Practice Management for Land, Construction and Property Professionals

Brian Greenhalgh, Brian Greenhalgh

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781135816636
• Edition: 1
• Topic: Architecture
• Subtopic: Architecture Methods & Materials

Practice management for Land, Construction and Property Professionals presents the expert views and practical experience of researchers and practitioners concerned with the particular challenges and skills required to manage professional service organizations in the constuction and property industries. The book provides extensive coverage of the following key issues: management of creativity marketing of professional services professional ethics quality management business planning and strategic management Practice management for land, Construction and Property Professionals will be an important guide for those with management responsibiliie in the property and construction industries. Students working towards qualifications in the properrty and construction professions will also find the book a valuable reference and source of advice.

PART ONE
The Changing Nature of Professional Work

Introduction to Part One

Michael Jeffries, Chief Executive, W S Atkins Ltd

By way of introduction to the remainder of this section, it is my intention to set the scene by looking briefly at the changes which have taken place in recent decades in the construction and property industries, explaining how for example, my firm W S Atkins has successfully analysed and responded to change over the last several years and how we see our business developing into the immediate future, and further, to look at one or two examples.

CHANGE IN GENERAL

What is change? We need to:

• recognize it
• understand it
• anticipate it
• manage it

It starts at a macro or international level; change which is world wide in its scope and impact. The economies of the principal trading blocs have been twice decimated in this century by world wars, and world peace for 50 years has enabled extraordinary economic progress to be made. What effects will the GATT agreement have? Sceptics believe that the improvements in world GDP by 2002 of $275 bn look impressive in absolute terms but spread over several years they represent less than 0.1% of the total—well within the level of estimating error.

At the turn of the century most of the world’s top companies were founded on natural resources and the production of raw materials. Today, they are dominated by new technologies—pharmaceuticals, micro-electronics, telecommunications—where will they be tomorrow? The emergence of the huge global conglomerates has changed the balance of power. Thirty of the world’s top companies now account for approximately 80% of the world’s GNP.

Change then comes down to national level, which we have some prospect of understanding and measuring the impact upon our daily personal and business lives. Taxation, employment legislation, incentives, penalties, etc. all have a direct impact causing us to adjust what we do and how we do it.

Change also arises from technological development which in turn, of course, affects not only what we do and how we do it, but also alters the whole structure of industry. This, in my view, cannot be wholly separated from social change. In the United States most of the income gains have gone to the top 20% of the working population and 64% of these gains went to the top 1% in the 1980s. Currently, the bottom 60% has seen its income fall by around 20% in real terms. This pattern appears to be repeating itself in the UK and Europe and women have stepped into the breach. If they are married to men in the bottom 60% they have had to increase their hours to, in many cases, full time, and in future there will be no extra work effort available to offset a further reduction in male earnings.

This is all interesting background but I would like to get to a level to which we can all relate and look at recent changes which have directly affected the professions.

When I refer to my firm of W S Atkins being successful, I mean that since 1988—when the recession first began to loom large—our firm has expanded its turnover to record levels in each of the subsequent years throughout the recession and, with the exception of 1991/92, has turned in record profits. Our turnover has increased from £59 m in 1987/88 to almost £200 m in 1994/95 and our staff numbers have risen from 1800 to over 5000 now, with much of the growth occurring in the last 3 years. However, what we do, and how we do it has changed significantly.

During my time in the profession, I have experienced the ‘bear’ period of the late 1960s followed by the boom in the early 1970s and then another downturn in the late 1970s and early 1980s. However, these periods were simply oscillations of the economic pendulum which have always occurred and the basic structure of life within the professions remained relatively unchanged. The period of the last 10 years, however, has without doubt been the most turbulent in terms of technological development and political change which in turn has had a significant effect upon the professions.

It is a matter of conjecture whether the Thatcher government created the climate for change in this country or whether it was simply one of the first administrations to recognize and respond to what was happening both nationally and internationally. Whether you agree or disagree with the policies, and how effect was given to them, there was unquestionably a need for radical reform and, by definition, this cannot be achieved by nibbling round the edges. It requires bold actions involving wholesale change and this is just what the government set about doing.

CHANGE IN THE PROFESSIONS

There were a number of drivers of change, with complex relationships between them, but perhaps those which have had the most profound effects upon the professions were in the areas of deregulation of the traditional professions, privatization and the introduction of competition between the public and private sectors. Britain had become internationally uncompetitive, and internally grossly inefficient; the level of spending necessary to continue to maintain and develop public infrastructure had become unsustainable against the competing demands for money from other areas. It was perceived that the construction industry was not performing as well as it might and the professions within it were not delivering value for money, particularly to the public sector.

Deregulation

The watershed was of course the deregulation of the construction industry professions in 1984 amid considerable protest and prophecies of disaster. This was done against a background at the time of increasing economic confidence which eventually materialized into the huge boom of the middle and late 1980s. There was much talk in the architectural profession about the quality of buildings which would emerge from this draconian regime. Ironically, after probably one of the worst periods in architectural history in the post-war years, the last 10 years in my view has seen some considerable improvement.

