The UK economy is now a mess built on the foundations of everyone sub-contracting everything they can whenever they think that possible. The result is that we have an economy made up of middlemen, all of them raking off their own bit of profit.
This is the audio version:
And this is the transcript:
We really need to cut the middleman out of government.
What am I talking about? I want to tell you a story that my father told me a long time ago when he was a quite senior engineer in what was then called Eastern Electricity, which was of course part of the nationalised electricity industry, and supplied power electric power, to the people of East Anglia and beyond.
What he explained to me was that whatever happened to the power lines for which he was responsible in the whole of East Anglia and beyond, he had the labour force available to him to make sure that repairs could take place quickly. In other words, he always had excess capacity to deal with any problem that came up, because that Electricity Board believed that it was its duty to ensure that everybody got power all the time, and if there was a crisis, like a winter snowstorm or something that brought a line down, they had to solve it as quickly as possible and had to have the people on hand to do it.
Now, that was a management philosophy that he knew and understood and liked.
That is not the management philosophy that now exists in any part of the UK government or the services that are privatised.
Instead, what we have is a situation where they work as lean as possible. And let's use that same example, although I admit that I am talking about hypotheticals here because I need to, because the companies in question all vary in their practices, but now a company that was employing people to deliver electricity would almost certainly outsource the vast majority of its maintenance work.
Now, that was what my father employed those staff who were excess to apparent requirements to do when they weren't dealing with an emergency. Those people weren't sitting around on their backsides doing nothing. They maintained the power lines. They kept the system in good order. Those spare people weren't spare. They were the pool of labour that was necessary to keep the system in good order so that breakdowns did not take place. And as a result, by and large, those breakdowns did not take place.
But now a power company will do something quite different. It will outsource the maintenance to a contractor.
That contractor will then subcontract the contract they've got.
In other words, they will let out a contract for a particular power line from A to B, and another one from B to C, and a further one from C to D, and on.
In other words, there will be hordes of contracting going on to get what they think is the best price for the maintenance of each element of the lines for which they have accepted responsibility under the main contract they've been given.
What does the subcontractor then do? You can guess it. They subcontract the work.
They might actually subcontract the work from, as I've just said, A to B, but they might do part of that to one person and part to another person and so on. But more likely, what they'll actually do is subcontract it to an actual contractor - somebody who employs people who will go out to a power line, in a van, and if necessary, they'll go up it, make the repair, and do whatever it is that is required.
The person at the bottom will themselves even quite possibly be established as a contractor working for their own limited company through an umbrella organization to sell services to that third-tier contractor, who sells to the second-tier contractor, who sells to the first-tier contractor, who then sells to the power company.
Just imagine the inefficiency in that whole system. First of all, the company at the top has no idea who the person at the bottom who's actually doing the work is.
They've got no responsibility for them.
They've outsourced the responsibility for their training to somebody else, presuming that that is covered by the contracts that they've issued, after which they wash their hands of all further concern.
They aren't responsible for their pension.
They aren't responsible for their well-being.
They aren't responsible for their continuity of employment.
That person, the person at the bottom of the pile, now takes all the risk of ensuring that the power supply remains in place. when required, because they will not be paid if there is no work required of them, which will be the case when there isn't an emergency. Now they might charge a premium rate when there is an emergency, but even so, that assumes they're still around and trained to do the work.
This breaking down of the system has two consequences. One, there is no certainty of supply.
And two, whatever supply you get is incredibly costly to secure because at each tier of that whole contracting arrangement, the contractual arrangements have to be put in place, and that's great news for a lawyer somewhere.
And vast amounts of accounting has to be undertaken, which is great news for my old profession of accountancy.
And, somewhere along the line, everybody wants to take off a little bit of profit to make it all worthwhile, none of which actually needs to be paid, because we could go back to what we might call the old days, when my father was alive and running the same system, which was when he employed the people directly.
He knew who they were, he knew where they were, he knew what they could do, he knew he was responsible for them, he knew he had to train them, and so on.
Which of those two systems was really more efficient? My argument is quite straightforward. It was actually the old one. Because that way, the productivity of those people could be guaranteed.
The system could be kept in best order by people who knew what they were doing. And who were trained to do the job. And, at the same time, every single emergency could be managed. The consequence was the customer got best value for money.
Now, the profiteer gets best value for money. The lawyer gets best value for money. The accountant gets best value for money. The person who runs the umbrella company that finally employs the people who actually go out and do the real work that we require takes their own slug and gets best value for money.
