黑洞社区

Whether you鈥檙e the type of person who pays attention to the number of cranes dotting the skyline, or the kind who prefers to rely on number crunching from market forecasters, there are plenty of signs of a growing construction market from which to draw encouragement as the sector gears up for its autumn trading.

But the question of how stable the recovery is still lurks uncomfortably in the background, as heavy losses reported by two of the country鈥檚 biggest contractors this week have underlined.

The losses - 拢28m at ISG, and 拢58m at Laing O鈥橰ourke鈥檚 Europe division - have each been fuelled by these companies鈥� own particular demons. For ISG, it is the continued impact of problem work won in recession. Meanwhile, Laing O鈥橰ourke has blamed its own poor performance in part on inflation and delays from the first round of schemes delivered through its ambitious but as yet unproven 鈥済rand project鈥� - its off-site manufacture facility.

But although each of these company鈥檚 hits can be attributed to its own set of circumstances, a glance through the latest results of the UK鈥檚 top five contractors paints the uncomfortable picture that all but one of them, to a greater or lesser extent, are still at a fragile point in their journey back to health.

The problems at Balfour Beatty, still the UK鈥檚 largest firm despite two years of woeful results, are well documented. Laing O鈥橰ourke has reported a loss in Europe, and Bam鈥檚 UK arm only returned to profit in the first half of this year. French-owned industrial giant Bouygues does not split out its UK construction results but its overall construction division reported a loss in the first quarter of this year, only returning to profit in the second. Meanwhile, Carillion, which stands out for consistent profitability when others have struggled and is the one firm of the top five several years into a growth trajectory, has nonetheless tempered its success recently by reporting its six-month order book to June down 拢2.2bn on a year ago as a result of election hiatus.

Construction is, of course, a cyclical business and if the market recovery continues apace, most of these firms will have worked through their headaches in the next year or so (Balfour, one suspects, has the scale of migraine that will take a while longer to address). But the worry, against the slightly precarious backdrop for many firms in the sector, is what happens if the recovery stalls any time soon.

And with clients starting to look spooked by spiralling and unpredictable cost rises, this is a very real concern. Data revealed exclusively by 黑洞社区 this week, compiled by Barbour ABI, shows that the average monthly value of projects being put on hold has nearly doubled in the past 18 months. In London and the South-east - the areas which have experienced the steepest cost rises - the impact is even greater: a 115% increase in the average monthly value of projects being put on hold since May 2014.

All sectors of the industry will be affected if this trend continues: even those consultants and architects that are well into recovery, as they still need a strong stream of work to keep their teams in place in the face of rising staff costs and increased poaching.

But with much of the problem manifesting itself during two-stage tendering between clients and contractors, where cost rises during negotiation are pushing once dependable projects into the long grass, the biggest brunt will be borne by those least able to withstand it 鈥� the contractors whose recovery is still in its infancy.

For contractors, it would be easy to lay the blame for this situation on others: the QSs who seemingly cannot forecast price rises with enough reliability, giving clients an unwelcome surprise when budgets come back, and then clients themselves for refusing to budge on costs in negotiation.

There is truth in all of this. But contractors could also do themselves a favour by approaching negotiations more in the spirit of offering the value engineering that ensures a project can go ahead, rather than as a commercial battle of wills that might just increase the risk that it does not. 

Sarah Richardson, editor