Kell & Rigby, the construction firm responsible for building many of Apple's Australian stores, went into voluntary receivership last week. That's bad news for its employees and for Apple's retail expansion ambitions, and also serves as a cautionary reminder of how the pursuit of perfection can mess up your financial plans.
Kell & Rigby appointed receivers last Friday, and is attempting to negotiate a buyout by a listed company ahead of a creditor's meeting later in February. The buyout would be a good outcome for its estimated 500 employees currently engaged on projects for the company, since normal activity would presumably resume. While the voluntary administration process is ongoing, all work on its sites has ceased.
One project that is likely to impact is Apple's planned Brisbane CBD store, which is currently under construction. While Apple (as usual) hasn't officially confirmed the location, it's already being assumed that it is one of the projects that will be affected by the Kell & Rigby shutdown.
The issues affecting Kell & Rigby are clearly complex, and Apple is just one of its clients. However, the building firm has been happy to boast about its association with Apple in the past, and those remarks do provide some cautionary lessons for everyone (not just multi-billion dollar tech companies and their suppliers).
One Apple value the firm was clearly happy to embrace was secrecy. Discussing the Apple store in Bondi, CEO James Kell noted that keeping the store's facade concealed was an important requirement of the contract:
Our commitment was evident by our refusal to allow anything but the finished store to be revealed, and that is something that makes us the perfect organisation to work with Apple on this project.
In itself, secrecy probably isn't a problem (though it clearly makes life more difficult if you're building a store in the middle of a shopping centre). An aspect that potentially poses bigger challenges is the Apple obsession with perfection, which Kell & Rigby was also happy to embrace. Here's how it boasted about the construction of the first Australian Apple store in Sydney:
Apple Retail Store, constructed by Kell & Rigby not only showcases the latest in the technological world but also a level of detail that sits in a class of its own. The façade comprises a series of the longest glass panels ever erected in the world – 14m from ground to the glazed roof above with internal glazed fins and beams for support. The illuminated sign hung from the central glass beam is the largest erected in any Apple store in the world. Finishes combined a mixture of stainless steel troughs and stretch fabric to the ceilings, stainless steel wall cladding and bulkhheads, frameless glass balustrades to the 2 mezzanine levels and floors of imported sandstone tiles. Access to the mezzanine levels is by the glass staircase or internal lift. All of these elements have been installed to millimeter tolerances. Constructed over a period of 9 months under a negotiated lump sum arrangement the Kell & Rigby team helped to develop design solutions and product alternatives to satisfy the design intent that drives the Apple brand.
There's nothing wrong with careful attention to detail -- indeed, in a building full of glass, it seems pretty important. What strikes me is the fact that the deal was a "negotiated lump sum arrangement". In other words, Kell & Rigby calculated how much the whole project would cost and got paid that money by Apple up front. Any overtime or unexpected delays would be the builder's problem, not Apple's.
Obviously the construction firm would factor all those elements carefully into its original quote, allowing itself a contingency fund to cover the inevitable unexpected issues. What might make that challenging is the utter obsession with perfection that is a hallmark of the Apple brand. If Apple executives constantly checked everything and demanded changes, making the work profitable could become difficult. One thing that has become clear in all the recent coverage of Apple's use of Chinese manufacturing firm Foxconn is that Apple is hyper-involved in what its suppliers do. There seems little doubt a construction firm would be subject to similar scrutiny.
Given that Kell & Rigby worked with Apple multiple times, it would be unreasonable to assume that this was a major issue. If the first job hadn't been profitable, presumably the company would have told Apple to look elsewhere. But the fact that it has gone into administration does suggest the business processes involved weren't perfect.
The lessons for the rest of us? If you are going to get paid a fixed sum for a piece of work, be very confident that you can get it done for that sum and in the time required. And if you're quoting for work in this way, make sure all the specifications are very clear, so you don't have the client interfering and changing things after the fact.
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