RADICAL AGENDA FOR CHANGE

The Chartered Institute of Building welcomed the report. CIoB president Colin Harding said: 'In particular I welcome the introduction of a new modern contract and the importance the report places on management and training of all professionals.'

Dr Colin Robinson, head of construction consulting at KPMG Peat Marwick, warned that the Latham Report is in danger of becoming a puff of hot air rather than a significant turning point.'Decisions on implementation must emerge from the DoE's conference next Monday or the report will die in committees comprising the same old people,' he said.

The most important aspect of Latham's report is the proposal that tenders should be evaluated on quality as well as price, said Doug Leedham, joint senior partner with quantity surveyor Currie & Brown. Leedham said: 'This is fundamental to many of the industry's problems. Price should not be the only selection criteria. The industry is dependent upon good levels of profits.'

RIBAs described the report as a fair challenge to all in the construction industry.



The proposal to make 10-year latent defects insurance compulsory is the biggest surprise in the Latham Report, says the Building Employers Confederation.

While supporting the concept of such insurance, the BEC is anxious that such a move doesn't give insurers a disproportionate influence over the building process.

Hugh Try, BEC chairman, said: 'Sir Michael has produced an excellent report. His proposals for reforms in the design process, changes in the structure of the JCT and the establishment of mandatory trust funds for payment for construction work are particularly valuable.

'We are interested to see his endorsement of the New Engineering Contract. We shall adopt a positive, although cautious, view on its use for building work.'

Try believes that the recommendation that pay-when-paid clauses should be abolished will create severe cash-flow difficulties for contractors where clients delay payments for no good reason, or where they become insolvent.

Try insisted: 'If the Government accepts this recommendation, it is essential that his other proposals for improving the payment process generally, particularly the creation of statutory trust funds, are also implemented at the same time.'

Civil engineering contractors back Latham's push to get away from lowest price. FCEC spokesman Jim Turner said: 'His emphasis on quality ties in with what we've been preaching for the last year. And Latham's chain theme between client, main contractor and subcontractor is also an ideal we subscribe to.'

Turner says that Sir Michael has underestimated the extent to which clients amend standard forms of contract. 'I've detected the change for the last few years. What brought it about was privatisation - once the hidebound public sector was let off the leash it wanted to experiment with options designed to shift the balance of risk allocation.'



The proposed Construction Contracts Bill giving statutory backing to standard forms of contract is the key to implementing the Latham Report's package of reforms, according to the specialist sector.

But specialists' leaders say they are prepared to accept the full set of recommendations as a total package.

The Constructors Liaison Group describes Sir Michael Latham's final report as 'comprehensive, clear, concise, and well balanced.'

Tony Merricks, chairman of the affiliated National Specialist Contractors Council, said that the strength of Latham's endorsement of the New Engineering Contract had come as 'a bit of a surprise.'

Merricks added: 'But if Latham wants to standardise on the NEC, then why not? Let's go for it. We are finding it manageable.'

He said he was particularly pleased with the plans for mandatory trust funds for payment, compulsory insurance, and the registration of contractors, which were all interlinked.

John Huxtable, director of the Confederation of Construction Specialists, said: 'The key point remains just how the findings will be implemented.

'This is still just another report. And we've had plenty enough reports before. My bookcase is groaning under the weight of them. Much now depends on the sincerity of those who say they want reform.'



The most effective form of contract in modern conditions should include:

1. A specific duty for all parties to deal fairly with each other, and with their subcontractors, specialists and suppliers.

2. Firm duties of teamwork, with shared financial motivation to pursue those objectives.

3. A wholly interrelated package of documents which clearly defines the roles and duties of all involved, and which is suitable for all types of project.

4. Easily comprehensible language and with Guidance Notes attached.

5. Separation of the roles of contract administrator, project or lead manager and adjudicator.

6. A choice of allocation of risks, to be decided as appropriate to each project but then allocated to the party best able to manage, estimate and carry the risk.

7. Taking all reasonable steps to avoid variations, but where they do occur they should be priced in advance, with provision for independent adjudication if agreement cannot be reached.

8. Express provision for assessing interim payments by methods other than monthly valuation i.e. milestones. The aim should be to phase out the traditional system of monthly measurement or remeasurement, but meanwhile provision should still be made for it.

9. Clearly setting out the period within which interim payments must be made to all participants in the process, failing which they will have an automatic right to compensation, involving payment of interest at a sufficiently heavy rate to deter slow payment.

