Consultation Response

Industrial Strategy

April 2017

Carillion response Industrial Strategy Green Paper

Executive summary

Carillion welcomes the Industrial Strategy Green Paper from BEIS.

The UK is a rich and diverse country, with each geographical region and devolved nation displaying its own unique characteristics. A successful industrial strategy must therefore recognise the importance of local initiatives and leadership and understand that communities have the greatest understanding of their economic and social needs, and how they can best use their skills and strengths to contribute to the wider economy. However, the success or failure of any Industrial Strategy lies in the commitment of the current Government in addressing the previous under investment in the UKs economic infrastructure by successive Governments of all political persuasion. With this in mind, Carillion believe the Modern Industrial Strategy should be one based on investment in infrastructure, which provides a short-term economic stimulus, with long-term economic benefits. Investment in the countries transport, communication and energy networks will help off-set any short term uncertainty, whist increasing the countries productivity and providing sustainable economic growth. To Support this strategic long-term investment in infrastructure and encourage economic growth, the Government should consider alternative models of funding; such as Private Finance 2 (PF2), or similar models to those currently being used in Scotland (Non-Profit Distributing Model) and Wales (Mutual Investment Model). This would enable much needed projects to be delivered sooner, and allow Government to direct limited resources elsewhere. To this end, we have made a number of recommendations in our response, which include;

a Government commitment to place the UK’s infrastructure at the heart of the Industrial Strategy;

Government to provide a new PF2 pipeline of infrastructure projects;

the need for a continuous and certain pipeline of infrastructure projects coming to market, so

that business can invest in skills and innovation;

continued support for devolution and initiatives such as the Northern Powerhouse, thus enabling our great regions to unlock their potential and contribute more to the overall UK economy;

a strategic approach in addressing skills shortages facing many of our industries; and

a greater focus on collaboration between client and contractor, so that each is able to better

understand the other parties needs and deliver better outcomes on value, efficiencies and

innovation.

Carillion background It may be helpful in the first instance to outline some background information on Carillion. We are one of the UK’s leading integrated support services companies, with extensive construction capabilities, a substantial portfolio of Public Private Partnership projects, and a sector-leading ability to deliver sustainable solutions. We employ 20,000 people in the UK, and over 46,000 people worldwide. We are the UK’s largest private sector provider of construction apprenticeships with up to 2,000 apprentices in training at our network of training centres each year. We also provide rail, civil, mechanical and electrical engineering, general maintenance and business administration apprenticeships. We strive to train and develop all our people as appropriate to their needs and would welcome further Government engagement in that area. Our services include facilities management, energy services, road maintenance, rail services, and consultancy services. We also have expertise in delivering major Public Private Partnership (PPP) projects, including Government buildings and infrastructure mainly in the Defence, Health, Education and Transport sectors in the UK and Canada. Our construction services activity includes building and civil engineering activities in the Middle East.

Carillion is absolutely committed to supporting diversity in the workplace and we understand that a workforce which feels included and valued is more likely to be engaged and innovative. We are proud of the ethos we have instilled into our business and of our commitment to putting inclusive behaviours at the core of what we do. We are pleased that our efforts to promote inclusivity and diversity have been widely recognised; for example, we were one of The Times Top 50 Employers for Women in 2015 and again in 2016. We were also recently shortlisted for The Herald Scotland Diversity Awards. Examples of our inclusivity and diversity initiatives include our ‘Working Mums Network’ and our ‘Working Dads Network’ which have been set up to support parents as they seek to balance the challenge of parenthood and career, and our newly established LGBT network, ‘Connect’ which enables LGBT colleagues to meet, share information and support, and advise the business on relevant issues. We are currently bringing together all of our different internal networks to launch a Carillion Diversity Council which will provide a support channel to share best practice and feedback. We support the Your Life, STEM initiative which aims to increase the take up of Science Technology and Maths amongst young people. Our aim is to be recognised as a leading sustainable business, and to deliver sustainable solutions with our people, our customers and our supply chain for the wider community and environment in which we work and live. It is this aim which underpins a number of our activities. For example, we are lead partners within Business in the Community (BiTC), and our Chief Executive, Richard Howson, chairs BiTC’s national Community Leadership team. General questions on Industrial Strategy Does this document identity the right areas of focus: extending our strengths; closing the gaps; and making the UK one of the most competitive places to start or grow a business?

Carillion welcome the focus and strategy within the Green Paper of taking a geographical and sectoral approach to achieving the aims of sustained economic growth across the whole economy. We believe the green paper is an opportunity to build a successful, modern economy.

We would recommend that communication (both external and internal), collaboration and partnership should be overarching themes across each of the 10 Pillars. The success of the pillars is reliant on our ability to share best practice across regions and sectors. Cross-sector collaboration will support innovation and thus the development of world leading sectors. External communication and the way in which UK plc positions itself internationally could help or hinder our progress in each pillar. A forward thinking, innovative and sector-leading UK, will attract investment and skills. Conversely, if we are unable to position ourselves with the right reputation, it will hinder our economic growth.

Are the ten pillars suggested the right ones to tackle low productivity and unbalanced growth? If not, which areas are missing?

Yes, the ten pillars offer an opportunity to address the long-term issue of low productivity whilst also building on the existing sectoral strengths. We welcome the role that the National Infrastructure Commission will play in moving economic thinking away from the short-term to decisions that will deliver long-term economic benefits.

