The Latham Report Constructing the Team

This article is all about The Latham Report Constructing the Team 1994. This report was responsible for recommending Adjudication as the main method for dispute resolution in the Construction Industry as well as encouraging waves of change in the construction industry.

Stravelles run a course in Adjudication which aims to allow the student to run their own adjudication as the referring or responding party without paying for legal representation.

We support legal representation in more complex cases but we want to encourage especially smaller companies to feel more confident fighting for their contractual rights.

Introduction to The Latham Report Constructing the Team

The Latham Report entitled ‘Constructing the Team’ was a report prepared by Sir Michael Latham.

It was published in July of 1994. A copy can be downloaded here.

The report was commissioned by the Government of the United Kingdom as well as various construction organisations.

Its remit was to investigate the construction industry and review how construction projects in the UK were procured and run. This included contract administration and dispute resolution.

Why was such a review and report required in 1994 ?

In 1994 the UK construction industry had a reputation for corruption, contractual issues and litigation. Since 1989 there was a deep economic recession in the UK and this led to a lot of unemployment in the construction industry.

The report aimed to investigate how positive progress could be made within the construction industry.

This report followed several reports over the preceding decades which had identified some of the same issues and made some of the same recommendations that the Latham report made.

The difference between the Latham report and previous reports was that this report actually was backed by the Government and the industry itself. For example, the report recommended that Government contracts moved to the New Engineering Contract which they did. This meant that large national UK builders had to follow these contracts.

Furthermore, this report spawned subsequent reports and thinking about how construction can change.

What problems did the report identify ?

The Latham report identified several existing issues including:

• industry inefficiencies
• adversarial attitudes
• ineffective and fragmented industry practices

The main take away was the construction industry was simply not fit for purpose and was not capable of delivering for its Clients and that it lacked respect for its entire supply chain.

What recommendations did the report issue ?

The Latham report recommended a move towards partnering and collaboration between the Client and construction businesses.

It urged reform and advocated partnering and collaboration by construction companies to all parties mutual benefit.

One major theme was that by using increased teamwork between the Client, Consultants and Contractors, the construction industry could ‘delight’ its customers.

The Latham report made fifty-three recommendations for changes to current industry practices. These included:

• Reduce bureaucracy, waste, adversarial practices
• Increase openness, honest, trust, commitment, mutual understanding between all the parties
• Dedication to continuous improvement
• Adjudication should be normal form of dispute resolution

Issues with the Latham Report

This is just us talking openly about the Latham Report. Has it achieved anything ? Is it just fine talk ?

Adjudication

This is an easy win.

Yes, the promotion of Adjudication is a good result from the report. Adjudication helps resolve disputes cheaper and faster than most other forms of dispute resolution.

Can it take credit for the all good cash-flow improving legislation such as the Construction Act 1996 or the Scheme for Construction Contracts 1998. We are not sure but it definitely helped created an atmosphere of ‘we can change the construction industry’.

Does the Client want partnership ?

There is a lot of talk about partnership and mutual benefit for all. This kind of smacks of talk about world peace, something which sounds great but has never existed.

Does the Client want partnership or just the lowest cost ? How much of a premium is it willing to pay for better service ?

Some of the Latham report is a little condescending towards the construction industry. Its like the medieval lords kindly telling the serfs that if they only worked a little bit harder then its for everyone’s benefit.

For example, the construction industry has Clients made up of either private property developers/investors or public Clients like the Government.

Property developers are businesses and simply want the lowest price. They can talk a lot about partnerships on their website but capitalism demands the lowest price. If one contractor can provide you with white walls and ceilings for a lower price than the other contractor they will get the project.

Governments are a mix of the ‘here forever’ Civil service and the everchanging Government ministers. They all just want to play it safe and not get either fired or voted out in the next election.

For Public workers the safest approach is to appoint the contractor with the lowest price.

So, all (property developers and Governments) have tender practices which tend to be very competitive concentrating on lowest price and putting the majority of the risk onto contractors. This risk and low margins can be acceptable for the largest organisations — national building contractors who have access to large sums of capital. They can afford to research all of their cost, reduce their risk as much as possible and tender competitively. But even with these businesses with huge resources, they can struggle with low margins and unlimited risk —look at what happened to Carillion.

And that is just the largest companies with the most resources to tackle risk. The construction industry is not just the large national companies building hospitals, airport extensions, apartment blocks and road maintenance. The construction industry consists of hundreds of thousands of Architects, medium and small builders as well as trades-persons and small contractors. These people are generally not capable of working at low margins or taking on much risk or even managing any risk. This is why these people go out of business so often — they accept too much risk but at a very low cost and then when there are issues they go out of business.

