Subcontractor relations with their workforce

8.3.1 From the 1st July 1946 entry to the industry as a craftsman required a mandatory apprenticeship. A skilled labour shortage was anticipated because of the restricted entry and because, as the Annual Report optimistically suggested, future demands on the industry would be expanding for many years (AHVDEE, 1947, p. 5 8). The shortage of trained and skilled people, both in the office and on site remained a major problem for the heating and ventilating contractor throughout the 1950s.

8.3.2 The Council Report for 1956 noted that the permanent employment of operatives from a fixed base, entailing moving from site to site, was still far more prevalent in heating and ventilating contracting than in the rest of the building industry (AHVDEE, 1956 p. 151). However, as a result one portent of changing conditions of employment emerges in the comments of one contractor in 1956, who found it was distressing to see so many of those whom he had carefully trained lured away by other firms. It did not help in the efficient execution of work when staff and work-people changed so often (AHVDEE, 1956 p.64). It would appear that there was an active labour market for skilled and qualified heating and ventilating engineers. At the same time loyalty to the firm was beginning to break down and family owned businesses were no longer able to ensure that their staffs would remain if they received better offers from competing firms.

8.3.3 Industrial relations during the period of the long boom underwent a transition from concern and co-operation to detachment and confrontation. For example, the responsibility, long accepted by employers to be in their own interests, for the training of labour began to alter. With an increasingly active heating and ventilating labour market, there existed serious disincentives for employers to train new entrants. At the end of the 1950s one contractor wrote that, the apparent reluctance of employers to safeguard their own future labour requirements by training apprentices was difficult to understand (AHVDEE, 1960 p.48). Lower levels of training imply poorer quality of work at a later date. This may have been a pattern across construction as a whole. Lansley (1987 p. 149) notes that during the 1960s there was a fall in the quality of workmanship in construction which he attributes to the use of poorly understood new materials and design rigidities which permitted little scope for modification on site. However, if training was in decline at a time when construction was approaching full capacity, then it was inevitable that complaints about quality would follow. 8.3.4 While industrial relations in the heating and ventilating sector had been relatively trouble free, in 1961 gmd 1962 there had been an increasing number of difficulties in construction as a whole, particularly on large sites. At the time the causes of labour

difficulties had been attributed by the Ministers of Labour and Public Building and Works, to the multiplicity of contractors on these large sites. The Minister of Labour favoured giving as much authority as possible for labour relations to the main contractor. In fact no analysis of the root causes of industrial unrest in the construction industry had been undertaken by government, and, according to the Annual Report, statements to the effect that labour

difficulties had been due to the number of contractors and sub-contractors on many sites were apparently based on opinion and not upon fact (AHVDEE, 1963, pp. 9-10)

8.3.5 The credit squeeze of the early 1960s may have lowered confidence and expectations and may have partly led to changing attitudes towards the direct employment of operatives. Contractors had tended to increase their permanent staff even if only marginally, when workloads increased, which then placed an added burden of overheads, according to one heating and ventilating contractor writing in the 1963 edition of the AHVDEE Year Book. The cost of these greater overheads could only be met with an increase in turnover. In order to obtain the necessary increase in turnover, so the argument went, profit margins needed to be cut. The conclusion drawn by the contractor was that firms needed to halt, if only

temporarily, the steady rise in overheads (AHVDEE, 1963, p.37). Again in the Year Book of the following year overheads of all kinds were seen as threatening improved profitability in

spite of increased turnover (HVCA, 1964, p.7). Thus many costs associated with labour were beginning to be seen as avoidable overheads.

8.3.6 While firms began to move from direct employment towards casualisation and wages reflecting local labour market conditions, the AHVDEE in its role as an employers’

association was concerned to present an ordered agreement between employers and the unions. In a labour market completely governed by local conditions, the industrial relations role of the AHVDEE would have been much diminished. Therefore it is not surprising that according to the AHVDEE in the Aimual Report for the year ending 31st March, 1963, it reported that, “the most important event of the year for the industry was the conclusion o f the three year wages and hours settlement.” (AHVDEE 1963, p.3). This agreement was referred to the National Incomes Commission, where it was later criticised. The Commission saw no justification for making a pay award greater than the 3-3.5% per annum counter-inflationary norm set in the Government White Paper (Cmnd 2639). The AHVDEE successfully

defended the agreement on the grounds that it was necessary to attract men (sic) of the right calibre to carry out skilled work unsupervised (HVCA 1964, p. 10). The agreement set a precedent for three-year wage agreements, which was to be repeated three years later in 1966.