We are also encouraged with the move towards the devolution of powers. We are keen supporters of the Northern Powerhouse and believe that such initiatives in line with a coherent and targeted industrial strategy will be crucial in allowing regions to unlock their potential and contribute on a sustained basis to the overall UK economy

Are the right central government and local institutions in place to deliver an effective industrial strategy? If not, how should they be reformed? Are the types of measures to strengthen local institutions set out here and below the right ones?

In broad terms we agree that the right central government and local institutions are in place to deliver an effective industrial strategy. The existence of Local Enterprise Partnerships (LEPs) has proven to be key in driving economic growth and job creation. The move towards further

devolution, will strengthen local economies by further empowering those with local knowledge, to make local decisions.

1. Investing in science, research and innovation – we must become a more innovative economy and do more to commercialise our world leading science base to drive growth across the UK. Carillion supports the Your Life STEM initiative and therefore welcomes the focus on investment in science, research and innovation outlined and accepts the premise that becoming a more innovative economy will drive growth both within sectors, and across the wider economy. What should be the priority areas for science, research and innovation investment?

Historically, the share of GDP devoted to R&D in the UK has been comparable to that in the other G5 countries. In 1974, the UK was amongst the highest, with 1.4% of GDP devoted to business enterprise R&D. However, over the 1980s, the R&D intensity levels in the other G5 countries increased faster than in the UK, and the UK now has a smaller proportion of GDP devoted to R&D and significantly less than in any other G5 country. If we are to become a more innovative economy then this current trend must be reversed.

In doing this, consideration should be given to not only the Private Rates of Return on investment of R&D, (the Institute of Fiscal Studies estimates this to be between 10 and 15%), but also the Social Rate of Return i.e. the wider impact on other businesses within which innovation takes place. In many instances, the social rates outstrip the private rates of return.

There are a range of policy instruments that Government could use to affect the share of GDP invested in R&D. Indirect policies such as competition policy and regulation are important tools which we feel the Government should consider further. Policies such as direct funding, and tax credits for R&D have also been successful historically.

Which challenge areas should the Industrial Challenge Strategy Fund focus on to drive maximum economic impact?

In the infrastructure sector, innovation is primarily based on improvement and collaboration, though for many reasons the sector has often been slower than others in maximising opportunities arising from innovation. Although R&D spend in construction has recently risen in comparison with average for UK plc, it still remains lower than other sectors.

In Carillion’s experience the opportunity for innovation varies depending on the nature of the project we are delivering. Often project delivery involves specified requirements within tight parameters and therefore the scope for innovation is limited. The opportunity to form collaborative partnerships with clients over a longer time-frame would undoubtedly provide greater scope for innovation in the future.

Other barriers to innovation include misaligned incentives, risk aversion and the often complex technical and operational systems. There is also a lack of funding to support the technology development life-cycle and no ‘open to all’ technology development and testing facilities that could be utilised by specific sectors within the construction industry.

Carillion would call on Government to offer the construction industry the sort of funding and facilities available for to the automotive and aerospace sectors, who have successfully secured industry co-funding enabling them to become world leading sectors and deliver wider economic benefits to UK plc.

Specifically to the rail sector Carillion would like to see:

o Government commit to a focussed 30 year development programme to develop and introduce the technology needed to respond to the current challenges of cost, capacity, customer satisfaction and Carbon reduction;

o innovation funding focussed on the 5 ‘sticky technologies’, namely advanced control, customer experience, energy management, whole life asset management and high value rolling stock systems, where we believe the UK is or can be world leader;

The concept of the ‘Digital Railway’ underpins the above technologies, and will help the UK deliver Rail Industry 4.0 which has the potential to be a world leader, however, to achieve this the following support is required from Government:

o A £440m fund, matched by industry to ‘pump prime’ technology development in a

similar way to automotive and aerospace sectors. o Technology Development and Innovation Infrastructure building on the proposed £90m

UK Rail Research and Innovation Network. o Encourage the use by Clients of collaborative and innovation friendly mechanisms such

as ECI, Output Specifications and Alliancing. 2. Developing skills - we must help people and businesses to thrive by: ensuring everyone has the

basic skills needed in a modern economy; building a new system of technical education to benefit the

half of young people who do not go to university; boosting STEM (science, technology, engineering and

maths) skills, digital skills and numeracy; and by raising skill levels in lagging areas.

What more can we do to improve basic skills? How can we make a success of the new transition

year? Should we change the way that those resitting basic qualifications study, to focus more

on basic skills excellence?

Carillion support the Your Life STEM initiative, we are among the Top 50 employers for Women

(source, The Times) and we are the largest private sector employer of apprentices. We

therefore we believe that the Government’s approach to improving basic skills, and enabling a

wider, more diverse pool of people to enter the workforce and contribute to the economic

prosperity of the country is the correct one,

Our experience is that many young people applying to our apprentice training centres do not

have the necessary basic skills required to start our apprenticeship level courses. We therefore

welcome the decision to introduce pre-apprenticeship programmes with mandatory basic skills.

If this is successful, it will allow us offer our apprenticeships to a wider range of candidates.

Do you agree with the different elements of the vision for the new technical education system

set out here?

We also welcome the creation of a new system of technical education; if we are to address the currents skills shortages facing many of the UKs sectors, then Government must promote parity with the existing academic track, and provide a clear simplified framework that enables progression throughout. Should Government rely on industry to deliver these objectives then they must also provide a certain and continuous pipeline of work across the construction industry.

