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Lagan Construction: Big dreams that turn into nightmares

Jack Simpson

The demise of Lagan Construction is the sort of story that is becoming all too familiar in the construction industry.

A major firm collapses and leaves its supply chain scrambling around to minimise the impact.

In the case of the Northern Irish contractor, the impact could be huge.

Today CN revealed Lagan Construction went down owing £21m to the sector. This includes 11 suppliers each owed more than £100,000, and one company in the hole for £851,000.

But why did Lagan go into administration? Was it a case of the firm biting off more than it could chew?

Take a look at the company’s last published accounts covering 2016: it paints a picture of a company in expansion mode.

Turnover had hit £149m, leaping from £109m just 12 months before.

But the warning signs were already there. While turnover was up by 37 per cent, profit had halved over the same period to just £1.9m.

The exponential rise in turnover was being fed by bigger and bigger contracts.

In 2013, the firm teamed up with Ferrovial to secure the £500m M8 improvement deal with Transport Scotland.

The £250m contract for an Ulster University project with Portuguese firm Somague followed a year later.

The company was even shortlisted for one of HS2 billion-pound-plus civils deals in 2016.

Lagan Construction was now sitting at the top table with the industry’s biggest names.

And as the contracts got bigger, the potential losses if things turned sour got bigger too.

When Lagan Construction went into administration, its chair blamed “protracted contractual disputes” and “instability caused by one of its UK joint ventures”.

The JV in question is widely understood to be the partnership with Ferrovial on the M8.

Increased labour costs, complexities due to brownfield site work and disagreements with Transport Scotland have all been blamed for the M8’s eye-watering costs. Ferrovial booked losses of £48m on the project in 2017 alone.

The Ulster University project has also been beset by problems. Delivery and legal issues have led to delays and rising costs.

And herein lies the problem for a company like Lagan Construction.

If you are willing to partner with the big firms and bid for the big contracts, you should be prepared for the fallout if these projects go wrong.

In the case of a firm like Ferrovial, which has a global construction revenue of €4.63bn (£4bn), a £48m loss can be absorbed.

For a £149m-turnover firm, the ramifications of losses like these are far greater – potentially fatal.

The fall of Lagan Construction should serve as lesson to other contractors with eyes on expansion.

Growth is good and should be encouraged, but it must be done sustainably.

Firms need to first be sure they have the right partners, right expertise and right resources to deliver work of that scale successfully.

But more importantly, those same partners, expertise and resources will prove essential if those big dreams turn into nightmares.

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