What plagues construction? Willmott Dixon boss Rick Willmott sits down with editor Lem Bingley to discuss Brexit, a global pandemic, reverse VAT and why government is still misunderstanding the sector
Rick Willmott is a calm, measured and thoughtful character.
He presides over a large contractor (ranked 13 in our latest CN100) that is by any measure in good financial shape. But as we meet in the first week of March, ahead of the most recent government interventions to curb the COVID-19 crisis, he finds no shortage of reasons to be worried.
“It’s like the biblical plagues,” the group chief executive of Willmott Dixon says. “We’re about five into the seven at the moment.”
“The UK is just so un-joined-up on these big-ticket items. It’s going to cause havoc”
Those plagues are not all of the contagious variety. Beyond the unparalleled challenge of the coronavirus outbreak, unguessable Brexit-related schisms lurk ahead, threatening the ready supply of labour and materials. The roll-out of reverse VAT is also due in October, on top of changes to IR35 rules around self-employment (now delayed until April 2021), and ongoing uncertainy around building regulations in the wake of the Grenfell tragedy.
“When you look at some of the key facets of what we do and how we do it [in the construction sector], we’re facing a brick wall
at every turn,” he says.
Willmott adds that he is far from confident that the government understands the cumulative impact of its overlapping interventions. “We still don’t have a dedicated construction minister,” he notes, adding that “a lot of government ministers see construction as housebuilding”. This perception, in turn, has led to “an abyss” between the government’s perception of the sector and the hard reality.
“If the government thinks we’re all making 25 per cent [margin], then it doesn’t surprise me that they’re throwing stuff at us. If they understood the reality, they’d probably think differently.”
Willmott also laments the lack of joined-up thinking evident in the timing of government actions. “Our finance director had a meeting with the Cabinet Office and mentioned how severely [reverse VAT] was going to impact the supply chain, and they weren’t aware of it,” Willmott says. “It’s being driven by HMRC.”
One underlying cause of the government’s lack of empathy, Willmott argues, is simply the age-old failing of bad decisions based on bad data. He singles out gross domestic product figures from the Office for National Statistics (ONS) as particularly problematic: “ONS statistics don’t pick up the true impact of our sector on the economy. All of the professions that contribute – the materials suppliers, the plant suppliers – don’t feature in GDP figures for UK construction.” If the ONS used a broader definition of construction, “you’d probably have a GDP contribution of 14 or 15 per cent,” Willmott contends.
“That, one would have thought, might get the government’s attention.”
We meet in an airy conference room at Willmott Dixon’s unassuming headquarters, sited in leafy Letchworth Garden City, 35 miles north of London. It’s an oasis of calm and, lulled by Willmott’s measured manner, it’s hard to imagine that an existential crisis or two might be unfolding outside. But he gestures beyond the glass to the labourers on a local building site – a stone’s throw from the office and nothing to do with Willmott Dixon – knocking up a row of timber-framed houses.
“From what I understand, having read the government’s advice and how the housing associations are making moves at the moment, that could well be a property that can never be occupied,” he says, pointing to the timber structure. “The government’s latest advice has put the world in a flat spin. We’re getting to the point now where it is going to be impossible to build any residential premise with anything combustible in the external walls, at any height.”
“Insurance premiums have gone absolutely through the roof in this latest renewal round, because they know cladding claims are coming down the track”
Adding that combustibility is “very sensitive territory post-Grenfell, and very rightly so”, Willmott nonetheless sees an over-reaction playing out. “We’re perhaps going too far – the realism, the pragmatism is going,” he says. “We’re just so un-joined-up on these big-ticket items. It’s going to cause havoc.”
Having to live with the risk of future building regulation changes is “terrifying” for contractors, Willmott suggests. “We’re in a situation now, post-Grenfell, with these almost uncontrolled changes recommended by MHCLG [the Ministry of Housing, Communities and Local Government]. A simple analogy would be going and buying a diesel car. If in two years’ time
the government says diesel cars are outlawed, you can’t drive it, whose problem is that – mine or the manufacturers’? It’s a simple answer to me: it’s not the manufacturers’ problem, because how could they see into the future?”
‘This has to be addressed’
The scale of the risk is enormous. “This has now forced the housing association market to view every property they own in the same way as a 13- or 18-metre-plus property. The cost to the G15 [the group of London’s largest housing associations] to put right anything combustible in their entire stock is probably somewhere between £10bn and £15bn. How can they possibly do that without some [taxpayer] support?”
While Willmott Dixon has recorded profit that would be the envy of some peers – a margin before tax of 2.8 per cent on turnover of £1.32bn in its most recent full-year report – Willmott is mindful of the generally parlous state of the sector. A widespread lack of profitability is “the biggest issue we have as an industry,” he says.
“If you look at the top 10 contractors in the UK, the last set of [aggregate] results was a loss,” Willmott notes, “across goodness knows how many billions and the sweat and tears that have gone into producing some fantastic buildings. That has to be addressed. It really does.”
The average net rate of return for UK industry is around 10 per cent, with manufacturing around 12 per cent, according to ONS figures from 2019. This backdrop provides a stark contrast with construction, Willmott argues. “Something has to change just to keep this sector going,” he says. ”The traditional construction business model is in jeopardy at the moment, for all the reasons we’ve talked about. When you look back in the past, the only reason that contractors could accept the fact that they were only going to make 2-3 per cent at best was that they were always cash-rich. For a whole raft of reasons, that opportunity to be cash-rich has gone.