8.3.7 Nevertheless, a new, but not unprecedented, industrial relations strategy was beginning to emerge. A split between practice by firms and HVCA policy developed. As pointed out above, directly employed operatives and staff were increasingly seen as overheads which could instead be treated as a cost of sales if they were employed on a temporary basis. Similar practices were taking place across the whole construction industry.

This is not to imply that directly employed labour had always necessarily enjoyed continuity of employment. According to Somers (1995) during the 1950s and 1960s workers, including those with skills, were regularly released at the end of every job.

8.3.8 The trend towards increased casualisation may also have been reinforced by the introduction of a number of measures by government, as firms took evasive action in order to minimise the adverse impact of the legislation on their activities and profitability. The

Contracts of Employment Act (1964), for example, affected employees with a minimum of 26 weeks continuous employment, working a minimum of 21 hours per week. The Act conferred a minimum period of notice and rights to minimum pay during that notice (HVCA 1964, p. 16). In a further effort to improve statutory terms of employment new legislation was introduced in December 1965. The Redundancy Payments Act gave employees, who were made redundant, entitlement to compensation, if they had had at least two years of continuous employment.

8.3.9 Selective employment tax (SET) was announced in the 1966 budget, with a view to encouraging employment in export orientated industries such as manufacturing, by increasing the cost of employment in service industries and construction. The HVCA expressed serious concern that SET of 25s per week for men, 12s 6d for women and boys under 18, and 8s for girls under 18 was greater than the net profit margins, which the industry earned, according to the costing survey carried out by Tansley, Witt and Company for the Association. In the following year the Government responded by permitting price adjustments to certain public sector contracts in order to recover at least a proportion of SET levied on building contractors

(HVCA 1967 p.31). Nevertheless, the HVCA saw both the Redundancy Payments Act and SET as adding to commercial pressures on heating and ventilating contractors. Coming at a time when contractors were expressing an interest in casualising labour in order to remain competitive and flexible in response to changing market conditions, both these statutes served to accelerate the move towards increased labour only subcontracting.

8.3.10 Because of the government’s prices and incomes policy in 1966, the Ministry of Labour intervened in the second three-year wages agreement which had been negotiated between the employers and the unions in the heating and ventilating industry. While the first phase of this three-year agreement had been implemented as planned in 1966, the start of the second phase was deferred from February to July 1967 (HVCA 1967, p. 10). The third phase later proceeded as planned. In fact, despite the prices and incomes policy, this three year wages agreement had run so smoothly that at the end of the three year period another three year wages agreement was signed in 1969 (HVCA 1969, p. 14). The 1969 agreement

introduced three new grades into the wages structure (assistant, fitter and welder) perhaps in response to the restraints of the incomes policy. Nevertheless, as the economic climate grew more uncertain with rising inflation, balance of payments difficulties, government

intervention and doubts concerning future demand, the consensus and co-operation between employers and unions, which had been possible for the previous two decades was beginning to show signs of wearing thin as employers sought alternative conditions of employment.

8.3.11 Following the publication of the Phelps-Brown Report in 1968 there was an attempt to control labour only subcontracting by legislation (HVCA 1970 p. 13). In the event, the legislation was not forthcoming because of a general election and the defeat of the

government. Nevertheless, the introduction of new rigidities in the general labour market particularly affected the flexibility of firms in the project orientated construction sector, including heating and ventilating contractors, with the counter-productive effect of increasing casualisation rather than diminishing it. As these measures and responses predated the

recession of the early 1970s by several years, it can be argued that casualisation of the labour force in construction and heating and ventilating was further encouraged by the increased volatility of the market after 1973 but was not caused by it.

