Airing the differences in the ductwork industry

The ductwork sector must take advantage of the current healthy state of the market to tackle contractual abuses and poor profit margins. Modern Building Services reports from the first joint HVCA/ADCAS ductwork conference.Ductwork contractors must not miss the current ‘golden opportunity’ to address many of the commercial issues that dampen their profits and could threaten their long-term future. This was the message delivered by Allan McDougall, managing director of national M&E contractor Shepherd Engineering Services, during his keynote address to the first-ever joint HVCA/ADCAS (Heating & Ventilating Contractors’ Association and the Association of Ductwork Contractors and Allied Services) conference in London recently. ‘Ductwork contractors often complain about their poor relationship with M&E contractors, but I cannot remember the last time we had a dispute over a technical issue,’ he added. ‘90% of our gripes are commercial, and now is the time to sort them out.’ Mr McDougall, a past president of the HVCA, told the historic meeting ‘Ductwork contracting in the 21st century’ that the industry was guaranteed healthy workloads over the next three to four years thanks to major Government investment in schools and hospitals plus the 2012 London Olympics programme. ‘After that we will probably have a new Tory government elected on a tax-cutting promise, which will mean less investment in public-sector projects. So now, while things are good, is the time to put our house in order.’ Commercial suicide Mr McDougall said the lack of teamwork in the industry is affecting its ability to deliver buildings to budget and on time. He said that ductwork firms have been industry leaders in technical innovation and the use of IT — but have always struggled to gain acceptance into the design team early in the project process because of problems with pricing at the tender stage. ‘At the moment it would be commercial suicide for us to accept your first bid,’ he said. ‘We need to find a better model. Ductwork specialists are well qualified to be lead contractors as they can provide properly integrated working drawings — consulting engineers can’t — but you need to be in the process from the start, so that means making sure your first price is your best one.’ However, a number of ductwork contractors said they had to ‘endure a tender process’ that made it almost impossible to accurately price work at an early stage because much of the information they were given was either incomplete or ‘just plain wrong’. ‘To be successful offsite fabricators we need complete design information, including where to put access panels and dampers, but these things often turn up in other parts of the specification we don’t see,’ said Jim Murray of the HVCA’s Ductwork Group. ‘We often have to build this risk into our price because we don’t trust the main contractor and have to assume things are being hidden from us,’ he added. Mr McDougall said the sector had to find a way of breaking this ‘vicious circle’ of mistrust. ‘For partnering to work, everyone must gain some advantage from it. That means we all have to be more efficient, including having an improved bidding process,’ he said. ‘70% of my business is done with six companies. We have very close relationships with them, and we decide between us what projects they should tender for and who is the best person for the job. I have to have the right price from my suppliers or I won’t win the job.’ Guest speaker Professor Rudi Klein, chief executive of the Specialist Engineering Contractors’ (SEC) group, said clients’ inability to manage or properly assess the risks faced by their suppliers led to cost and time overruns. This created enormous amounts of waste, which meant there was no way construction projects could be classed as sustainable. ‘For every pound we spend on a project, we waste another pound trying to make designs work,’ he said. ‘The Scottish Parliament building had 10 000 variations, which is why it was so far over budget. The way to cut waste is to persuade the Government not to fund projects until there is teamwork in place.’ Payment risks Rudi Klein continued, ‘The Government committed to integrated project teams in March 1999, but things are not dramatically different now. The measure of success for many firms is still how much risk they can shift downstream. The further down the chain you are, the greater the assumption is that you will take the payment risks.’ Retentions are another barrier to delivery, according to Professor Klein. ‘Why does the UK construction industry hand over £3 billion in retentions no questions asked? Because the client believes that what they are buying from us is likely to be defective. What sort of a basis is that? And as a result we give them all that money and so are not profitable enough and don’t do enough training.’ However, he does believe there is light at the end of the tunnel. ‘Project bank accounts are now being trialled, and project insurance schemes that underwrite the team rather than the individual will soon be in place,’ said Professor Klein. ‘If we are going to have trust, we need to focus on cost/overhead/profit and make sure sub-contractors can put in a realistic price that reduces their risk.’ HVCA Ductwork Group chairman Barry Pollard said the process made it very difficult for ductwork contractors to make a profit. He said the average return was somewhere between 0 and 3% and said ductwork firms were subsidising profits further up the supply chain. ‘We all have substantial factories filled with expensive specialist machinery, and yet our prices have barely risen in recent years,’ said Mr Pollard. ‘Most industries have substantially increased their prices, but there is pressure on us to reduce our prices still further because the construction industry is selling buildings at less than realistic prices. This financial squeeze from the top is the root cause of most of the financial aggravation we experience every day of our working lives.’ However, part of the solution was in the hands of ductwork firms themselves, he said, and urged them to be more enterprising by tendering for complete airside project packages. ‘With this increased responsibility comes increased profit and financial security,’ he said. Positive step Members of both associations said the joint conference was a positive step for the sector, as it allowed companies to share areas of common concern. ‘Change is coming, change that will have major impact on the ductwork industry. To cope with it, we must create new partnerships and new ways of working,’ said ADCAS President Paul Roxburgh. ‘This unique event is the first step in establishing a common understanding between the ductwork specialist and the mechanical contractor.’