As identified in the green paper, there is also a need to address the shortage of science, technology, engineering and maths (STEM) skills. This is of immediate concern not only to Carillion as a supporter of the Your Life initiative, but also the wider construction and infrastructure industry. As part of the strategy to address these shortages, we must aim to have a more diverse and inclusive workforce. Recent research conducted by WISE – a campaign to promote women in science, technology and engineering – shows that only 33% of girls who study maths and science at GCSE level progress into any form of Level 3 qualification, whether this is via A Level, advanced apprenticeship or vocational qualification routes. These figures worsen when you consider that only 7% advance to Level 4 qualifications (through university, higher apprenticeships or further vocational qualifications). Carillion, like many other employers, requires STEM qualifications up to Level 4 for a large proportion of our engineering positions and therefore we absolutely recognise the need to proactively tackle the STEM skills gap. As part of our attempt to address the issue, Carillion is a partner in the three-year Your Life campaign – promoting Maths and Physics as skills that will drive the UK forward in a competitive global economy. However, continued work is required if we are to move away from the long held stereotypes of the construction industry. We still struggle to find enough females to fill a range of both graduate level and apprenticeship level positions in STEM areas.

As outlined in our evidence to the DWP1 it is a challenge to encourage students, in particular girls, to leave schools at sixteen to pursue an apprenticeship rather than study A Levels and anecdotally, we have found that this is in part due to stereotypes surrounding apprenticeships ‘that they are only for kids who can’t do A Levels’ or that ‘engineering and construction are only for boys’. This is an issue that we hope the steps currently being taken by Government in reforming the technical education system will address.

In terms of our own efforts of addressing this issue, Carillion continue to make contact with

schools local to our training centres and construction and other infrastructure project sites in

order to increase awareness about the apprenticeships on offer. However we believe that the

focus needs to be on ensuring that young people and women in particular are encouraged to

take up STEM subjects and recognise the benefits of developing skill based learning. We

believe that schools and governors have an important role in this regard, and we would

encourage further action from Government in this area.

We are also Patron of the West Midlands Construction University College (UTC) based in

Wolverhampton. This involves supporting the UTC with work experience placements, site visits

for students, employer led projects and mentors for individual students. University Technical

Colleges are formed by employers in conjunction with Universities to meet a need for technical

skills in a particular sector. UTC's are smaller than traditional secondary schools taking

students from 14 years old to 18 years old.

For employers, including Carillion, the West Midlands Construction UTC is an important

contributor to closing the skills gap within the construction sector. As the sector grows and

moves towards a more technological future, there is a significant and increasing need to attract

a well-trained and highly skilled workforce, particularly in technical and professional roles. The

UTC ensures, along with the close support from employers, that the curriculum focuses on

building those skills, experiences and qualifications needed to ensure students can have a

successful career in the sector. We find that the professional approach and ethos that is

embodied within the UTC drives engaging student experience and development of wider

employability skills and experiences. We find that UTC students are certainly better equipped

with employability skills and are therefore more employable. As such we would certainly

endorse further government support in this area.

What skills shortages do we have or expect to have, in particular sectors or local areas, and how can we link the skills needs of industry to skills provision by educational institutions in local areas?

Skills shortages in the construction/infrastructure industry and specifically the rail and road sectors are where the problem is perhaps most acute. Although we welcome the Transport Infrastructure Skills Strategy published in 2016, and the creation of sector-specific national colleges, such as the National College for High Speed Rail, it is our belief that a more strategic broad-based view needs to be taken. Carillion would recommend that for the Government consider setting out a Skills needs assessment at the beginning of each parliament, similar to the Comprehensive Spending review and Strategic Defence and Security review. This assessment would provide a single authoritative view on the skills gaps faced both at present and in the future and set out steps which need to be taken to meet this challenge. This perhaps would be of great importance in addressing shortages in digital skills and those in new technologies where there isn’t as clear an understanding of how industries can best utilise these skills.

1 Carillion’s evidence can be found at: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/work-and-pensions-committee/employment-opportunities-for-young-people/oral/43666.html

How can we enable and encourage people to retrain and upskill throughout their working lives, particularly in places where industries are changing or declining?

Upskilling also forms an important aspect of meeting the skills challenge. General up-skilling of workers throughout their career is a key priority and we welcome the changes that bring greater flexibilities around age in the new apprenticeship funding arrangements. Carillion has always been committed to career development and has clear pathways by which our employees can develop and expand their current skills base.

There is also a risk around jobs becoming automated for lower skilled workers and there is therefore a need to train and upskill these workers to ensure job security/economic prosperity. Many businesses, including Carillion, already partake in such activities, however, in geographical areas such as those that have suffered from de-industrialisation, government initiatives and incentives around training and investment in order to incentivise may be needed so that we build an inclusive society where everyone has the skills to contribute and share the benefits of economic growth.

3. Upgrading infrastructure - We must upgrade our standards of performance on digital, energy, transport, water and flood defence infrastructure, and better align central government infrastructure investment with local growth priorities. Are there further actions we could take to support private investment in infrastructure?

There has been a historic lack of clear long-term thinking in the UKs approach to national infrastructure strategy. It is within this context that Carillion welcomes the role of the National Infrastructure Commission, and in particular its role in producing a National Infrastructure Assessment during each Parliament to analyse the UK’s long-term infrastructure needs, and set out recommendations for how these long-term needs should begin to be met.

In most cases, Carillion believe that Government funding via general taxation, remains appropriate for most infrastructure projects. User pay models work efficiently in some sectors, for example in energy, and could possibly be extended in to new areas. However, a strong regulatory regime or continued Government underpinning of the funding is required to allow projects to be financed.

