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The most adaptable, not the fittest, will survive

Another two high-profile administrations have rocked the construction industry in the last week.

Both Rowecord Engineering and McArdle worked on the Olympic Park, a recent symbol of the very best of what the construction industry has to offer.

It’s a familiar tale. Each firm has an enviable record of winning work on major projects and both had experience spanning more than four decades and had survived similar financial crises. Yet both have suffered in the economic conditions that are dragging hundreds of companies down each month.

The reaction from readers on cnplus.co.uk to the demise of both companies was of shock and disappointment.

There is hope that administrators can find buyers for both, and in the process help to save more than 700 jobs. Would-be buyers may be wary, however, as history suggests that companies traditionally struggle most as they come out of a recession.

Industry forecasts suggest a long-overdue return to growth for construction in 2014. But the potential for contractors to bid on work over the next 12 months, only to be faced with rising material or subcontracted labour prices on those schemes when growth returns, has led senior management at the biggest UK firms to emphasise their desire to find securely funded projects.

Bam Nuttall chief executive Steve Fox suggests medium-sized firms will continue to go to the wall, while Bam Construct MD Richard Bailey reveals his company propped up its supply chain, many of whom have since gone bust, to the tune of £10 million last year.

The cost to contractors of putting a further squeeze on its supply chains could be a company going under on its watch, potentially the difference between a profitable and a loss-making job.

Everything is far from rosy for even the biggest companies. Balfour Beatty’s second profit warning in six months and continuing restructure must be a worry to its thousands of suppliers.

Yet group chief executive Andrew McNaughton refuses to solely blame the government or market conditions for its struggles, insisting it has to look internally and take accountability.

In the short term, faced with sparse public sector work, the government’s onus must be on creating the right conditions for private investment in infrastructure, something the Public Accounts Committee says it is failing to do.

But the past week also serves as a reminder for UK firms to make sure their own houses are in order first. As Mr Bailey says: “It is not the fittest, but those who can adapt that will survive.”

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