Will licensing construction firms hit the mark?

More than fifty years ago, spending my gap year on a power station site, I met a young engineer who became a good friend. He subsequently returned to Hong Kong to join, and later run, the construction company founded by his father, and I remember the fierce pride with which they earned and preserved the highest level of licence that qualified the company to build just about anything in Hong Kong.

It would be tempting to believe that replicating such a system in the UK would lead to a cadre of contractors with the competence and care to know which way round to install a cavity barrier.

It is a temptation that was not resisted in the final report of the Grenfell Inquiry, and Andy Roe, the recently appointed chair of the Building Safety Regulator, has been pretty vocal in support of the idea. We can be reasonably sure that, if the regulator is saying that publicly, it aligns with a wider discussion under way in Whitehall, and that there are to be no second thoughts about the political decision to accept almost all of the inquiry recommendations.

“How would the system be enforced, and by whom, given the pressure on regulatory resources that already exists?”

The product testing review that I led took a more circumspect approach towards licensing. The logic of the recommendation that it should be reviewed was, firstly, that the government wasn’t going to operate any kind of system limiting access if it didn’t do so for higher-risk buildings (the clue is in the name), so we could all move on to work on different remedies to the undeniable issue of a lack of competence and accountability.

A Herculean task

More particularly, though, it was a response to the urging (by the UK Accreditation Service and others) of initiating an ever-growing number of third-party schemes, involving statutory involvement in their design and regulatory involvement in their operation – against the background of those things having done little to avoid the tragedy of Grenfell. Attempting to fix this problem from the bottom up looked like a Herculean (or possibly Augean) task that would have no end.

The alternative would therefore be to operate control from the top, rather than the bottom, with principal contractors being responsible for ensuring that duties of competence, cooperation and coordination reach right down through their supply chain.

The recommendation to consider licensing was made without any great expectation that it would be adopted (the minister’s words to us at the time were “I think that ship has sailed” – although it might have been more accurate to say that, if it had left the harbour at all, the ship had sunk. But even then the recommendation was expressed in circumspect terms, because it raises so many questions. For example:

• What would be the criteria for being licensed, how would contractors demonstrate that they meet those criteria, and who would judge?
• Would a licence be an absolute requirement for access to a certain segment of the market, and just what would that segment be? An obvious starting point might be the construction of higher-risk buildings, but that definition is subject to review, so would the process need to start all over again for additional market segments? And would it be logical to limit access to the market for higher-risk residential buildings but not, for example, to nuclear reactors, bridges, dams and other works where the consequences of failure could be catastrophic?
• Similarly, would it be logical to restrict access to the market for contractors, but not also for designers – and possibly even developers? In short, we’re looking at a system, and if we’ve discovered anything over the past few years, it is that system thinking is a problem for government.
• Does some distinction need to be drawn to take account of the scale of work? The inquiry recommendation is that the appointment of a licensed contractor should be a precondition to an application for approval, whether for new-build or refurbishment, and under the current regime that would mean that only a licensed contractor could replace a single fire door in a higher-risk building, taking the proposition from the theoretically beneficial to the patently absurd.
• Would the granting of a licence by government or the regulator imply some warranty to customers that the contractor is competent – so that, for example, a client’s duty to appoint a competent contractor would be replaced by the obligation to appoint a licensed one?
• Taking that further, when a project designed by somebody regulated by the state and constructed by somebody licensed by the state, to a design pre-approved by the state, nonetheless suffers some catastrophic failure, can the state really wash its hands of all responsibility?
• As it can be presumed that limiting the market will increase prices, would that increase secure, on the one hand, value through additional protection for clients and users, and on the other hand, would the price premium be enough to persuade contractors to accept the burdens of licensing – or would they simply walk away from that segment of the market? If so, what would that do to the market (apart from, in the extreme, the risk of producing a tacit cartel)?
• How would the system be enforced, and by whom, given the pressure on regulatory resources that already exists; what would be the range of sanctions; and what would be the situation on a project under construction where the contractor loses its licence?

Lessons learned?

I’m sure these questions and
many more are under consideration in Whitehall – although the fear is that, whatever the question, the answer is still going to be a licensing scheme, because the government is locked in by acceptance of the inquiry recommendation and by the unproven assumption that licensing equals competence.

“If it is impossible to enforce the existing dutyholder regime, then it will hardly be possible to operate a licensing system based on the same criteria”

Nonetheless, one might still entertain the hope that the lesson of gateway two has been learned: that major interventions into the market, delivered into an under-resourced environment and without adequate guidance or even a full appreciation of all of the implications of the change, end up in a blame game.

Fortunately, it is not necessary to conjure up the answers to the many questions out of fresh air, as licensing operates in other places around the world – and there are also some sector-specific schemes operating in the UK – albeit with varying criteria and degrees of rigour.

The recommendation of the testing review was therefore to investigate the effectiveness of these systems – and if readdressing the issue today, the recommendation would be the same. This cannot, however, be an enquiry conducted by reference to Google and a few phone calls. Researching scheme design may be simple enough, but evaluating effectiveness is a very different issue, and requires a degree of analysis that calls for a properly funded exercise conducted with academic rigour.

Critically, it must be conducted on the basis of a full understanding of the scale of the market where such schemes operate and, to raise the problem of systems thinking again, how systems that are believed to be effective operate within an overall system of building control and regulation in those markets.

This will take time – and of course taking time does not suit the purposes of government by announcement, and it will be treated with suspicion by those who regard everything undertaken by the private sector as suspect. But it could lead to something that will actually work.

In that time, every part of the industry should develop an ever-deepening understanding of what taking “reasonable steps” to meet its duties under the Building Safety Act should mean. And for its part, the government can consider whether the very idea of licensing might detract from the progress that should be made in being clear about the duties that the different actors in the industry owe, and enforcing those duties so that people are aware that failing to live up to them will have consequences.

It could also consider whether the same objective might be achieved by alternative means – for example, by including in the sanctions for failure to comply with statutory duties the right to disqualify contractors from certain segments of the market, rather than licensing contractors in advance. If it is impossible to enforce the existing dutyholder regime, then it will hardly be possible to operate a licensing system based on the same criteria – and it would save the bureaucratic expense of operating a system that imposes a burden on all, without commensurate benefit.

There used to be much talk in government of “evidence-based policy”. In fact, there was probably more talk about the principle than adherence to it, but it was still a good idea. So, the final question for policymakers is, what particular aspects of licensing will bring about changes that duties created under the Building Safety Act, properly enforced, will not – and where is the evidence that they will do so? In the absence of good answers to all these questions, they should contemplate the possibility that they will become blockers not builders.

Paul Morrell is a former government chief construction adviser