Government can dramatically improve efficiency by changing the way that Government funding or support is provided. The current model has a number of negative effects, namely:

o It discourages training and development of staff – it is hard to complete training

programmes on the back of short term projects. This is having both a long term and short term impact on the ability of UK companies to deliver infrastructure projects, and results in the well published skills shortages which the construction industry now faces.

o Without continuity, there is less incentive to innovate. o Poor investment in plant and equipment. o Less efficiency, due to the lack of a “learning curve”.

There are a number alternative models which in our view could drive significant efficiency within infrastructure, these include:

o PPP + benefits and Private Finance 2 (PF2); o Mutual Investment Model (MIM) currently being used in Wales, and the Non-Profit

Distributing Model (NPD) in Scotland. o Concessions for regulated infrastructure (e.g. Ofgem estimate OFTOs have reduced

costs by 23%-34%), potential for CATOs to do the same. Thames Tideway financed because Government provided specific support for certain risks.

o Renewables: a clear policy issue where projects were being successfully delivered but the policy around funding and support has constantly changed and/or been removed at short notice

o To support further private investment in infrastructure the Government needs to provide investors with certainty of workload pipeline visibility; the ‘lumpy’ nature of the pipeline

is one that must be addressed to provide investors with the certainty they need. However, just as important as pipeline visibility is certainty of policy, again it is hoped that the role of the National Infrastructure Commission will provide the long term stability in terms of policy making when it comes to the UK’s infrastructure.

o As discussed in other sections of our response, these certainties would not only support private investment in infrastructure, but also address some of the issues with skills, innovation and ultimately productivity within the construction industry.

o In an effort to maintain current investment levels, Carillion would also encourage the Government to consider continued involvement with the European Investment bank. Should this not be possible, then we would recommend that serious consideration be given to a UK replacement.

How can local infrastructure needs be incorporated within national UK infrastructure policy most effectively?

Local infrastructure needs can be better incorporated with national infrastructure policy by emerging sub-national strategic transport bodies, such as Transport for the North and Midlands Connect, working in collaboration with Local Authorities within a particular jurisdiction, in order to prioritise local infrastructure investment, (those that improve productivity and stimulate regional and national growth), and acting as intermediaries with national bodies such as Highways England, Network Rail and HS2 Ltd.

What further actions can we take to improve the performance of infrastructure towards international benchmarks? How can government work with industry to ensure we have the skills and supply chain needed to deliver strategic infrastructure in the UK?

In an effort to address some of the more pressing issues which the industry is facing, Carillion would call on Government to take the following steps:

o Encourage major transport bodies (Highways England, Network Rail, HS2 Ltd) and regulators (Office for Road and Rail) to liaise with international peers to establish common benchmarks.

o Ensure consistent funding over medium-term e.g. 5-yearly investment windows (Road Investment Strategies, Control Periods).

o Ensure that major transport bodies establish delivery frameworks of a sufficient size/longevity that promotes learning and continuous improvement.

o Working to remove bottlenecks in planning and consultation such that projects can be delivered in a timely manner.

o Provide certainty with regards to the ability for EU migrant workers to work in the UK post Brexit.

o Provide strategic direction in skills through the Industrial Strategy and other Policy mechanisms.

4.Supporting businesses to start and grow - we must ensure that businesses across the UK can access the finance and management skills they need to grow; and we must create the right conditions for companies to invest for the long term. What are the most important causes of lower rates of fixed capital investment in the UK compared to other countries, and how can they be addressed?

In Carillion’s experience short-term actions to cope with rising costs and competitive market pressures and, for public companies, pressures to offer shareholders strong dividend yields, are all contributory factors to low rates of fixed capital investment in the UK.

A major area of potential investment for companies like Carillion is in infrastructure projects, and there continues to be a strong appetite among infrastructure companies, banks and other institutional investors to invest in such projects to the benefit of UK plc. However, having led the world in the use of private finance to deliver infrastructure projects, the UK has now been

overtaken by other countries who have followed and built upon the UK’s example, while over recent years the UK has significantly reduced the number of projects coming to market that offer opportunities for the private sector to invest in these long-term projects. In an attempt to address this imbalance, we would encourage Government to strengthen the UKs position in bringing a greater number of projects to market.

Given public sector investment already accounts for a large share of equity deals in some regions, how can we best catalyse uptake of equity capital outside the South East?

Equity investment in the regions can be increased by encouraging financial institutions to establish investment funds dedicated to the regions. An example of this, is the Northern Investors model which was established in the late 1990s.

5. Improving procurement - We must use strategic government procurement to drive innovation and enable the development of UK supply chains. Are there further steps that the Government can take to support innovation through public procurement?

If Government is to achieve their aim of stimulating innovation through procurement, then it must be willing to encourage innovation in public procurement; this means scoring tenders with this in mind. Often clients talk about the importance of quality, innovation and sustainability, but the reality on scoring is that it is still predominantly price focused. Tender scoring should be adjusted to reflect the importance of innovation and other aspects such as sustainability. There have been times previously where best practice around sustainability and community engagement (a key driver for improving regional prosperity) has detrimentally affected a bid due to the way in which it has been scored.

Improving procurement transfer of risk is an important factor in ensuring the client receives best value for money. There is an increasing drive towards government trying to outsource increasing levels of risk to their provider. This high level of risk must be commercially priced into the bid solution, therefore it pushes up the price for the client. Government should be less prescriptive around the level of risk transfer to allow the contractor to bid in a manner which is the most cost effective for both parties. There is always a balance between risk, cost and value to the customer; this balance needs to be understood when looking at risk transfer.

