Framework agreements are in danger of fostering a two-tier demolition industry.
You’ve got to speculate to accumulate, the old adage says. But just how much would you be willing or able to speculate after three straight years of economic downturn and recession? Would you, for example, be willing to gamble £100,000 or more on the hope of winning the opportunity to win work?
That, in effect, is the stakes played by the five demolition companies that made it onto the £304 million Magnox framework charged with de-planting, demolition and bulk asbestos removal across 10 nuclear reactor sites in the UK over the next five or more years.
On the face of it, a £100,000 investment for a slice of £304 million seems like pretty good odds. However, like all gambles, those odds come with no guarantee. Getting onto the framework is merely the first step on the ladder, and competition for work remains as fierce within the framework as it does without.
But, for the purposes of this exercise, let’s be generous; let’s say the Magnox splits the work equally among the five companies bold enough to make that initial investment. In that case, hats off to EDS, Erith, KDC, Keltbray and Squibb which – either directly or as part of a wider joint venture – stand to benefit from an ongoing tranche of work and a large slug of money that should shield them against the continuing economic uncertainty.
Of course, those companies are already among the largest in the UK demolition business and their appearance on the Magnox framework should come as a surprise to no-one.
What is rather more surprising is the names that aren’t there; names that are synonymous with the demolition of power stations. Are they missing because they failed to make the cut? Are they absent because they were unwilling or unable to commit to such a large up-front investment with no guarantee of a return? Or are they missing because, as specialist companies, they were simply not considered large enough to handle the work, even though they have been doing so for many years?
By their very nature, framework agreements favour the large national organisations with the manpower and financial clout to take on multi-million pound and multi-contract works. For smaller, more specialised demolition companies to even be considered would almost certainly require them to do so as part of a joint venture agreement; a double-edged sword that would provide the stature required but which would also dilute any potential profit.
Framework agreements could, therefore, be a stepping-stone towards a two-tier demolition business in which a select few pick up the signature work while the rest fight for the crumbs.
Make no bones about it. There is no more demanding customer in the demolition and civil engineering sphere than the nuclear industry. And the fact that EDS, Erith, KDC, Keltbray and Squibb made it through a vetting process that makes the selection of the next Pope seem like a lucky-dip by comparison marks them among the very best this business has to offer anywhere in the world.
But the game is far from over. It is highly unlikely that the work within the Magnox framework will be split equally five ways. Instead, it will more likely be split according to specific skills, applications and geographic locations. So even those that have made the cut still cannot rest on their laurels. In fact, they are likely to be under more intense scrutiny now than they ever were before.
And it is also highly likely that each demolition contractor will be required to sign up to a “knowledge-sharing agreement” in which innovations and best practice is shared not just with the clients but with the competitive contractors as well. Such an agreement ensures consistency across the contract and is, of course, of huge potential benefit to the client. But with each sharing of best practice, each participating contractor is slowly but surely eroding its USP and blunting its competitive edge.
From a client’s perspective, framework agreements carry with them a multitude of benefits. From a purely demolition point of view, we’re not yet convinced that the frame works.
