Businesses making merger plans always say that the move will be good for their clients. Do clients agree? Jackie Whitelaw asked the Highways Agency’s Graham Dalton and London Underground’s Miles Ashley for their views.

Mergers between major companies are flavour of the month, witness the talks that were underway, now cancelled, between Balfour Beatty and Carillion and the move by AECOM to buy URS and Arcadis's offer (since trumped by Nippon Koei) for Hyder Consulting. And more moves to create super suppliers are expected as the year goes on. When businesses reel off the benefits of combining, they all say it will be good for clients. But what do clients think?

Well, the good news for those on the merger trail is that two of the country’s major clients can see important benefits in having more giant suppliers to call on to help deliver their infrastructure.

“Economies of scale should mean more engineering in the pound for us and of course that has the potential to drive value,” says London Underground’s Miles Ashley.  “We’d have suppliers who have the ability to tackle large contracts without the client needing to package it up into bite size chunks and manage all the interfaces,” says the Highways Agency’s Graham Dalton. “In the market as it is you see joint ventures forming for £100M to £150M of work; it would be useful not to have to worry about capacity on the supply side.”

Their views are significant. Highways Agency chief executive Graham Dalton is probably leader of the pack in terms of clients that matter most right now as he gears up to plan and procure £16bn of work on the English strategic road network over the next five years.  

“When a supplier gets to a huge scale it is far more likely to want to shape the service it offers round what it thinks will generate margin or turnover, not on what the client wants.” 

As programme director for Crossrail and stations in London Underground’s capital programmes directorate, Miles Ashley is overseeing the cost effective spending of yet more billions on infrastructure to move people around the country’s capital by rail.

At a time when good human resources are in high demand, working with one supplier which a client knows has the ability to respond to programme changes or new requirements by bringing in the necessary people in terms of numbers or knowledge would be a big advantage. “That’s what scale ought to get us,” Dalton says.

Ashley agrees. “If consolidation results in stable businesses, better able to promote great engineering, great people and great supply chain capability, that’s good for us,” he says. 

But Dalton points out that just because a supplier organisation is enormous does not mean it will automatically have the skills in it that the clients require.

“When a supplier gets to a huge scale it is far more likely to want to shape the service it offers round what it thinks will generate margin or turnover, not on what the client wants,” Dalton says. “And because that sort of business will have a large range of what seem relatively small customers in terms of percentage of turnover, it will be much less responsive and potentially less innovative.

“A smaller firm will put some very high quality intellect into being innovative and demonstrating that it is aligned with a client’s needs whereas bigger businesses can be slow to change and over time there is the potential for a worse deal for the client.”

According to Ashley: “Ultimately successful outcomes are all about companies providing both great people and great engineering on the front line. Big or small suppliers, it’s clients access to talent that will increasingly count,” he says.

“And if consolidation means British contracting competing more effectively on a world stage and bringing that experience, craftsmanship and capability back to our front door, that can only be good for us.”

Dalton says he he would be concerned about the loss of niche specialisms in very large supply organisations. “Those businesses are probably less likely to have real niche specialisms or if they have got them, they won’t be developed  as a core offering. You get a far more amorphous commercial, commodity type service from bigger companies, particularly when the business decisions are taken in a corporate office thousands of miles away from the client’s market.

“And there is a nervousness around liability from very big firms. A small business will balance risk and reward for doing something different, like designing something tricky or offering a special form of contracting. A big firm will say this is a tiny percentage of turnover providing tiny profit. Why bother.”

 “If consolidation results in stable businesses, better able to promote great engineering, great people and great supply chain capability, that’s good for us,”

The UK’s major clients may also find themselves not quite as important to a huge business as they once were.  Will a giant, international organisation send its chief executive or chairman into meetings with clients to demonstrate commitment as more average sized contractors and consultants do now?

“As clients we know it is the companies decision as to what they do. But we also have to work out what change means for us.  In the short term, for instance in terms of ongoing bids and frameworks, we have to judge whether mergers are going to happen and if so, how we can keep our supply chains broad enough,” Dalton says.

“The declining number of players in the sector is a concern. In just eight years for instance,  five competitors for work – Birse, Balfour Beatty, Carillion, Sir Alfred McAlpine and Mowlem – have become two and that could shrink to one. There are new entrants but they aren't appearing at that rate.

“Long term, if this is a trend, we have to think about what very large supply firms can provide and how we can get enough players in the market to ensure competition.”

Clients would have to consider packaging jobs differently and approaching bids differently, he suggests. “As clients we would have to be ever more aware and proactive in ensuring we have a market that can deliver what we need.”