It is also our belief that buying authorities require help in preparing for undertaking a procurement process. We find that in many cases they often lack the in-house capability and capacity to efficiently procure a supplier/partner. This ultimately adds time, cost and often ambiguity to the current process. Procurement training and investment in the collation of their own relevant management information (MI) on how their services are currently delivered and performing, would greatly assist the innovation and efficiency agenda.

The streamlining of services is a recognised method of identifying cost savings on contracts, however in our experience, there is often a lack of understanding around which services can and should be streamlined, which leads to higher costs on contract delivery in the long run for Government clients. If contractors were engaged earlier in the process, we could help identify legitimate areas for cost saving that would be maintained throughout the contract period. We have seen examples where contracts have been poorly scoped during the bidding stage, with no opportunity to reshape in the procurement process. The resulting contract has therefore had to double in size per annum to meet the Government department’s requirements. This means the original value that the Government department has budgeted for is no longer accurate, forcing the department to reallocate other funding. As identified in other areas of our response, we would recommend that earlier contractor involvement is essential if efficiencies are to be delivered.

We would also encourage Government to consider where and when Zero Value Frameworks are used. Although a useful procurement method, we have seen examples where they are not effective for any of the parties involved. If a Zero Value Framework is used, then only the relevant type of opportunities should go through it. For example, there are some large Government zero value frameworks in place that are attractive to be part of, however, multiple

small value opportunities are offered through the framework where it is not cost effective for contractors to bid because the contract size is too small to warrant the economies of scale around the agreed rates in the framework. This results in multiple small value opportunities going through the framework that are not bid on, with negative consequences for all parties.

Carillion would also like to see some flexibility around scope added in to the process. If a buying authority choses to broaden the scope of a particular existing contract arrangement, then re-procurement of the whole contract arrangement should not be necessary. At this point, we feel a simpler change mechanism should be able to be initiated.

We would also recommend the move towards digital procurement methods, and believe the use of online updates, submissions and price models would make the procurement process faster and more efficient. This would also minimise delays in the procurement timelines.

What further steps can be taken to use public procurement to drive the industrial strategy in areas where government is the main client, such as healthcare and defence? Do we have the right institutions and policies in place in these sectors to exploit government’s purchasing power to drive economic growth?

Although Carillion believe that consistency is a fundamental principle within the procurement process, we feel it is important that improvements are made. We believe that the modifications proposed below would generate significant benefits for bidders and contracting authorities and ultimately drive economic growth. These benefits include supporting investment in skills and innovation, reduced costs for client and contractor, strengthening the UK supply chain and creating more opportunities for SMEs.

We also recognise the importance of ensuring fair and transparent competition.

From Carillion’s perspective, the key problems with the current regime which inhibit innovation, stifle competition and hinder wider economic growth and productivity fall within two categories:

o Costs: the costs required to submit a tender are substantial, and often do not reflect

the value of the underlying contract, particularly in relation to lower-value contracts. This raises the following issues:

(i) Thresholds: a report commissioned by the European Commission states that in

contracts with a value close to the threshold above which EU procurement directives become compulsory, total procurement costs for business and government amount to about 30% of the contract value. Carillion believes that the thresholds should be raised, and that the EU Core Principles should not apply to contracts below the thresholds.

(ii) Timing: a report commissioned by the European Commission notes that the average length of an entire procurement procedure in the UK is 193 days. This highlights that in order to adhere to the rules relating to procedure and remedies under the current regime, bidders are obliged to assemble large commercial and legal teams for lengthy periods.

o Procedural rules: the procedural rules under the current regime are unnecessarily

prescriptive and inflexible. Provided the EU Core Principles are respected, contracting authorities should be granted more freedom to design the most appropriate procedure for each individual contract.

Reducing large contract procurement costs will help improve efficiency. Bid costs can run into the millions which makes tendering expensive for large companies. If the cost of bidding was lower this money could be reinvested into innovations / improvements to working environment to help improve workforce productivity.

With the UK now committed to leaving the EU, Carillion has concerns that there will be a return to the approaches of the 1990s, when procurement was individual for each contracting authority and there was a lack of standardisation which increased costs. We recognise that whilst there is a move away from the EU however we would recommend that the UK Government adopt a

process which meets the principles deriving from the Treaty on the Functioning of the European Union, and thus allowing access to OJEU in order to still bid for OJEU opportunities.

Many of the changes outlined above we feel would bring many positive outcomes to UK business, these include:

o Cost and time savings: a more streamlined and flexible approach to procedure and

remedies would reduce the costs and length of procurement procedures, which would benefit both bidders and contracting authorities in terms of resources, waste and productivity;

o Increased opportunities: a reduction in the average costs and length of procurement procedures would enable UK businesses to tender for more bids, which would increase competition in the UK market;

o Access to market: a simplified, streamlined procedure would encourage new entrants and SMEs to tender for more bids, and would also make it easier for prime contractors to engage with SMEs in their supply chain;

o Better outcomes: a focus on the EU Core Principles, o Social value: an improved focus on the wider aspects of community needs will allow

development of Social value through partnership working.

6. Encouraging trade and inward investment – Government policy can help boost productivity and growth across our economy, including by increasing competition and helping to bring new ways of doing things to the UK. What can the Government do to improve our support for firms wanting to start exporting? What can the Government do to improve support for firms in increasing their exports?