10. Providing for secure trust fund routes of payment.

11. Providing for speedy dispute resolution if any conflict arises, by a predetermined impartial adjudicator/referee/expert.

12. Providing for incentives for exceptional performance.

13. Making provision where appropriate for advance mobilisation payments including in respect of off-site prefabricated materials provided by part of the construction team.





Sir Michael Latham this week announced his 'radical agenda for change' for the construction industry in a 130-page report Constructing the Team. In it he stressed that every sector of the industry had to try to make his package of proposals work as a whole- if they did not, then nothing would happen.

The review of procurement and contractual arrangements in the construction industry was set in motion last July by Tony Baldry, Construction Minister. He wanted to tackle its adversarial culture. This is the result - 30 main recommendations and many other suggestions on improving the image of the industry. The generally warm reaction to the report gives some hope that the industry will embrace the whole package, although understandably there are some caveats.

Sir Michael said: 'I have tried to balance the different needs so that the reforms offer hope to all, reassurance to some, but despair to none.' He has made many recommendations, putting great emphasis on the further involvement of clients. 'They are not an optional extra,' he said, 'still less a nuisance.'

He wants the DoE to be the focal point for Government action - but he is strongly against the restoration of a PSA-type body.

Such was the urge to contribute during the preparation of the Report that 'you should do this' letters poured in from four members of the Cabinet and three of their counterparts in Labour's Shadow Cabinet. 'There is the mood for change in the industry,' said Sir Michael.

He envisages a powerful new industry steering group, already dubbed the Standing Strategic Group of the Construction Industry, meeting the Minister twice a year. Clients would also be present. At the next level down, an implementation forum made up of two representatives of each organisation within the industry, would meet to 'get the show on the road'. While Sir Michael felt able to highlight 30% potential savings in building costs by 2000, he ducked the question of how much might be saved in reduced litigation fees - though he bemoaned the fact that the industry currently spends more on litigation than research and development.

Sir Michael felt that all his proposals could be contained in a single Act of Parliament, voted through during the 95/96 Parliamentary session.




l A target of 30% cost reduction by 2000.



l Clients to set up a Construction Client's Forum to give them a strong voice - urgent



l Government should commit itself to being a best practice client - before end of summer recess



l The DoE should be the focal point for Government action to follow up the report and should coordinate and publish a 'Construction Strategy Code of Practice' to provide guidance on best practice - final version in 12 months



l A client's guide to project briefing should be produced



l Modern contracts should be based on a set of principles including: - being written in comprehensible language

- having provision for independent adjudication

- pre-pricing variations

- making interim payments into trust accounts

- a preference for payment by stages or milestones

-as soon as possible



l Retention should preferably be replaced by bonds



l A family of interlocking contract documentation for clients should be produced. The New Engineering Contract (NEC) should provide the basis for this -as soon as possible



l The building and civil engineering industry contract committees, Joint Contracts Tribunal (JCT) and Conditions of Contract Standing Joint Committee (CCSJC), should be changed, in particular to improve client representation

- six months



l Qualification lists and prequalification questionnaires should be rationalised.



l Consultants should be selected on quality as well as price.



l All clients should invite a short list of tenderers.



l Contractors and subcontractors should draw up a joint 'Code of Practice for the Selection of Subcontractors'

- final version in 16 months



l Urgent action should be taken to implement recent reports on training and on the education of professionals.

-12 months



l Government should take R&D spend into account when prequalifying firms. A levy should be added to the latent defects insurance premiums to fund a new research and information initiative. -as soon as possible



l The industry should work to improve its public image - it could start by implementing the '2001 report' recommendations. The three umbrella industry bodies should also produce actions plans for improving equal opportunities within construction -three months



l Unfair contracts legislation should be introduced relating to payment, set-off and adjudication - draft within 12 months, Royal Assent by 1996



l Legislation should also be introduced to underpin the proposals relating to trust accounts - draft within 12 months, Royal Assent by 1996





l Mandatory latent defects insurance should be introduced on building projects - draft within 12 months, Royal Assent by 1996



l There should be a two-tier implementation mechanism: (1) a Standing Strategic Group of the Construction Industry, chaired by a Minister and involving client and industry bodies; and (2) an Implementation Forum to oversee the detailed development of the recommendations and to decide by the end of this year whether further structures are required (such as a development agency or an ombudsman).