And where is the employee at the whole bottom of this, now a contractor? Well, they're taking all the risk.
Them, and of course you. Because you are taking all the risk because you can't be sure that your power supply company will deliver you with energy.
Now, what does this all mean? What it means is this, in my opinion. That if we want an answer to the productivity problem in the UK, what we have to do is eliminate all these tiers of contracting. We need to get rid of this vast, endless infrastructure of legal practice and accounting practice and profit-taking that actually strips value out of every single thing we buy because the person with whom we contract, whether it be government or us, can't actually do the job themselves but will always pay someone else to do it.
I had the same problem with the washing machine recently. I had to complain about the fact that a relatively new acquisition had not worked. It needed repair. And the company in question said, well, we don't repair them, even though it was under guarantee. That's all been put out to contract. And I had to deal with a contractor who, guess what? - subcontracted it to somebody locally.
Now, the person did a great job repairing the washing machine in question. It now works. But there were three tiers of contracting even between me as a consumer and that person who came to repair it, whereas I had one contract that I knew of with the person who had sold it in the first place, but apparently not.
This is totally unproductive commercial practice intended only to increase the return to our professional people, using that term loosely, and the return to capital, because everybody takes a slug of the action all the way through, and ultimately the price has gone up. If the price has gone up, but we get nothing better, we're in a less productive economy.
And this failure in productivity in the UK economy is, I think, very largely down to our belief that nobody should actually do anything but should always subcontract it until we've come down to the bloke who actually knows how to turn the screwdriver and get the job done, or the person, whoever it is, who knows how to deliver the care that we require.
You get my understanding that people with the real artisan skills that are necessary to make large quantities of life function in the UK are being exploited by this system, and so are you if you want to buy their services but have to go through hurdle and hoop and whatever other barrier it might be that's been put in your way to get what you need at a higher price than is necessary.
We don't need to do this. We could actually go back to a system where people were plain straightforward and employed the staff that they required to do the jobs that they needed to be done. But that wouldn't give everybody the profit they want, would it? So that would be a terrible thing, except we'd all be better off.
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Your father operated a system with built-in resilience. He had the right number of people to call on in most circumstances and when there wasn’t an emergency they prevented nuisance situations by ongoing maintenance which if left would eventually become a major incident. Not any more. Productivity boils down to getting rid of people to enhance the bottom line, don’t do adequate and proper maintenance – look at the road network, water & sewage – and wait until things get so bad they can no longer be ignored.
Is productivity all it’s cracked up to be if in the long-term it’s less efficient and getting rid of workers means that companies are less resilient and people are thrown onto the benefits/bullshit jobs treadmill?
Excellent questions
Excellent points. In this era of massive upheaval, we need to put resilience and sustainability first and efficiency third. One difficulty though is while that there is endless math, theory and verbiage about efficiency, we don’t have well-developed ways to measure resilience or sustainability. At least that I’m aware of – if anyone has suggestions for these I’d be interested. Maybe risk assessment folk?
Yes a good read. Its a serious problem. On a personal level I had an issue several years ago with rubble dumped in a field. It took ages to work out who was responsible and part of the problem was that Openreach had used a contractor to do the work who I think then had hired a sub-contractor to do part of the work, so Openreach had no idea what the sub-contractor had done!
Will the system change ? I doubt it.
I’m doing some work at the moment with the Highways agency. At the depots I’ve visited what they describe is chaos – there may be 6 or more companies located there, trying to co-ordinate activities around their contractual boundaries (these are strictly enforced, though often unclear, to ensure that no work is done to benefit another contractor). When they’re out on location, the chaos worsens, since the work of one contractor may depend upon another (critical paths often involve multiple, competing contractors), but the contractual boundaries leave a gap that cannot be filled with co-operation, since there’s no money in it for any of the contractors. If the aim here is “efficiency” and hence “cost savings” what happens is the opposite, things grind to a halt, crews sit waiting, communication is like post-it notes chucked into a whirlwind, and no one can co-ordinate and communicate because they’re in competition and won’t be paid for doing so. It is a mess. On radio 4 a several years ago, a researcher discovered that subcontracting involves costs and roles that direct employment don’t require – all those involved in rendering, contract managers, liaison, accounts, admin and so on – and that varying a contract (for instance if a hospital is extended and there are new rooms to clean) led to profiteering (they were over a barrel, essentially monopolised). Subcontracting and outsourcing is ideological folly not evidence-based wisdom.