Although Carillion does not necessarily export goods, we have utilised the enhanced Direct Lending Facility (DLF) through UK Export Finance to enable us to win contracts abroad. For example, the availability of a £34 million DLF loan enabled Carillion to secure a significant contract to provide construction services to the Dubai World Trade Centre LLC.

We would encourage Government to increase the volume of support provided by UK Export Finance and therefore welcome the announcement in the recent Autumn Statement to double the UK Export Finance risk capacity from £2.5 billion to £5 billion, along with the increase in the number of countries eligible for guaranteed local currency financing.

The establishment by the Department for International Trade, of a new Infrastructure Exports Leadership Forum, which aims to allow government and industry to work together in an effort to pool resources and extend the UK offer in overseas markets, should also enable the expansion of UK export market.

What can we learn from other countries to improve our support for inward investment and how we measure its success? Should we put more emphasis on measuring the impact of Foreign Direct Investment (FDI) on growth?

In terms of inward investment, we would note that previous US governments have created a climate which is conducive to very large US Corporations acquiring businesses overseas. If the UK is to compete globally then the UK Government should be looking to provide support to large British contractors in a similar way.

7. Delivering affordable energy and clean growth - We need to keep costs down for businesses, and secure the economic benefits of the transition to a low-carbon economy. How can we move towards a position in which energy is supplied by competitive markets without the requirement for ongoing subsidy?

The most important aspect of securing the benefits of the transition to a low carbon economy is a clearly defined long-term energy policy with regular government support. This provides both investors and the supply chain with the certainty required to invest, innovate and grow. This in

turn leads to a varied mix of energy generation and a more robust network better able to cope with demand.

Like most large businesses Carillion rely on a steady supply of affordable energy to keep projects viable. Continuity of Government policy towards low carbon technology will ultimately lead to further innovation and lower costs to the end user. For example, the continued commitment of Government policy to off-shore wind has enabled it to grow into a world leading sector. With the right policies, we believe there is opportunity to grow other low carbon technologies.

Low carbon technologies such as biomass, hydroelectric, solar and nuclear power require further investment and research to increase their distribution and effectiveness as providers of energy for the UK as a whole.

How can the Government support businesses in realising cost savings through greater resource and energy efficiency?

Energy Management is also a technology where we believe the UK has the potential to be world class. The supply chain is already offering leading edge clean and energy efficient solutions and would welcome consistent policy and supportive procurement approaches to encourage their adoption.

8. Cultivating world-leading sectors - we must build on our areas of competitive advantage, and help new sectors to flourish, in many cases challenging existing institutions and incumbents.

How can the Government and industry help sectors come together to identify the opportunities for a ‘sector deal’ to address – especially where industries are fragmented or not well defined?

The economic infrastructure of a country is perhaps the most fundamental principle in building a modern competitive economy. Well-designed infrastructure investments have long-term economic benefits; they can raise economic growth, productivity, and land values, while providing significant positive spill overs. Carillion believes the Government’s Industrial Strategy should be based on reliable, resilient and affordable infrastructure. Infrastructure has the potential to provide a short-term economic stimulus, but also provides long-term benefits and helps increase productivity both regionally and nationally, not only in terms of direct employment, but also through strengthening of supply chains.

As recognised in the Green paper, the success of an industrial strategy is the extent to which a collaborative, competitive supply chain of smaller businesses exist to support the major businesses within their sectors. We believe that shared institutions allow industries to collaborate on projects or underpinning work that could not be undertaken by one company on its own. This in turn allows for these sectors to drive up productivity, innovation and growth.

Two component parts of the infrastructure sector, with cross-cutting potential, which we believe are able to deliver the objectives above, and achieve the aims set out in the Green Paper, are the Rail and Highways sectors. We have set out below some of the challenges facing these two sectors, and outlined what can be done to overcome these and highlighted the positive outcomes these changes would bring.

Rail

The Rail industry is a vital contributor to UK plc employing over 216,000 people and contributes £10.1bn Gross Value Added (GVA). The supply chain is the biggest single component, accounting for approximately 124,000 employees and generating £3.88bn GVA. An efficient and properly resourced supply chain with a stable and predictable forward work load is therefore vital if the industry is to deliver what is required by Government and rail stakeholders during the remainder of Control Period (CP5) and beyond.

Perhaps the most fundamental issue facing the rail industry is visibility of workload pipeline. This is a major driver for under investment within the sector and throughout the supply chain.

Despite established levels of funding through Control Period’s, we find that workload pipeline is inconsistent and unpredictable in coming to market. This unpredictability means the supply chain does not have confidence, and is therefore reluctant, and in many cases unable, to invest in people, processes and innovation. This stifles productivity within the sector and ultimately leads to the current issues around skill shortages and lack of investment.

We also have the problem of significant drop-off in work load. Recent National Infrastructure Plan (NIP) figures suggest that towards the end of CP5 the infrastructure work-load forecast will fall significantly. If this is not addressed, it will continue to cause supply chain hiatus between Control Periods, which again breeds uncertainty and leads to delay or cancellation of investment and in many cases staff reductions.

Network Rail have attempted to address these issues with the introduction of zero-value framework contracts in CP5. However, given the figures quoted above from the NIP it would appear further work in this area is required. Carillion understands that the Department for Transport (DfT), the Rail Industry Association and CECA are currently in discussions with Network Rail about how these issues can be tackled. We commend both the DfT and Network Rail on this approach, and look forward to a solution that provides a rolling programme of work, which will allow the industry to meet future challenges, and address the issue of low productivity.

