Guest Blog: Carillion collapse
Julie White, MD of D-Drill reflects on the Carillion collapse and how we should address the culture of low profit margins to avoid future construction companies going the same way.
In my blog this month I am focusing on a huge piece of news that has had major implications for all areas of the construction industry in the UK. - the collapse of Carillion – a massive player in the construction industry in the UK and behind some of the biggest contracts across the country.
The fall out has been far-reaching requiring Government intervention and industry-wide reaction and support to those affected.
While many issues were individual to Carillion, what it highlights again to me – and to others in our sector – is that construction in the UK continues to live right on the edge when it comes to profit margins.
It’s understandable, to a degree. The client wants to drive down price on the main contractor and it, in turn, looks to make savings with each of the sub and specialist contractors it uses to deliver a job.
“Great,” thinks the client, “That was good value.” But at what cost?
I am writing this at the start of February – the time of year when social media goes into meltdown over the film Groundhog Day as the famous movie is based around the repeated events of February 2.
And, quite honestly, it feels a bit like that in this situation as we have this debate about margins and slow payment yet again.
We, in the industry, have to work together to avoid the race to the bottom – we have to work as a supply chain with the client to deliver value and efficiency but we have to make sure we build in sustainable margins when we are quoting for work.
If we don’t then, quite honestly, we will see more and more companies going the way of Carillion.
I, like so many other specialist contractors, want to be able to earn an honest margin in order to be able to invest in the latest technology, in training & apprenticeships and in the business as whole.
We are not talking about massive amounts here, but enough to remove some of the risk that comes every time you take on a job that you know doesn’t have any room for financial manoeuvre.
Of course, add to that the staple ingredient of late payment and it’s a recipe for cashflow disaster. And that is when businesses start to fail.
But it requires the industry – and its client-base – to work together or we risk losing more great businesses that simply can’t survive if we carry on as we are.
Perhaps we need to look further afield to our construction colleagues around the globe and learn some lessons from them about their processes and how the industry has adapted to insulate themselves from this issue?
Or maybe many overseas are in the same situation that we find ourselves in still in the UK where companies chase so hard for contracts that we end up in a race to the bottom – delivering projects for cost or, worse still, at a loss just to bring the work in?
It’s an issue that I am sure will never be fully resolved but my genuine belief is that we can come close to solving it if we create the right atmosphere for dialogue between all parties involved.
It has to start with the client and educating them that cheapest is not necessarily best and that picking up the pieces of a failed contractor is going to be more costly than paying a bit more from the outset.
Julie White, Managing Director of D-Drill
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