How did this competition affect W S Atkins? The firm had built up its business mainly in the public sector and had enjoyed patronage and scale fees like everyone else. At first we were extremely apprehensive, but we quickly realized that we were better equipped than most practices to cope with this significant change. Very simply, we already had a sophisticated (by comparison with others) management accounting system which enabled us to understand what our projects were costing us, including the attribution of all fixed and variable overheads. Even today, 11 years on, it is amazing how many quite large professional practices are still managed more or less on a cash basis. I know of two firms of several hundred staff, each of which have just got round to appointing a finance director in the last 12 months, and neither had much idea of their level of profitability except at each year-end.

Clearly, it is not possible to operate effectively in a highly competitive market if there is no understanding of the cost base and, of course, many firms, contractors and consultants, which were poorly managed have not survived the recession.

Deregulation and the public sector

As well as having a devastating effect upon the private sector, the backlash is now beginning to be felt in the public sector too. I doubt if anyone would disagree in principle with the notion that the public sector should seek to spend tax-payers’ money in an efficient and cost-effective way. When the public sector first began to build up its own in-house professional and technical resources it was against a background of recognized professional fee scales and it was argued that the cost of these internal departments was less than employing external firms. However, following the deregulation of the professions, the market and the recession have driven down prices to almost unsustainable levels. Private firms have had to adjust to this situation and, as noted above, those that could not or did not, have failed.

Public/private sector competition

The public sector on the other hand has continued more or less as it was over the last several years. There have been some compulsory redundancies, but compared with the private sector they have been relatively slight. The result is a complete reversal of the situation that used to exist, i.e. it is now much less costly in absolute terms to commission the work in the private sector. The Government’s response to this has been to introduce market testing in Central Government and seek to bring in legislation requiring Local Government to compulsorily tender their professional and technical services.

This looks to be a perfectly logical process on the face of it, but in fact there are many fundamental difficulties. Firstly, introducing competition between the public and private sectors is basically an unfair fight; the playing field can never be level and each side sees it tilted in favour of the other party. Secondly, the public sector is not equipped to deal with the effects of losing its ‘market share’; it is restricted in other markets and cannot as easily reduce costs. Thirdly, it has to be recognized that the public sector has a great deal of specialist expertise, much of which relates to a detailed knowledge of the employing Authority’s asset base; it is likely to have been built up over many years and could be lost by attrition.

Many Local Authorities have recognized the probable effects of Compulsory Competitive Tendering (CCT) and have sought to protect their staff and secure their ongoing involvement in future work (a good example of the public sector managing change). In fact, it could be argued that the Government’s objectives are more likely to be achieved if this voluntary externalization continues. If and when CCT is introduced I suspect that, in overall terms, although work will be lost in competition to the private sector, there is likely to be a net increase in public sector costs arising out of a huge increase in the administration of the tendering process, exacerbated further by EU rules.

It must be recognized that CCT ‘avoidance’ is not simply the bidding of a bundle of existing and prospective contracts, it is the transfer of a business undertaking providing a whole raft of other services to the employer as well as those of a conventional professional and technical nature. It involves the transfer of public sector employees and their past service entitlements under the TUPE [Transfer of Undertakings (Protection of Employment)] Regulations of 1981 and recent court judgements make this area of the law a very uncertain and unsatisfactory basis for the assessment of contingent liabilities. It is fair to say that W S Atkins has learnt a great deal that is new in each one of the contracts it has concluded and the Board has recently instituted a complete reappraisal of the longer-term risks entered into by the firm to ensure that they are properly managed into the future.

W S Atkins’ approach to the prospect of CCT has been to attack it from the outset. When the draft white papers were published in the late 1980s, we felt that the introduction of the legislation would be hugely damaging to the firm. Not that we feared competition from our peers; instead we believed that the Local Authorities would use all means at their disposal to hang on to their own work, tender for small parcels and that we would be priced out of the market. We quickly realized that many Authorities were thinking along similar lines and we initially became involved—along with the major management consultants—in advising Authorities and helping them to develop their thinking as to how to transfer their in-house resources to the private sector in a way which would exempt them from complying with the legislation, at least in the short term. Via this route we completed our first externalization at the end of 1989.

This approach has had a profound effect upon the small to medium-sized firms. They do not have the financial strength to take on the often considerable past services liabilities of public sector staff and as the larger firms have entered into 4—to 5—year contracts for all of the Authorities’ work in exchange for accepting these liabilities, they have been effectively excluded from the market at least for that period and possibly for the foreseeable future.

Privatization

I have mentioned privatization as having had significant effects upon the professions and this has certainly been the case with W S Atkins. Our business had been built up in the public sector, including British Steel, National Coal Board and CEGB—all of which are now privatized and our work load with them is now negligible. However, as doors closed, others opened and we saw opportunities in the privatized water industry and in British Rail which otherwise would not have existed.

This leads on to another fundamental point. As the structure of the industry has changed so has the nature of the services it requires and the way in which it procures them. Quantity surveyors for example cannot survive on the Bills of Quantities type work which was their bread and butter 10 years and more ago. New skills have had to be developed and existing ...