When considering the issue of productivity within the rail sector, we would also recommend Government address the following issues:

o Maturity of work coming to market: It is imperative that when schemes come to

market, they do so at a level of maturity commensurate with the expected procurement method. Projects need to be sufficiently scoped and costed before coming to market.

o Access to the railway: Efficient access to the operational railway to deliver work is essential if we are to increase productivity. Access has become increasingly scarce and is often further reduced to provide contingency against the risk of over run. Whilst Carillion recognises the challenges and demands of working on an operation railway, the current model adds to unit costs, impacts on efficiency and drives poor productivity. As such we would welcome a review of current practices, with input from all industry stakeholders, with a view to finding efficient ways of tackling the issue.

o Collaboration: Collaboration in CP3 and CP4 have created efficient and timely delivery. The railway industry needs to collectively adopt a more collaborative culture throughout the supply chain; work is ongoing in this area and must be followed through if we want to ensure a smarter approach to cost reduction.

In terms of incentivising the rail supply chain to invest and innovate, we would recommend Government consider adopting an intelligent procurement approach that specifies outputs, rather than inputs, and award tenders on lowest whole life cost rather than lowest first cost. It would also be beneficial if the outputs were specified by those closest to the customer - the move towards devolution we hope will see suppliers encouraged to engage with the customer to better understand and deliver their needs.

As highlighted earlier, there are significant concerns with fixed capital investment in infrastructure. However, where there is a separable and manageable asset with an identified revenue stream, there is already significant private sector investment. Given Government support to remove some of the existing barriers, we feel there would be a renewed appetite amongst the rail industry and its financial backers to bring significant private investment to rail infrastructure projects. This would enable projects to be delivered sooner and allow Government to deliver limited resources elsewhere. To this end, we would propose that Government works closely with the rail industry to identify early opportunities for private sector infrastructure investment.

As has been well publicised, the rail supply chain is facing a very real issue of a shortage of skilled workers within the sector. Due to a combination of an ageing workforce, a change in skill requirement, and a substantial pipeline it has now become both a short, medium and long-term problem. Carillion welcomes the publication of the Transport Infrastructure Skills Strategy by the DfT, and in particular, the targets around creating a more diverse workforce. However, if we are to meet the challenge of retaining existing highly skilled staff whist at the same time

bringing new recruits, then continuity of project flow is essential. The pausing/unpausing of large schemes discourages contractors from recruiting and training new workers, and must be avoided if we are meet the challenge.

Highways

Much like Rail, the Highways sector has established levels of funding through the Road Investment Strategy and ‘road periods’, which provides approved funding for a 5 year period to March 2020. Carillion broadly supports the measures set out in the Road Investment Strategy and although many of the objectives within the Strategy have been achieved, we feel that there are a number of areas where there is sufficient scope to improve delivery. These improvements we believe will add increased efficiency, value and innovation in the sector and contribute to the wider economic growth and productivity of the country.

Perhaps the most pressing issue within the Highways sector is the workload pipeline, which is similar to the rail industry in that it is often inconsistent and unpredictable. Once a supplier is appointed to the Collaborative Delivery Framework (CDF), there is no guarantee that they will be awarded a contract. This means that the workload pipeline is inconsistent and unpredictable in coming to market and causes a great deal of uncertainty within the supply chain. This in turn means they are reluctant/unable to invest in people, plant, processes and innovation which in turn stifles productivity within the sector.

In an effort to overcome this uncertainty, we would urge Highways England to provide the supply chain with an early commitment for contract, and where feasible, a set number of projects to those suppliers within the Framework. This would give the certainty required for investment, and provide a clear sight of workflow, and allow planning for the short to medium term. Within this, we would also encourage much earlier contractor involvement on schemes to allow both the client and contractor to understand what success looks like from both perspectives, and aligning of objectives and also enable the contractor to contribute where it aids this process.

To this end we, would suggest that a more pragmatic approach is taken in awarding contracts within the CDF, whereby contracts are awarded directly and shared among suppliers. This would also negate the time and cost burdens of secondary competition and allow further collaboration between the supply chain and client. Genuine collaboration between all parties will undoubtedly lead to better outcomes, for client, contractor and most importantly the end user. In an effort to address many of the above issues, we would recommend the introduction of a roadmap that sets out the route to modernisation of the approach to procurement, with DfT, Highways England and the supply chain all involved in its development.

If the sector is to meet the challenges of delivering the current pipeline, and achieve the targets set within ‘road period 1’, then we must build on the early successes the sector has achieved and look at new ways in which the industry can collaborate, innovate and deliver the best solutions for the end user, and thus contribute to the wider economy.

9. Driving growth across the whole country - We will create a framework to build on the particular strengths of different places and address factors that hold places back – whether it is investing in key infrastructure projects to encourage growth, increasing skill levels, or backing local innovation strengths. Do you agree the principles set out above are the right ones? If not what is missing?

Carillion recognises that the spatial and geographical approach is a key strength of the Industrial Strategy; there remains large areas of economic inequality across the UK, and there are very real challenges in improving productivity levels and growth potential across the whole of the country. It is arguable that the UK’s economy is far too reliant on London; Birmingham and Manchester as second tier cities make up only 3% each of GDP against an OECD average of second tier cities of 9% and 5%. We believe that if the UK is to continue to compete on a global level, an industrial strategy which recognises and addresses this fundamental economic imbalance will enable the UK to grow at a much more rapid level than it has hitherto. A more focused, geographical approach which builds on the particular strengths of different places, whether it be due to skills base, geography, population characteristics or otherwise will help

alleviate pockets of inequality, ensuring that we have an economy which works for all, and which will ultimately lead to a fairer and more inclusive society.

