黑洞社区

鈥淭hey鈥檒l charge an arm and a leg, and what they deliver doesn鈥檛 help anybody.鈥� Charles O鈥橬eil is trashing the big four auditors in his broad Australian accent. 

鈥淭heir scope is mostly historical, and the executors are mostly accountants. For a typical audit firm to go and do an audit on a construction project or a contractor 鈥� they don鈥檛 know what they鈥檙e looking at. It鈥檚 pointless.鈥� 

O鈥橬eil, a dispute resolution and project management expert, thinks he can do better. 鈥淚f you have been on enough construction sites, you can walk on and smell what鈥檚 going on in the first couple of hours. It鈥檚 not all that hard.鈥� So, at the age of 76, he has joined forces with several friends 鈥� also construction experts 鈥� to form an investigation squad for hire by governments, investors and banks.

When he left German civil engineering giant Bilfinger in his late sixties in 2011, O鈥橬eil was director of asset management responsible for 60 facilities 鈥� from design to construction and management 鈥� across eight countries. He played an important behind-the-scenes role on the construction of the London 2012 Olympics, after being brought in by a contractor as part of a three-man team to rescue a crucial scheme 鈥� which was running 11 months behind schedule but he is not at liberty to name. 

Since ostensibly retiring eight years ago, he has arbitrated on private-public-partnership contracts across the Anglosphere, taught at universities, and earlier this year published Global Construction Success 鈥� a tome that has received glowing reviews from industry luminaries such as Ann Bentley, Mark Farmer and Andrew Adonis. 

Here, he sits down with 黑洞社区 to explain why PFI isn鈥檛 dead, how he stumbled into construction after a decade running a sheep farm, and why incompetency is the scourge of construction 鈥� and what he plans to do about it.

鈥淚鈥檓 just concerned there are a number of people in high-up positions that do not have the broad-based training to qualify 鈥� in my book 鈥� to be competent for their job鈥�

Investigation team

鈥淚鈥檓 not interested in retiring,鈥� says O鈥橬eil. And while contractors continue to have problems and jobs continue to go wrong, there is a good chance his nascent investigation squad will find business. The idea is that the team would be employed to visit sites and look through financial records of important construction projects to give investors or sponsors an accurate picture of what is going on. He points out: 鈥淟ook at what happened with Carillion. I don鈥檛 know if they were fraudulent or incompetent, but I think they were just plain incompetent.鈥� 

O鈥橬eil adds that most project costs should be firmed up soon after a bid is won, with only unexpected costs to be added later 鈥� and even these should be protected by careful wording in the contract. But contractors that bid on low margins and enter inappropriate contracts often run into problems later, which are revealed even later. 鈥淭his is what our proposed investigations group can unearth much earlier when we get appointed to review a project,鈥� he says.  

鈥淟ook at what happened with Carillion. I don鈥檛 know if they were fraudulent or incompetent, but I think they were just plain incompetent鈥�

The group will probably work as a subsidiary to ResoLex 鈥� a project consultancy based on Fleet Street, London 鈥� whose chief executive, Edward Moore, contributed to O鈥橬eil鈥檚 recent book, and who is one of the team putting the investigation squad concept together. 

The others include Specialist Engineering Contractors鈥� Group chief executive Rudi Klein, investment consultant and former Arup project engineer and onetime Barclays infrastructure director Nigel Brindley, construction disputes specialist David Somerset, international commercial mediator Amanda Bucklow, and former Society of Construction Law chair and independent consultant Richard Bayfield. 

At the moment the team are working to find a framework that would allow 鈥渁miable鈥� co-operation with those they are looking into. From there they will begin approaching institutional investors in construction firms.

