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Cash converters

Neil Robertson looks at how to turn cash into skills to support the National Infrastructure Plan…

 

The UK has embarked upon an ambitious £400 billion plan to upgrade its primary infrastructure over the next decade or so. This means new power stations, transmission lines, rail lines and trains as well as upgrades to existing rail, water, telecoms, road and energy infrastructure – all very welcome.

As the Treasury productivity plan notes, modern high-capacity infrastructure drives economic growth. Few would dispute this, but it’s how these exciting and shiny new assets are built, commissioned, maintained and operated that matters. The growth is substantially predicated on one assumption – a high degree of local ‘content’. This means that ‘kit’ is built locally and the workforce, who need not be local, must pay their taxes and spend their cash in the UK.

With the need to keep ROI’s competitive, not add to wage inflation and see benefits from the projects for UK workers, there is an almost inescapable conclusion that those responsible need a good plan for ensuring a plentiful supply of locally-based labour.

Happily, the Treasury agrees and has published the National Infrastructure Plan for Skills. This sets out the scale of the challenge, reminds us of the well-documented skills shortages and unhelpful age profile of the current workforce, and challenges leadership to address these. There are a number of strands to this challenge to consider before looking at potential solutions and specifically ‘procuring for apprenticeships’ as a key part of the answer.

Many barriers

So firstly, what are the barriers to the infrastructure sub-sectors employing lots of skilled people? Many. They are in short supply. They are in global demand. Their own workforce is ageing. Sector attractiveness is relatively low. There is a paucity of graduates in relevant fields. The specialist nature of the work means training is often best done on the job, making it demanding and expensive. There is a relatively poor supply at vocational level due to the historically low volumes, shortage of trainers, and cost of necessary equipment. There are safety concerns too. In short, a perfect storm.

There are two further structural problems. Firstly, with uncertain workloads, short lead-in times, low margins and time-limited contracts, the supply chains have historically under -trained, preferring to poach and therefore drive wage inflation. Training has historically been an easy efficiency. The net effect is that around half of the skilled people will leave over the next decade and replacement rates are at less than half the required levels.

Government has sought to increase the volume of apprenticeships by paying the sector the top tariffs, but these are not much against an all-in cost of £121,000 per apprenticeship. The energy regulator, Ofgem, to its credit recognised this and made an allowance in its settlement for training for workforce renewal. This, together with some inspirational leadership by energy and utility asset owning CEO’s, has increased numbers a little at the top of the supply chains, but not significantly lower down, where the perception is still of a first mover disadvantage. Strategies published by the Department for Transport and the rail supply chain are hoping to drive similarly positive leadership.

It remains to be seen whether the apprenticeship levy will drive demand but one significant approach is to mandate/incentivise apprenticeship development through the procurement process. The science, or art, of using procurement to drive skills is in its infancy. Government clearly believes there is mileage.

The best hope

So what prospects are there for procurement to really drive demand? There are many examples of enlightened procurers communicating clearly, but often informally, their expectations of supply chain people development activity including Scottish and Southern Energy on the Beauly/Denny transmission line upgrade, or the National Grid’s careers programme. These show doubters that the experience need not be painful. However, to achieve significant culture shift down the supply chain levels, legally mandating training offers the best hope.

One of the first meaningful attempts to formally link infrastructure procurement to skills development was in the Transport for London tube upgrade in 2007. TfL made it clear that it wanted successful contractors to engage and train specific numbers of young apprentices from particular postcodes.

The programme delivered substantially on its promises, without challenge, and also enhanced TfL’s profile with its customers, who valued a very sensible approach. Crossrail was built on this approach. Led by Terry Morgan (now advising DfT on these questions), the Crossrail procurement process specified ratios of expected apprenticeship growth to value of contract spend. This was not done quietly; it has been identified as an important feature of the new line from the outset.

What have we learnt?

So what have we learnt about how to mandate with the necessary precision? It is clear that specifying a ratio-to-contract spend e.g. one apprentice per £3 million of spend, is workable. It has the advantage of being simple and relatively easily measurable. It is an output measure that doesn’t require a track record so perhaps removes some of the non-UK contractor concern. However, different infrastructure contracts have different proportions of expensive plant/equipment and technology. For example, £3 million doesn’t go very far when building a nuclear power station. So we need to vary the ratio or find another method.

The energy and utilities sector, as one strand of their skills plan, identified procurement and set up a working group of lead asset owners and contractors who spent a year testing different approaches with their procurement specialists. They investigated setting expected levels of training at the outset of tendering – an input measure if you like. A figure of five per cent of workforce in training and or apprenticeships was tested and found to be stretching but not entirely unreasonable.

There was a wider five per cent in training campaign running in service sectors at the time. The advantages of this approach are that it benefits those who have demonstrated the right behaviours on a voluntary basis in the past, and it is more likely to be rolled down the supply chain. The obvious disadvantage is that of apparently creating a barrier to entry to non-UK based companies.

The government has both absorbed and encouraged this paradigm shift and we can expect more targets and examples as the National Infrastructure Plan unfolds. I believe the genie is almost out of the bottle.

Such confidence cannot be exhibited in the prospects for natural commercial processes to drive training in other less regulated sectors. Whilst the minimum/living wage sectors will be influenced by the apprenticeship levy, it’s harder to see how sectors such as finance or IT could use this lever to create a more level playing field.

Voluntary agreements such as the ‘The 5% Club’, with their accompanying peer pressure and corporate and individual pride, may have more traction. Sectors not characterised by relatively low numbers of high value contracts will inevitably see less in this approach directly for them.

Perhaps the way forward here is to develop the argument and evidence base where sustainability of capability becomes a strategic commercial necessity rather than an operational inconvenience or a social responsibility.

The early pioneers, especially in the rail sector, have certainly shown that, with leadership, it is possible to mandate skills in infrastructure procurements. The methodologies are gaining in credibility and sophistication. No longer is the dreaded first mover disadvantage scenario inevitable – prowess and a track record in renewing one’s workforce can and should be a core tenet of commercial decision making.

Neil Robertson is CEO of the National Skills Academy for Rail.  This article is adapted from his chapter in A Race to the Top – Achieving Three Million More Apprenticeships by 2020, edited by David Way CBE and published by Winchester University Press.