“We’ve got the banking fraternity who are really quite nervous around the construction sector. We’ve got insurers whose premiums have gone absolutely through the roof in this latest renewal round, because they know that cladding claims are coming down the track. It is a perfect storm.”
CN asks how Willmott Dixon has managed to sustain its own profitability, and average daily cash of £99.9m in 2018, while aiming to be a prompt payer. The company says it pays 60 per cent of invoices within 30 days and 99 per cent within 60 days.
“We’ve focused on what we’re good at, which is general construction and interior fit-out,” Willmott says.
Back to basics
“That’s a decision we took a few years ago to get back to basics.” He also cites strong reciprocal relationships with the supply chain. “We’ve worked incredibly hard to make them reflective of our company,” he explains. “They get to understand our forward output, so they can prepare themselves for opportunities coming down the track for them; they deal with health and safety the way we do; they pay their supply chain in the way we want them to, and how we pay them; they’re signed up to quality and standardisation of the product wherever they possibly can. So we have a supply chain that fits our need and aspiration, which is hugely important.”
“You’ve got to be clear about where you want to take things, but equally you’ve got to bring your people on the journey with you”
On the work-winning side, Willmott Dixon has focused heavily on frameworks, a strategy that Willmott describes as “a great source of stability”. However, he adds that the framework model has become a victim of its own success. “It’s now becoming increasingly frenetic,” he says. “Most frameworks now are just a select tender list.
“You get your foot in the door on a framework but when it comes to pricing a project for a customer, you’re maybe one of six making a pitch. Now that’s where all the cost is in this industry.”
Willmott says he would rather enter into real collaboration with customers. “Early interaction between customer and contractor, who’s going to deliver the project, is absolutely vital,” he says.
“We can understand and interrogate the scope of the works – how the building is really going to operate. And then manage the design in a way that we can then be hand-on-heart certain that we can deliver [on the intent]. How often does that happen? For us, probably six out of 10 [projects].”
A workforce on track
Willmott also cites the strength of Willmott Dixon’s workforce as differentiator. In February, the company was ranked fifth in the Sunday Times 100 Best Companies to Work for list, an endorsement that he is clearly delighted about. It’s clear that he takes pride in leading a company that takes a proactive and progressive stance on issues such as staff welfare and workforce diversity. The company has been a key sponsor of CN’s Inspiring Women campaign over the past three years and aims to have a 50:50 gender split by 2030.
“We’re on track,” Willmott says of the gender goal. “What it’s already bringing is diverse thought, a change in direction around how we think about certain topics and expertise.”
One major outcome is the completion of a pilot project last year, at a year-long £30m school building development, where the company trialled flexible working on site. “[We] set up their entire process so that those people who needed to leave early to pick up kids or to arrive late after delivering kids to school, male or female, could be accommodated,” Willmott explains. “The team set up that principle, and decided together that they were going to make it work. They finished seven weeks early. It’s a prime example of what you can do if you set things out from day one […] I think it focused everyone on working efficiently.”
The firm intends to roll out the approach more broadly, adopting flexible working as new projects begin. How long will it take to become standard practice? “I’d like to think in probably five years we’d have cracked it,” Willmott says optimistically.
While our discussion has featured no shortage of gloom, Willmott is clearly no pessimist, talking enthusiastically about his company’s future.
“I take the view that you’ve got to be very clear about where you want to take things, but equally you’ve got to bring your people on the journey,” he says. “I’m always keen to go and visit as many of our projects and our people as possible. Because at the end of the day you have to have a personal relationship with your team. They have to look you in the eye and understand what you’re about.”
And despite the perfect storm currently engulfing the sector, Willmott says he is confident of riding it out. “The business is all about trying to be sustainable,” he says. “Not in the green sense necessarily – though we are that as well – but here for the future.”
Sustainability: Willmott’s green recipe
“The time for greenwash is over,” Rick Willmott asserts. “You’ve got to mean it, and not just bloody talk about it.”
Willmott Dixon has been a carbon-neutral business since 2012, but is not resting on any laurels. Willmott says: “We’ll be launching our next sustainable development strategy probably by mid-year. It’s quite a comprehensive four-stage approach that’s going to take us from 2020 to 2024. It’s going to be a bit of a game-changer.”
The strategy is not a top-down edict but a ground-up effort, he explains. “We’ve interacted with all of our local company offices around the country, bringing dedicated sustainability teams within those bits of business up to speed with where we’re going. We check that we’re not going too far. You can’t just launch [a strategy] and hope it’s going to work. You’ve got to bring people with you.”
Willmott argues passionately that sustainability makes sense economically as well as morally. “Doing the right thing doesn’t cost you any more money,” he says. “You can absolutely justify the commercial impact of doing sustainable things. You become more efficient; you employ better people, because they want to come and join your organisation; you get better work. But you’ve got to get your supply chain on board […] We’re trying to track the environmental impact of every piece of kit that comes onto our sites.”
He suggests sceptics should start actually measuring the impact of their business. “Waste in general, fuel usage, energy usage – you only know what you’re wasting when you start measuring it properly and accurately, and not just in one location but in every location,” he says.