Much to agree with
Thank you
Back in the 1990’s I knew an electrician working on the rail network, who described exactly what you have complained about. He used to work directly for British Railways, and they, and their bosses all knew that their job was to keep the network running safely and efficiently.
But now he was at the end of a chain of contractors & sub contractors, and none of them had that responsibility any more. Their job was to complete a contract, drawn up by lawyers, to get the maximum financial return for the least cost (to them, not the public), and, most importantly, the lawyers’ job was to make sure they bore as little responsibility for anything as possible. When something went wrong with a job, the most important thing was to pass on the legal/financial responsibility to some other contractor further up or down the chain. He hated it.
I know human nature is such, that this avoidance of responsibility used to happen with individuals in large publicly owned utilities, but the utility still carried the can, legally and financially and they knew it, and even better had a sense of professional pride and personal ownership in their public service.
Nowadays, as public inquiries show, the “sub-contracting” epidemic means no one gets held to account. Not only does that deny people justice when something awful happens, it encourages greedy, irresponsible, selfish behaviour, and accidents are more likely to happen.
Much to agree with
Someone must have done research on this – very apt and pertinent.
The whole disaster that is Boeing seems another example. They contracted out more and more of the actual engineering and ended up trying to assemble badly made non- matching components – leading to disaster.
And teh Grenfell disaaster – another example of – everyone’s involved but no one is actually responsible,
Once they’ve signed you up, the utility monopolies seem to contract out all their consumer interactions – when you try to get something fixed or try to unsubscribe.
One of my son’s, a qualified electrician, who has worked on our railway systems for over twenty years, would heartly agree with your comments. At the moment, tonight, and for many others, he will be working to correct all the mistakes made by a sub-contractor, with the project being six months behind its schedule completion.
Your observations ring true.
I would say that Productivity IS critical….. but we need to think what we mean about productivity.
Give someone a new tool that allows them to dig two holes in an hour rather than one and you have a REAL increase in productivity.
Cut someone’s pay in half and the COST of a hole is halved but there is NO increase in productivity.
Supply teachers work for an agency. The school is charged up to double what the supply teacher gets (all profit).
And supply teachers do not get the teachers’ pension.
I know someone who was employed via a job agency.
The company paid £42,000 to the agency (pro rata), the employee received £14,000.
You wonder why employees can not afford a house, a car, a holiday, etc.
This particular agency was owned by someone with a £800-million fortune.
These are called “efficiencies”.
We also have agencies for nurses, construction, etc, etc.
Now you know where a lot of their money goes to.
Agreed
Entirely
Reminds me of talking with my uncle recalling that when he worked for Great Western in the middle of the last century and he was responsible for the permanent way down to Penzance. He used to recall how his teams each knew in detail their stretch of line and took pride in the condition of it.
And what distinguishes Tebay from other motorway services?
The same Westmorland Group who run Tebay also have the Gloucester Services and have recently taken over Cairn Lodge.
They are not multi-nationals but still have a very wide range of suppliers, as local as possible, apparently.
I’m not sure what does make the difference, except a commitment to quailty retailing ?.
Tony. I must admit I’m probably thinking of Tebay in its early days when it was a one off with family ownership/management on site. Although it has maintained the lack of franchising and focus on local suppliers, its growth into the Westmoreland Group has inevitably changed its character.
British Gas services, from around 2010, began using sub-contracting engineers, as Centrica looked to trim expenses and maximise profit and in 2020 it introduced a Fire and Rehire policy, that led to union strike action and the loss of hundreds of paye engineers, to be replaced by more sub-contractors.
All these issues are certainly present in the built environment in the public sector – housing development – for a start.
This is because although my org’ has a DLO (Direct Labour Organisation), it is ran ragged by looking after the existing housing stock and trying to get newbuild schemes on site. So, predictably, we have to go to the market to add capacity but this uses our surpluses which are being eroded. The DLO – the project delivery side of the operation – is nowhere near the size it was at 2010. It has shrunk to maybe to just under one third of its size but the work load has gone up.
But because we don’t employ these roles directly, we do not have or not enough employers agents, site managers, contract managers etc., to do the work. So off to the markets we go. On the site we are based on, we once had a fabrication shop, now used as storeroom. We used to make a lot stuff ourselves to keep our social housing going, we no longer employ brickies, sub structure build teams, roofers, scaffolders. Now we buy it in and think that is progress.
We are out priced by the market in recruitment and retention is low, stress levels are high.