8.3.12 Indeed, these attempts to introduce greater rigidity in the formal arrangements of the heating and ventilating industry labour market may have been part of a much larger global trend, the result of a prolonged period of economic growth in most of the major economies of the world. It may be argued that pressure on profits may have restricted the ability and

willingness of firms to invest and this in turn may have led to the downturn in the world economy. However, Brenner (1998 p. iii) argues against this view. He argues that this was not the cause of the ensuing global recession starting in the early 1970s, which was more to do with competition between different economies and firms and problems of international adjustment. At any rate it can be seen that these global trends were reflected even within the minute workings of the heating and ventilating industry in the UK. As the labour market in construction became more casualised, greater counter-effort was made to institutionalise the market with agreements between unions and trade associations and with government

8.3.13 Following the Winter of Discontent from 1978 to 1979, the new government was determined to prevent a repetition. It introduced the 1980 Employment Act, which required unions to carry out secret postal ballots before taking strike action, and picketing was restricted to those employed in the work place itself. Individuals were given the right not to join a union, thus abolishing the closed shop. Finally, and most relevant for firms in the

construction industry, employee protection against unfair dismissal within the first 2 years of employment was abolished in firms with fewer than 20 employees (HVCA 1981 p. 14). This legislation weakened labour representation and reduced security of employment for a large percentage of the construction industry work force working in small firms on projects for short periods.

8.3.14 In 1981 unemployment rose to over 3 million, with predictable consequences in the labour market in terms of wage settlements, which declined in real terms, i.e. settling below the rate of inflation. The government’s preferred target figure of 5 to 6 per cent for wage settlements was nevertheless not achieved, although the drop in wage pressure helped to reduce the rate of inflation from 14 per cent to 10 per cent. However, international lack of confidence in the pound meant that sterling declined against the dollar from $2.00 to $1.75, although interest rates had been raised from 12 to 15 per cent (HVCA 1982 p. 8). The economic crisis affecting the country was further exacerbated by the Falklands War placing further strain on financial resources.

8.3 .15 Indeed, the HVCA carried out a survey of redundancies and according to that survey, 17 per cent of operatives had been laid off in 1981 (HVCA 1984 p. 14). However, turnover of labour is the norm in construction industries especially in any downturn in demand. In itself this may have been a bad year in terms of redundancies and output but not as bad as implied by the survey of operatives. Output declined by only approximately 9.5 per cent in 1979 and 2.5 per cent in 1981. The HVCA also went on to report that only 2 per cent of staff (APTCs) had been made redundant since the end of 1980, which implied relative stability in output and orders (HVCA 1982 p. 12). Moreover, it is not stated how many operatives were subsequently taken on as labour only subcontractors, (which was an accelerating trend in construction), or who subsequently went on to work in other firms.

8.3.16 Taking employment trends in the construction industry between 1985 and 1995, Hillebrandt et al. (1995 p. 14) state that in 1985 the workforce was approximately 1.5m, rising at the end of the 1980s to 1.8m, since when the figures working in construction fell to 1.4m by 1993. It was the persistence of high levels of unemployment, which lay behind the deterioration in conditions of employment and remuneration during the 1980s only to be reinforced by the market conditions of the recession in the early 1990s.

8.3.17 This trend towards casualisation of construction labour was a reflection of employment trends in the wider economy. Coates and Hillard (1995, p7) show that casualisation and part-time work increased between 1971 and 1993 at the expense of full­ time employment. In 1971, 18.3m out of a total 21.6m people (84.7 per cent) were in full time work. By 1993 these figures were reduced to 15.0m out of 20.8m people (72.1 per cent).

8.4 Changes in the organisational population of the heating and ventilating industry 8.4.1 The rise in labour only subcontracting and casualisation of the workforce was accompanied by an increase in the number of firms employing only 1 to 3 persons as was illustrated in Figure 7.3. This showed a threefold increase in the number of heating and ventilating firms from 2,900 in 1977 to 9,600 in 1990 due almost entirely to the increase in the number of firms in the smallest categories. This pattern of company formation was reflected in construction as a whole, which also showed a threefold increase from 78,000 firms in 1977 to 210,000 in 1990. In spite of the expansion in the number of firms after 1977, the increase in the number of insolvencies per year in construction did not begin until 1981, reaching a peak in 1990, as shown in Figure 8.1.