UK鈥檚 failings

So, why does O鈥橬eil think construction needs his investigation squad? 鈥淭he construction industry is having a few ups and downs. It鈥檚 not only the UK, it鈥檚 south-east Asia, South Africa, Australia and New Zealand. But the UK is the worst of the lot.鈥� O鈥橬eil won鈥檛 easily recognise some of the success stories being claimed over here. He recounts a recent argument he had with a senior Cabinet Office official who was 鈥渢alking up how things have improved and Balfour [Beatty] has done so well鈥�. On the contrary, says O鈥橬eil, Balfour Beatty鈥檚 margin of 鈥�2% is nowhere near good enough. Two bad jobs and they are back in the red. And on infrastructure it鈥檚 not hard to lose 拢20m or 拢30m.鈥� He adds: 鈥淭hey lost tens of millions on the Aberdeen bypass.鈥� 

So why is the UK the worst of the lot? 鈥淭he training in the UK has gone the wrong way in the last 50 years. People are trained in specialities. You have to have skills across the board, so if you鈥檙e running a major scheme and your programmer is off sick or on holiday, then you can just step in. 

鈥淗ere in the UK if you go on to a site you will find a whole lot of specialist people doing the job, but they are in silos.鈥� Between 2001 and 2004 O鈥橬eil built more than 15 schools across the UK, as well as hospitals in Hull and Gloucester. 鈥淚 came across it repeatedly: 鈥業 don鈥檛 know what鈥檚 going on; it鈥檚 not my job鈥�.鈥�

O鈥橬eil denies rehashing the common description of construction as fragmented. Yes, he says, part of the problem is that work on a scheme is done by several different firms, and managing complex supply chains is hard. But the lack of a diverse skills base is more heinous because the effect, he argues, is incompetent senior management. Ambitious specialists climb up the managerial ladder but 鈥渄on鈥檛 have the broad background that you need to become a bloody good project manager 鈥� they don鈥檛 understand everything that is going on鈥�. 

Construction managers for big contractors need to be able to 鈥渋nstinctively鈥� know whether subcontractors are delivering, are late, are under financial strain or are doing all right. 鈥淚n North America they do this,鈥� O鈥橬eil says. 鈥淏ut I think there has been a problem here in the UK that the competency of senior management is not good enough.鈥� 

Back in the bush

But although he singles out the UK for special attention, O鈥橬eil鈥檚 sights have a global focus. As an executive at Bilfinger, he travelled the globe and ended up based in Luxembourg. Nowadays he lives between countries, with a flat in Germany and a house on a cliff in Menorca. He has also been travelling to China a lot recently, as well as New Zealand.   

But until the 1980s he rarely left the Antipodes, except for touring Asia and the UK with an Australian cricket team, aged 17. As a child in the New South Wales outback he rode a horse 5km to primary school every day. He left school when he was 16 and soon went to work with his father, a livestock farmer and dealer. His father insisted the young O鈥橬eil learn to fly so he could he help out with cattle hustling 鈥� despite an initial reluctance he grew to love it and has now piloted more than 22 types of aeroplane. 

Aged 21, he was sent 500km north to run another family farm 鈥� a 7,000-acre livestock outfit 鈥� where he spent most of the next decade working long days on horseback, tending to thousands of sheep and cattle. 

In 1969, in collaboration with a friend, O鈥橬eil used his school-learned steel-welding skills to build the farm a badly needed cattle crush 鈥� a contraption for holding animals while injections are administered. The gadget quickly garnered fans among eastern Australia鈥檚 livestock farmers, who found it cheaper and sturdier than others available and wanted one of their own. 

The duo entered business, later extending their scope to other steel fabrication jobs. O鈥橬eil soon bought out his partner鈥檚 share and attended night classes to gain a construction certificate while managing his firm, New England Industries Proprietary, during the day. Over 17 years the firm worked on grain silos, mines and buildings, graduating to shopping centres, prisons and hospitals. During this time, O鈥橬eil was a 鈥渇lying project manager鈥�, leading several schemes across the country at once by piloting a company plane between them. 

He eventually sold the company to a listed construction firm, then worked on contract for various companies across Australia and south-east Asia, before joining Bilfinger full-time in 2001, first as an operations director in the UK, then in Australia, ending up as director of asset management. 

One of the things his earlier experience of running his own contracting business taught him, he says, is how 鈥渘uts鈥� the bidding system in the UK is. 鈥淲e didn鈥檛 bid on any projects; we only negotiated them. We really did our homework before 鈥� we didn鈥檛 leave any stones unturned.