Basically, my local authority just outsources everything – even procurement through the sub-contractors through existing contractors who just add the 10-15% on top in the contract – if there is one!
It puts a huge onus on people like myself and colleagues on the robustness of the contracts we issue and so – guess what – the contracts get bigger, more onerous, huge appendices and more tooing and froing (time taken up, delays, too much process) – especially if you work in the risk averse local authority like I do.
Also, there is another game going on – the transfer of risk onto contractors and sub-contractors. The response to this ‘game’ of course is money – the external people will charge you handsomely for risk the LA thinks it is so cleverly transferring onto them. This tells us alone does it not that risk has been heightened – not reduced – because the production line has got longer, is less controlled by the client it becomes just another addition in the contract.
The only good thing to come out of this is CDM – Construction Design Management Regulations 2015 which makes everyone work together for the sake of H&S. But the rest of it is inefficient, expensive and seems to have diversified risk to the point where it is almost unmanageable and more costly. It is very time consuming managing contract processes like this, I can assure you.
And even then – there is no guarantee that there will smooth sailing through a project.
Thanks
That is exactly what worries me
Richard
You might like this, father of a colleague
https://www.somersetlive.co.uk/news/somerset-news/paddy-pylon-man-how-102-9075008
My Dad did an engineering apprenticeship as his national service as he was deemed medically unfit for combat and spent several years on pylon and line repair before moving into design. His story of Mayo is familiar from others in my extended family.
Two cautionary tales
A good many years ago I was buggering about in the Bilges of The Balmoral (1949 built passenger ship) with an angle grinder cleaning off bits of plating so the Chief could use the ultrasound machine to decide what needed replacing because as he pointed out once the ship was in drydock anything the ship repairers hadnt quoted for they had us over a barrel.
Even more years ago my school had contracted out the cleaning, as the site foreman said, absolutely nothing wrong with the contractor but whenever you wanted anything out of the ordinary – hall hire, roof leak, we had a small fire etc it had to be negotiated as an extra so when the contract came to an end they took it back in house.
So if you can do the job ‘in house’
That’s my belief
Rent a building my all means
Keep your people close
In my (relative) youth I worked for a large construction company as a regional IT support person. Having never been previously involved in construction, I expected that the company would have at its disposal an army of brickies, plasterers, joiners, etc. Of course I was being naive. The people the company actually employed were admin staff, project managers and estimators – not one person who was professionally qualified to be on the tools on a building site. As I spent more time there I came to learn that this is the norm for all of the big so-called construction companies – hire subcontractors to do the actual work and only have staff to oversee the project and send out the bills, so in reality all they are is contract managers, not construction companies at all.
As for the subcontractors, they were treated like dirt by this business, to the point that invoices from them were ignored if they were due to be paid in the month before the year end figures were due, so that there would appear to be more money in the bank. I asked one of the contractors about this and was told that it was the standard practice in the industry and just considered part of the cost of doing business.
Exactly what I have seen, too
Oh – and just to add to the above, in the flavour of John Warren’s point how Neo-lib ideology just does not add up which he made on the discussion about the SLB, this whole business of de-capacitising the public sector is just based on the evil ‘private sector good/public sector bad’ narrative which is really just a public sector divestment policy of ongoing liabilities (pension pots, NI contributions, working with unions) in order transfer output into the private sector.
So…..
It does not matter that my local authority now pays for more expensive ‘consultant project managers’ at market rates well above LA pay scales on short contracts and that (say) those pay rates are the equivalent of take home pay PLUS LA pension/NI on a short term basis.
All that matters is that the direction of travel – an increasingly private sector driven economy because that is what Neo-liberalism says is ‘good’ – is achieved.
Destruction of the public sector.
At any cost.
Yes.
At any cost.
Just as long as the ideology is realised.
