blog by Barry Ashmore, Streetwisesubbie.com
At the end of 2017 I wrote a piece which said: “If one of the major contractors went bust tomorrow, everyone would notice.” And, right on cue, Carillion did go bust and everyone noticed.
As predicted, thousands of businesses have suffered. The banks have taken a massive hit. Even the general public sat up and took notice. And rightly so, because Carillion’s demise not only drew criticism for their directors, “recklessness, hubris and greed”, it has also cost you, me and every other taxpayer our share of the £148million paid to Carillion’s liquidators! Not to mention the increased cost of a whole raft of taxpayer-funded projects.
What does all this say about our fragile economy, or a government that continues to let work go to the big players despite their precarious financial position?
The fact that none of those other big players has gone to the wall yet is something of a conundrum, given their painfully thin margins, the rash of profit warnings, and their creaking balance sheets. You may have seen that main construction firms issued six profit warnings in the first six months of this year, compared to seven in the whole of 2017.
Yet month-after-month, year-after-year, the worthies trot out the same mantra: that everything is fine, “construction is a world class business, the pride of Britain”.
But now some of the worthies are bickering. “The leaders are serious about changing the way they do business,” cries one; “not so, that’s the ultimate insult,” cries another. Meanwhile, the most learned of worthies repeats his stale old calls to “ban retentions”.
There’s no point in expecting the elected worthies to step in and actually do something useful. They are far too busy bickering over wreaths and burkas and making an almighty mess of things.
The facts paint a very bleak picture
Last year, a major survey supported by StreeetwiseSubbie.com of 506 employers, main contractors, specialist contractors, and some suppliers, paints a very bleak picture.
Disputes continued to loom large, with 55.9% of those surveyed saying disputes ‘occur frequently’, and 37.75% saying that they ‘occur occasionally’. Which means that almost the entire industry is affected by disputes.
It’s a fact that contractors (which are the main conduit for the transit of money through the supply chain) work on wafer-thin margins. It’s also a fact that construction is a risky business and it doesn’t take much to go wrong before those wafer-thin margins become huge financial chasms. If you think differently, just read the back-story on Carillion.
But it’s not the large contractors that take the hit! Because, the most common way for unscrupulous contractors to claw money back is to take it from their specialist contractors. And I do mean take it. Rest assured, the specialist contractors foot the bill, through no fault of their own, because they are vulnerable to such ruthless treatment.
Construction is dying one firm at a time
It’s no surprise that a massive 82% of respondents said that payment is the main cause of disputes.
Even on public sector contracts, where payment should be made within 30 days, it simply isn’t happening. It won’t change without regulation, because 47% of those surveyed said that they were not in a position to challenge payment terms that are longer than 30 days. So much for the idea that contractors and specialist contractors sitting around the same table for the last three years has resolved this problem!
Many respondents expressed concerns about “a ‘new breed’ of commercially aggressive quantity surveyors, who are motivated to ‘maximise profit’ and seemingly on a bonus to claw back cash”.
As a consultant who has spent the last 28 years resolving disputes for Subbies, I can tell you that these aggressive QS’s have no moral compass. It’s just a game; they are paid to do a job, and that job is to screw the subbies!
It may suit the contractors if they don’t pay, but it has a major impact on the specialist contractor’s business, leaving them with little capital to run their business, let alone invest in training or the future of the industry.
And so, specialist contractors are forced out of business one by one, and quietly, but surely, the industry dies.
It’s a fact that construction is gradually destroying the very companies that are actually capable of getting the job done! The total number of construction insolvencies in England and Wales rose 12.4% year on year in the second quarter of 2018, according to official figures.
There were 696 insolvencies in construction in the second quarter of this year, compared to 619 in the same period a year before, provisional Insolvency Service statistics indicated.
That made it the highest second-quarter tally of construction insolvencies since Q2 2014 (when there were 716 construction insolvencies), with the bulk of the increase coming from specialist firms.
The total of construction insolvencies for the first half of 2018 now stands at 1,476, up from 1,352 in the same period a year before – an increase of 9.1%.
Construction is gradually being destroyed because certain contractors don’t care about another subbie going to the wall. They relish it, because they get to keep their cash! No one dares to make the link between this ruthless treatment and people’s lives – and the overall state of the industry – and the vicious circle of destruction continues.
Stop before it’s too late
Payment abuse is destroying the UK construction industry. Over 95% of respondents think that neither the Trade Associations nor the government are doing enough to solve the problem. So, the time has come for specialist contractors to take a stand. To:
- drop their ‘victim’ mentality
- refuse to work for poor or negative margins
- believe in themselves as the backbone of the industry
- say ‘No’ to the contractor’s onerous terms
- stand together as never before at grass roots level
- demand a better fairer and sustainable future
- read ‘The Streetwise Subbie’
Let’s stop bickering and work together to find a way to solve the contractual, payment and myriad other problems that are destroying the industry, one firm at a time. I want to hear to hear from everyone (worthy or otherwise) who wants to get behind a campaign for effective action to fix the problem once and for all.
After all, to quote from Rod Sweet’s 2018 Canary in the Coal Mine article about construction post-Carillion: “the industry and its biggest client [UK government] could be compared to a group of canoeists, in the water, clinging to their capsized craft. Carillion may have gone under, but the rest seem safe, for now, as the river carries them toward the waterfall.”