We understood the risks, priced them in, and then we gave a fixed price.鈥� 

PPPs

Nowadays his main focus is dispute resolution, and he鈥檚 strongly of the view that getting the contract structure right in the first place is crucial. 鈥淚鈥檝e handled three disputes in the last six months. Their agreements are a piece of shit,鈥� he says. 

Despite spending much of his time mopping up messy PPPs gone bad 鈥� including arbitrating on the construction of the multibillion-pound Gautrain high-speed rail line linking Johannesburg and Pretoria 鈥� O鈥橬eil is an unapologetic defender of the PPP model, and believes it is here to stay. In the UK, chancellor Philip Hammond may have proclaimed an end to PFI and its successor PFI2, but the model will remain in a tweaked form. 鈥淒o you want to bet? I bet you it will come back in another form.鈥�

His first experience of the public-private procurement model was as a contractor building schools and hospitals. Later, as director of asset management at Bilfinger, he became involved with it again. 鈥淭he division I used to run, which was only PPPs, we had 拢12bn-worth of work on around the world. We sold seven or eight of the projects [and kept the rest], but we built them all.鈥� 

O鈥橬eil鈥檚 last major project at Bilfinger was floating the division on the London Stock Exchange, which happened in December 2011. Since then, he says, none of the PPPs have performed badly: 鈥淚 helped set up 80% of what they have now. I helped set up this stuff in 2001. [The fund] has got a very big global portfolio and they have not had one thing go wrong in 18 years.鈥�

One reason PPPs get a bad reputation, he says, is because people are 鈥渧ery emotional鈥� about PFI: 鈥淧eople feel government is handing over responsibility to the private sector, who are making a fortune [鈥�] but when you do the numbers, it鈥檚 not like that.鈥� He also points out that the minority of PPPs that go wrong attract a lot of media coverage, even though the other 95% go smoothly, because 鈥渨hen they go wrong, they go really wrong鈥�. He adds: 鈥淐arillion had two shockers 鈥� the hospitals 鈥� and it鈥檚 going to cost the public hundreds of millions to fix the things.鈥�

One of the problems is quality of contract.

鈥淚f it is properly structured there should be securities in place that they can draw on to boot [non-performing] contractors off.鈥� And the problem is not only in the public sector: private sector firms also lack the competency to enter sensible contracts. 鈥淔irms [鈥�] are entering contracts which are not properly thought out, and they have not protected their position,鈥� he says. 鈥淭hey can鈥檛 protect their position if they don鈥檛 know what they are doing.鈥�

But in O鈥橬eil鈥檚 view, the main issue with PPPs comes down to competence again. On Carillion鈥檚 hospitals, he says: 鈥淭he government and NHS were equally culpable. They wrote crap contracts and they did not do their due diligence. They should never have given those jobs to Carillion in the first place.鈥� 

He says government needs to proactively protect itself against the risk of something going bad 鈥� but is not always able to. 鈥淪ome of these companies are experts at pulling wool over the government鈥檚 eyes, and one of [government鈥檚] problems is a lot of people evaluating these bids don鈥檛 know what they are talking about,鈥� he says. 鈥淭hey are bean-counters who don鈥檛 understand the construction industry.鈥�

But it鈥檚 not just the fault of civil servants; big construction firms too have a responsibility to address the competence issue O鈥橬eil perceives. He would like to see contractors appoint executives with broader experience. 鈥淚鈥檓 sure lots of terrific people are doing a terrific job. I鈥檓 not saying everyone is incompetent. I鈥檓 just concerned there are a number of people in high-up positions who do not have the broad-based training to qualify 鈥� in my book 鈥� to be competent for their job,鈥� he says. 

鈥淵ou can be a very competent engineer, a very competent accountant, a very competent lawyer 鈥� whatever you like 鈥� it doesn鈥檛 mean you are competent enough to run a construction contractor.鈥�

Listen to Charles O鈥橬eil on this week鈥檚 podcast