing for an m&e firm,' he says. 'In this sector you are doing well to predict workloads a year in advance but we are keen to try and spot what's coming up next.'

SES is also one of the largest members of the HVCA but Lewis says that firms of all sizes face uncertain prospects for another year at least. He is pleased that the association is taking a leadership role on some of the big issues that impact growth across the m&e sector including sub-economic tendering practices and strategic partnerships.

'There could be a double dip recession, with the next fall coming at the end of this year and then a flattening out of the economy in 2011. Either way, there are testing times ahead for us all but there are still a lot of good opportunities out there.

'We have not seen a change in the number of enquiries and the quality has been as good as ever, but there are too many people on the tender lists and some are doing crazy things to protect their cash flow. Suicidal tactics are creating problems for us all, especially those of us who try to work closely with clients.'

There is an appetite for working in strategic partnerships - particularly as more projects need to be delivered sustainably, but when things go wrong on a project, often at the pricing of the build, people too readily revert to type and 'start behaving like the contractors of yesteryear', according to Lewis.

He is critical of those 'less enlightened' who are driven by short-term opportunism. 'We try to persuade clients to stick with us, but they can sometimes be tempted by what initially looks like a great cost saving. The more developed clients are in their thinking, the more they realise that in reality a low entry tender often indicates a traditional adversarial problem later in the project.'

Lewis points out that profit levels were far too low even during the good years. 'The UK Construction industry does not really make the profits it should. Let's face it, our industry cannot be accused of being greedy but, at the same time, we must all stay lean and make sure costs are not created by complacency.'

He also believes government could do a lot more to help and the decision to cut funding for Further Education colleges was catastrophic.

'That cost the industry tens of thousands of jobs,' says Lewis. 'It came about because government did not understand this industry and its vital role for the economy. We were not begging for more money like the banking sector, just the funding to complete necessary infrastructure projects.

Fragmented

'The fragmented nature of the construction industry meant the impact of these job losses wasnot immediately visible, which allowed government to get away with it.''

Lewis feels that supporting construction projects would have a much more positive impact on the UK economy than backing scrappage schemes that 'only benefit overseas manufacturers'. He also has to be convinced that the appointment of Chief Construction Adviser Paul Morrell will make a difference.

'He must quickly get to grips with the amount of waste in construction procurement. This should be top of his list with the current state of the public finances,' he says. 'Contractors can spend upwards of £2 million just to tender for PFI schemes and Building Schools for the Future (BSF) projects, for example. That can't be right. We should not be looking at a process that generates that level of waste. These costs are all going on to overheads and that cost only escalates if you think that firms may only win one in every three or four tenders. This is not free money... someone will have to pay in the end and, inadvertently, that is often the client or taxpayer (or both).'

Lewis cites the current NHS ProCure21 scheme, which encourages strategic partnerships, as a good model for Morrell to study. SES has secured a significant number of healthcare projects for NHS Trusts under this scheme working closely with principal contractors.

However, reforming procurement requires a deep understanding of how the industry works. Morrell may be well placed for that, but Lewis is doubtful that anyone could do it working only three days a week.

'I hope that this is not just a political appointment.'

The problem of Information Overload' recently highlighted by the HVCA's Ductwork Group (HVR, Jan 2010 and in News Extra p11) is a by-product of the procurement problem, according to Lewis. He says design schemes are often sent to contractors before they are really ready, which means they have to be tendered for more than once.

Dealing with amendments and huge amounts of irrelevant and poorly prepared data adds time and disrupts the design process.

'As an industry, we don't spend enough time getting things right from the outset. We must be able to stand up and insist on being given enough time rather than just pass the problems along, creating more waste. That is a role consultants could fulfil or, alternatively, clients could bring in teams at the start of a project to develop and price the right solutions together.'

A big part of the solution is to get m&e firms involved earlier in the process, according to Lewis, who says that SES has challenged itself and, is recognised as being, a 'thinking' business able to produce ideas and provide better solutions.

Budgets

'We drive this culture through a challenging 'Build B4U Build' programme, designed to generate ideas for reducing cost on schemes and to find solutions and savings for the client that can help to balance project budgets. We look at all aspects of a project including engineering, logistics, reducing the length of the programme etc. However, you can't do this with everyone - we work extremely closely with a few clients - but you will only get into that position if you deliver on your promises.'

However, you need good people - and lots of them - to be able to deliver consistently and Lewis is troubled by the skills shortage afflicting the sector.

SES has a policy of recruiting one craft apprentice for every £1million of turnover in addition to its student programme. 'That's a big commitment and we think it is the right thing to do,' says Lewis, who spent the first 22 years of his career at NG Bailey from the age of 16. 'However, it can be annoying to see that a lot of companies do not play their part.'

SES has also developed, what Lewis proudly boasts is 'a leading edge offsite prefabrication and solutions facility'. SES PRISM (Prefabricated Integrated Services Modules) cuts down the number of operatives on site and allows for projects to be delivered more economically, within shorter timescales and with more programme and cost certainty, according to Lewis. He also believes the offsite approach is more sustainable, which is now a major consideration for all clients.

'Delivery of sustainability in our sector has been very slow and the pace of adoption has not been helped by the economic cycle,' says Lewis. 'However, government targets and the CRC league table will ramp things up. Our clients are facing what are, effectively, 'green taxes' so there is real commercial pressure being applied.'

SES technical services director, Jim O'Neil, is also chairman of M&E Sustainability - the joint venture between the HVCA and the Electrical Contractors' Association. Lewis describes O'Neil as the company's 'internal conscience' and is pleased that a fellow SES director is taking such a prominent role in improving the industry's record in this area.

''It would appear that we in the UK, as well as the rest of the world, are miles away from achieving the carbon emissions targets of 2012, 2020 and 2050. We must focus on making these things affordable, but that doesn't mean being pennywise, pound foolish. It means looking at the sustainability aspects as early as possible in the process and calculating the total lifecycle cost of a building.

'The trouble is you can't do that in an adversarial marketplace. The industry must stay focused on best practice and not revert to its old habits.'

www.ses-ltd.co.uk