Table 8.1 Personal bankruptcies and company liquidations in construction 1968-1997

Self employed bankruptcies

Construction company liquidations

Year No. Year No. Year No. Year No.

1968 849 1983 1180 1968 NA 1983 1776 1969 996 1984 901 1969 650 1984 1831 1970 1057 1985 788 1970 821 1985 1975 1971 1184 1986 801 1971 651 1986 1914 1972 1091 1987 1123 1972 518 1987 1490 1973 741 1988 1590 1973 500 1988 1471 1974 1031 1989 1652 1974 776 1989 1638 1975 1543 1990 2347 1975 956 1990 2445 1976 1564 1991 3812 1976 977 1991 3373 1977 986 1992 4692 1977 1004 1992 3830 1978 894 1993 4361 1978 929 1993 3185 1979 832 1994 3362 1979 789 1994 2401 1980 783 1995 2783 1980 949 1995 1844 1981 922 1996 2713 1981 990 1996 1610 1982 968 1997 2182 1982 1422 1997 1419

8.4.2 Gray and Flanagan (1989 p. 19) show the number of self employed bankruptcies in construction as a whole in England and Wales for the period from 1977 to 1987. Table 8.1 and Figure 8.1 show an extended version of the same series from 1968 to 1997. It appears from Figures 8.1 that the annual number of bankruptcies of self-employed rose steadily from

1986 to 1992 whereas company liquidations declined between 1986 and 1988 before rising to a peak in 1992. In the 1990s both liquidations and bankruptcies show a downward trend. The peak years for construction company insolvencies were 1970, 1977, 1985 and 1992. 8.4.3 In order to relate annual bankruptcies and insolvencies to the level o f output o f the construction industry all three series were indexed in Figure 8.1. In general there appears to be a time lag between the peak years of construction output and the peak years of

bankruptcies and insolvencies, the time lag being in the region of two to four years. This could be explained in terms o f Sherman’s nutcracker theory (see Chapter 10). The peak years of construction output are, according to Sherman (1991) crisis years in which profits are squeezed. Following the crisis firms and self employed individuals manage to survive a number o f months or years before finally being declared insolvent or bankrupt respectively. 8.4.4 Table 8.1 records the number of firms leaving the construction industry due to

bankruptcy or liquidation. It does not give the inward flow of new entrants. Although there is no official annual record o f new firms entering the heating and ventilating industry, a record of firms entering and leaving the HVCA is given in Figure 8.2. In the ‘crisis’ years (by number o f liquidations) of 1970 and 1977 the number of new members exceeded the number of losses and output in the industry actually increased. In 1985 new members and losses were almost balanced while heating and ventilating output increased. In 1992 the recession in heating and ventilating output caused losses in membership which exceeded the number of new members joining the HVCA.

Figure 8.1 Indices of construction output, bankruptcies and insolvencies 1969-1997,1995 = 100 220 200 180 160 o 140 II ui 120 g X 100 0) E 80 40 CD CD i CD CD CD CD CD CD CD CD

■Bankruptcies ■Insolvencies -All construction output

8.4.5 Figure 8.2 shows that annual new members outnumbered membership losses until 1982, with the result that until 1982 the HVCA was able to expand every year. Since 1983 the position became less predictable, with the largest downturn in membership occurring between 1991 and 1994. Membership reached a peak of 1,211 in 1981 and then declined to

1,155 in 1987 (a drop of 5 per cent) before recovering. Again in the recession of the early 1990s, membership peaked at 1,285 members in 1991 and declined to 1,087 in 1994 (a drop of 15 per cent).

8.4.6 Several new firms joining the HVCA in 1963 were supply and fix contracting subsidiaries owned by manufacturers (HVCA, 1965 p.4). This example of vertically

integrated firms joining the heating and ventilating market formed part of the transition from an industry dominated by family run firms with roots in heating and ventilating to an industry whose largest firms were mostly subsidiaries, a transition completed by the end of the 1990s. 8.4.7 In the early 1970s, the combination of relatively low prices and rising costs made it almost inevitable that there would be a cluster of business failures in the heating and ventilating industry. In the event, the collapse of many firms was delayed until 1973 and