Bursting The Construction “Growth” Bubble: Why Subbies Should Be Wary Of The Hidden Dangers of a “Growing” Industry

According to the headlines the industry is seeing the best growth it’s enjoyed in many a long year. And if you read enough of them, you could actually be forgiven for starting to believe that the industry is on the mend, and everything in the garden is rosy.

Well, sorry to burst the feel good ‘growth’ bubble, but from what we are hearing and seeing first hand on a daily basis, things are just as bad, if not worse than ever before.

With 1,921 Specialist Contractors in our LinkedIn Group, and 2,687 Twitter followers, not to mention our small army of exclusively Specialist Contractor StreetwiseSubbie Buddies, we have a pretty good handle on what’s really happening in the industry.

Payment problems, insolvencies and contractual disputes still abound and Specialist Contractors are not being treated any better than they were during the worst of the recession. But, what’s really sounding alarm bells, is the “merger” talks between Balfour Beatty and Carillion!

Is this really indicative of a healthy growing industry?

Balfour Beatty issued their 4th profit warning in July this year, with profits £65m below forecasts. And is it a coincidence that they have increased the paper value of 37 UK PPP (Public Private Partnership) contracts by a whopping 63%?

So, I ask the question, if these two companies were to merge, where would the money for the merger and any future growth come from?

What also sticks in my craw, is that the only reasons these two leviathans seem to be giving for the merger being worthwhile are financial and investor focused. Nowhere does it say how the “merger” will make a stronger, more competent Contractor, drawing on the skills and expertise of the two.

Where does it say how it will benefit the UK construction industry, or help to achieve the objectives of “Bull S**t 2025”, sorry I mean “Construction 2025”?

There is no mention of these things, because there doesn’t appear to be any to be mentioned.

All the talk of “growth” doesn’t solve the industry’s problems. We can’t sit back and relax!

Dig a bit deeper and you will find mixed reports about the health of the UK’s construction industry. Sisk has revealed its construction arm saw revenue and pre-tax profit fall last year, whilst there is some good financial news from North Midland and Galliford Try.

The only thing one can say with certainty is that the industry seems to be on a roller coaster ride. Some firms have increased revenues whilst others have diminishing turnovers and wafer thin or non-existent profits.

So, what are we to make of it all?

My advice is be careful!

In times like these there is no substitute for caution. Irrespective of who is inviting you to tender, or dangling the carrot of an order, please do your research.

Because no profits means no cash, and growth with no money to fuel it could well make monsters out of the most benign of Contractors. And those monsters may well develop a veracious appetite for feasting on small Specialist Contractors. Only capable of growing by sucking money out of their own supply chain.

Sadly, some Contractors will continue to use every trick in the book to hold onto as much cash as possible and continue to make withdrawals from the ‘Bank of Specialist Contractors’! And whilst some Contractors bottom lines begin to improve, too many Specialist Contractors will struggle to keep a hold on their cashflow and eventually go under.

But you won’t see that in the headlines will you?

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