Construction industry needs a watchdog to stand guard over the little builders

The concept of dominant forces in the construction industry snatching some readies off folk less powerful in the supply chain sounds a trifle Dickensian. Literally so, in that this is precisely what the odious Sam Pecksniff, the obsequious architect in Martin Chuzzlewit, did by trousering his students’ tuition fees and passing off their work as his own.

But it is also quite obviously a modern phenomenon, too, most recently illustrated by the collapse of the “construction” giant Carillion – the company formerly entrusted to arrange for the building of some of the country’s most important infrastructure, from NHS hospitals to new roads. Its demise has left small business subcontractors around £1bn down, but no matter: on the flip side, we have all been cheered by the news that Carillion directors worked hard to ensure their white-collar chums would not be out of pocket.

The fallout from the collapse of the firm is going to rumble on for a good while yet, with many fearing that recent insolvencies, such as the likes of Vaughan Engineering (160 jobs), are merely the foundations of a wider crisis that affects the wider economy. Let’s hope not, but, at the very least, the efforts to dodge the next disaster are now becoming more visible.

This week parliament is due to hear the second reading of a bill being introduced by Conservative MP Peter Aldous, which seeks to ringfence payments to subcontractors in an effort to avoid exactly the type of pain now being suffered by those formerly on Carillion’s payroll.

Its genesis pre-dates the firm’s dramatic collapse in January and follows years of so-called “subbie-bashing”, in which the small businesses actually doing the project work have been squeezed, and exploited along the lines of Pecksniff’s underling Tom Pinch.

Similar efforts to Aldous’s have already been implemented in other countries, such as the US, Germany, France, New Zealand, Australia and Canada, while the MP’s brave new world has united unlikely bedfellows such as shadow chancellor John McDonnell and defence secretary Gavin Williamson, who is flirting with supporting the bill.

So what next? Well, assuming it gets read (and remember, this is government meets construction, so expect delays) the bill will then progress to committee, then the Lords, and then back to the Commons – so it’s an even-money bet to come in before HS2.

Still – other initiatives are also in train. Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, says: “Maybe it is time for a construction conduct authority, which might have the power to say ‘if you are guilty of shoddy practice, we will fine you 1% of turnover’. That might concentrate their minds.”

Maybe so. Construction is an industry particularly sensitive to cash, as contractors operate on wafer-thin margins, with their largest customer (the government) under pressure to accept the lowest bid.

Strangely, that makes bidding for major public-private partnership (PPP) construction deals even more crucial, as the winner gets a large chunk of cash upfront and has little incentive to start paying new subcontractors for another 120 days.

During those four months, much of the upfront payment might be used to pay other debts, and before you know it, you become reliant on winning new contracts just to keep going. If that all sounds broadly similar to a Ponzi scheme, you are not alone in making the comparison.

Nor is it new. In fact, it was another delightful little tactic that Dickens chronicled in Martin Chuzzlewit.