All of the talk about partnering and collaboration is great but in reality the Clients above want to squeeze the market as much as possible to get the lowest cost. And then they complain when the product they receive does not meet their targets concerning time, cost and quality. Do we complain when a ready-made meal in a discount supermarket is not as good as the premium luxury supermarket. What does the Client actually expect for their money? Is their no concept of ‘you get what you pay for in construction?.

The concept of ‘delighting the customer’ is a little pathetic because there are so many Clients that come into the construction industry to simply invest monies in property that are modular, easy to maintain and with white walls and ceilings so they can rent them out. How many Clients are people with money that come from completely disreputable sources whether it is straight-out drugs crime or white collar crime or rogue nations.

The truth is that the construction industry has no idea what sort of Client is going to turn up at their door. For all the talk of mutual benefit a lot of Clients still come to the construction industry with one theme in mind — ‘how can I get what I want while spending the least amount of money possible’.

Should the construction industry really care about a one-time Client ?

Ferrari might only sell one or two or their sports cars to a customer in their life time. They give a great product and amazing customer service. But they make a huge profit margin.

If a builder or contractor knows that a Client will hire them once in their lifetime and demand a low profit margin (due to competitive tendering) should the builder really care about the Client?

You could argue that if the builder does a good job then the Client will recommend them to their friends etc. In practice people always engage in competitive tendering and will go for the lowest price.

A key theme in the report is that relationships between firms like builders and Architects should not become ‘cosy’ and that the constant objective is to improve performance and reduce costs for Clients. The focus is on remembering that the construction process exists to provide for the Client. This is true for say Mcdonalds or a coffee shop, this concept of the customer is always right and we exist for the customer. Its different in construction. For most builders a Client will be a one-off. The Client will want an extension or a loft conversion and then will never want anymore construction completed. And they will tender the project to get the best price.

In larger contracts, again big Government projects only come along infrequently and again there is competitive tendering. For say a new hospital the Government will appoint consultants and tender the project to get the best price. There will be no talk of collaboration or mutual partnership. Because if there is, then the Government can be accused of corruption effectively giving favoured companies the plum projects.

Partnership can only exist when there is a constant flow of projects coming down the pipeline. So for example, partnership is a good idea when a new coffee shop wants to expand as a chain into 200 new locations. Then the builder can focus on delivering value for that Client over the long term.

But if it is just one customer who wants their coffee shop fitted out for the lowest price then to the builder its just another project.

So while the Latham report has some nice ideas, a lot of them don’t make sense in real life. And it can be argued that for the average Client in the UK there has been little change in the customer experience. For example, if you getting an extension, a new house build, a basement etc your experience will be the same as in 1994. The average Client getting a new loft conversion does not engage in partnership ideas, they want a fixed product for a fixed cost and want the lowest price.

What the did the Latham report actually achieve ?

Adjudication became the main form of dispute resolution. That was a great result.

The Construction Client’s Forum was created.

The Establishment of Constructiononline – a register of approved contractors, sub-contractors and consultants.

The Construction Industry board (CIB) was established. They published a further report ‘Partnering in the Team’ 1996. This led to the  Reading Construction Forum (In parallel, the industry reform group’ publishing ‘Trusting the Team: the Best Practice Guide to Partnering in Construction in 1995’.

This led to another report ‘The Egan Report Re-thinking Construction’ being commissioned by the New Labour Government in 1997 and published in 1998

The Latham and Egan Reports’ focus on collaboration was also referenced by Chief Construction Adviser Paul Morrell in the UK government construction strategy in 2011.

The following organisations were formed:

• Construction Best Practice Programme
• The establishment of The Design Build Foundation (1997)
• The IT Construction Best Practice Programme was created.
• Movement for Innovation and Constructing Excellence.

Other reports of note

The Simon Committee Report (1944)

The Banwell Report (1964)

The Tavistock Institute studies on communication and uncertainty in the construction industry 1960

Construction Reports 1944-98  Mike Murray and David Langford (Blackwell, 2003)

Adamson, D. and Pollington, T. Change in the Construction Industry: an account of the UK construction industry reform movement 1993-2003, Routledge (2006)

Summary

All of these reports are great for the largest most resource rich construction companies who deal with the public sector.

However, for everyone else, the industry is still suffering from having to deal with Clients who come to their door with no experience, poor plans and huge set in stone expectations about getting the lowest price.