We are encouraged by initiatives such as the Northern Powerhouse of which we are keen supporters, and believe that such initiatives in line with a coherent and targeted industrial strategy will be crucial in allowing the great Northern cities such as Manchester, Leeds and Newcastle to unlock potential and contribute more, and on a sustained basis to the overall UK economy. Quality infrastructure, innovation and a highly skilled, flexible workforce are key cornerstones to any successful economy, as is the need to have the right levers and institutions in place to encourage, support and drive local economic growth, and for this reason we agree that the principles laid out above are the right ones.

What are the most important new approaches to raising skill levels in areas where they are lower? Where could investments in connectivity or innovation do most to help encourage growth across the country?

The UK continues to be a country of educational inequality; the only OECD country where 16 to 24 year olds are no more literate or numerate than 55 to 64 year olds. We live in a country in which, within two decades, 90 per cent of jobs will require some digital proficiency, and yet 23 per cent of adults lack basic digital skills. These are very real challenges which must be met, and must be met with an increasing degree of purpose and urgency.

At Carillion we are involved in a number of initiatives to engage with young people and drive an increase in skills levels, particularly in areas where a dearth of skills exists. As referenced earlier, we are one of the lead corporate sponsors on the Your Life scheme, which promotes and encourages the take up of STEM subjects, particularly amongst girls and young women. We believe that business involvement is crucial in driving forward the skills agenda, and consider that there needs to be closer co-operation between education providers and businesses. We no longer live in a world where educational success is measured by the number of A-Levels attained, but rather the broad range of skills which an individual possesses. We believe there are pockets of the country where youngsters lack the desire to attain and achieve, largely due to societal factors. Achievement must be seen as something to aspire to, and businesses need to be instrumental in driving a culture shift and enthusing the next generation.

We also believe that there needs to be a robust and co-ordinated approach to careers advice in schools. Too often, our children are making choices about their future (in terms of GCSE, A-Level choices etc) without adequate guidance. We recommend that there be more involvement between schools and businesses to help youngster make informed choices; business are best placed to understand not only where current skills shortages exist, but also the type of skills which are likely to be in demand at the time when the current cohort of school-age youngster enter the world of employment.

There needs to be a continued focus on apprenticeships so that our young learners continue to gain the practical skills and experience needed in future employment. As the largest private sector provider of apprenticeships, we welcome the Government’s continued recognition of the value of apprenticeships and its commitment to achieving a target of 3 million apprenticeship starts by 2020. We hope however that there is also a real commitment that the quality of apprenticeships will not suffer as efforts are made to meet this target.

The devolution agenda may also prove to be pivotal in raising skills levels. A number of devolution deals have already been signed which will convey significant powers over skills funding to Metro Mayors from May 2017.

10. Creating the right institutions to bring together sectors and places - We will consider the best structures to support people, industries and places. In some places and sectors there may be missing institutions which we could create, or existing ones we could strengthen, be they local civic or educational institutions, trade associations or financial networks.

Recognising the need for local initiative and leadership, how should we best work with local areas to create and strengthen key local institutions?

The UK is a rich and diverse country, with each region displaying its own unique characteristics. A successful industrial strategy must therefore recognise the importance of local initiative and leadership and understand that local people most understand the needs of their region. The devolution of powers to a local level through devolution deals is to be welcomed, although under deals signed to date we note that some areas, particularly Greater Manchester for example, will have significantly more autonomy and control over key areas of spending than others. Our major towns and cities are key economic drivers, and we would welcome the exploration of further devolution deals with some of our larger cities, so that they can truly be in control of their own economic destiny, with the proviso that those responsible for key decisions over policy and spending maintain a degree of accountability, and are subject to an appropriate level of scrutiny to safeguard against malpractice.

We believe that it is important that central government continues to engage with local people, businesses, business associations, educational institutions and other key stakeholders to understand the particular needs of the area; the channel by which the Government seeks to do this may include area specific public consultations or discussion forums.

What are the most important institutions which we need to upgrade or support to back growth in particular areas?

It is to be welcomed that Local Enterprise Partnerships have been established in all parts of England. These partnerships have played a pivotal role in determining local economic priorities and undertaking activities to drive economic activity and job growth. The sharing of knowledge is vital to the success of LEPs, and the partnership between local authorities and businesses who can share expertise has proved to be a significant asset. We believe however that one of the key challenges facing LEPs is the need to maintain the enthusiasm of, and engagement with the private sector. These are of course challenging times for businesses of all sizes, as we grapple with the impact of Brexit and the opportunities and challenges it may bring. There is a risk that businesses now have less time for core activities, meaning that LEPs will suffer. We need to establish mechanisms whereby there will be continued engagement from businesses and we also need to ensure that a range of business voices are heard instead of LEPs being dominated by a handful of companies.

Are there institutions missing in certain areas which we could help create or strengthen to

support local growth?

We believe that in terms of institutions to be strengthened or indeed created to support local growth, there is merit in exploring the creation of regional development banks. The objective of these banks would be multi-fold, and would include; harnessing local funding to local priorities and ensuring that regions are able to access the institutional capacity and financial expertise needed to achieve their aims. This, we believe, would drive growth in jobs through the implementation of infrastructure programmes. We are already seeing oversees investment looking to fund infrastructure projects in which to invest, particularly China.