Agreed
Andrew Broadbent mentions the sad/ridiculous/potentially dangerous case of Boeing. Something of the full foolish – and greedy – story is told in this eye-stretching Atlantic article from Jerry Useem in April this year. “Boeing and the Dark Age of American Manufacturing. Somewhere along the line, the plane maker lost interest in making its own planes.” It can be found at https://www.theatlantic.com/ideas/archive/2024/04/boeing-corporate-america-manufacturing/678137/
If there is space for yet another illustrative story, I can recall a young man I knew 20 years ago who ” worked on the railway”. I never enjoyed his company. His list of previous convictions was long and unpleasant and often involved alcohol. But we had a connection of sorts as many in my family were railway workers and my grandfather had been a ganger ” walking the length” from one station to another checking and repairing the track. My young “friend” was,I realised, involved in much the same trade. But it was all now privatised (though,to be honest, it had been privately owned when my grandfather started working on the railways on demob from the Army after 1918.) But ,now, all the track maintenance is privatised and endlessly sub-contracted. Whereas my grandfather had been working directly for one large Rail company for most of his 40-odd years ( my brother has his gold watch), my young “friend” is right at the end of a chain of responsibilty,getting work passed down to him as and when required. I know that he, and his colleagues, are required to have some basic maintenance and safety qualifications. I was always pleased when he was obliged to end our occasional chats because he had received notice of a job for tonight and, I shudder to recall, HE was the one to take responsibility for ringing round his mates to cobble together sufficient numbers of bodies and lifts to get to the site.
Yet, back in the day, my grandfather had been permanently employed ,with others , walking the same length,day after day, without fail so that damage could be spotted and repaired without delay. I often wonder just WHO is closely monitoring the tracks these days and how quickly problems are identified.
Excellent question
Sub-contracting. In some ways reminiscent of the equally destructive job demarcation of the 1950s-70s, and equally destructive.
Sub-contracting is not new, but the extent is.
In the 1960’s my father and 2 partners ran a company called Contract Building Company. They sub-contracted to big building companies – I remember that Mcalpine was a major client. But that was the extent of it. My father’s company employed all the brickies, plasterers, joiners, sparkies etc. Mcalpine got the contract and my father’s company did the work.
Richard, after your excellent account it is no wonder Keynes wanted to euthanize the rentiers. A great example of rentier capitalism. I am surprised that with all the fine comments, the word is never used.
https://youtu.be/4mASPcIZvQg?t=888
p.s. I did not get the usual notice when I sent this the first time
I wonder to what extent the trend you describe has been an unintended consequence of making it harder to fire people? It’s now massively easier to fail to renew a contract with a subcontractor than it is to downsize a direct workforce. And it’s easier to switch away from failing sub-contractors than it is to fire an inadequate employee. From the point of view of a company director, paying a premium to sub-contract is often an acceptable price to pay for reducing risk.
Maybe
But I doubt it…
I think this goes much deeper
It’s about a denial of responsibility at very many levels
I don’t think that is true. It is easy to dismiss an employee as long as you have a valid reason and follow a reasonable process. If you have a sub-contractor working on a contract and move the contract to another sub-contractor, TUPE kicks in and the workers move with the contract. It is far harder to move poor workers off your contract that way than it is to simply sack them.
There is a perception that employing people is hard, but it is no harder than following building regulations. …..oh!
The very name “entrepreneur,” translates very well as “middle man.” These have long been vaunted and idolised as lions of achievement, charging both parties in a buy/sell equation, and profiting from both. The provider and the consumer are both ripped off in many cases. Much of society, though, not just trade, is built around middlemen – the legal system is another example.
The analogy of your father’s sensible management applies so well to the NHS which is being fragmented dangerously by bringing in private companies to do work that should be done by NHS staff.
It means the NHS (read Government) is no longer training enough staff to manage the current system and those that are trained are leaving for ‘easier’ jobs in the private sector.
It also means that the NHS is losing the simpler, routine workload that proved such invaluable training ground for those learning the medical ropes.
And the private companies are in many cases, using publicly funded buildings to make their money in.
There’s no excuse for it, except for the profit making for the layers of private sector, gobbling up our 80 years of investment, at the expense of the present and future of the NHS, and patients.
Perhaps the simple solution using the normal precaution that a private individual would use when employing anyone to do a job for them should be be used in all public service contracts. Firstly tight definition of the job with clear contingency rules, then only employ a contractor on the basis that no subcontractors are used and if necessary only by joint agreement a strictly defined role thirdly pay well at the outset which should obviate the cost of multiple sub contracts . As a principal widely adopted this should quickly eliminate the multiple abuses of endless sub contracts and set a precedent for public service contracts.
A contractoor who is not allowed to subcontract is often catgoried as an employee
Yes, but only if they are a sole provider. A contractor providing a team of their own employees to do the work is, clearly, a contractor.
Agreed
Liberation Management by Mckinsey partner Tom Peters a well known mgt consultant promoted heavily outsourcing & sub-contracting as the means by which a firm’s mgt could improve performance. It became received wisdom in the business world and infected the public sector too. Like lots of business innovations it came from the US & was readily absorbed by a UK culture that imports US ideas without seriously assessing their
viability.
Thanks