When the fifth-generation leader of a business whose origins stretch back 162 years says 2013 was the toughest year in its history, you can be sure he’s not just saying it for effect.
Rick Willmott, chief executive of £1bn turnover Willmott Dixon, rarely gives interviews. He is not dissimilar to many peers at rival contractors who prefer to go about their business in private.
Sitting in the firm’s suburban HQ in Letchworth, Hertfordshire, he talks openly to Construction News about the company he has led for the best part of a decade.
There is no backbiting at clients over lost jobs, no off-the-record jabs at rival contractors. His voice rarely strays from firm, but quiet.
“The fall off in supply chain finance of 15 to 20 per cent is coming back to haunt all the major contractors operating on fixed-price contracts”
Appointed to the board in 1994 following his father Peter’s retirement after nearly five decades with the company, he has been chairman of its construction division, group chairman and was named chief executive in 2005.
That year, pre-tax profits surpassed £10m for the first time. Since then, the company has pushed through the £1bn turnover mark and generated pre-tax profit in 2009 nearer to £30m.
The business has performed consistently well during the downturn, despite a small number of difficult contracts hitting profits in 2013.
Turnover has grown and been maintained since it demerged and floated support services arm Inspace in 2005, before buying it back and reintegrating it into the business.
Fresh market optimism?
If 2013 was the company’s “toughest-ever year”, what reassurance has he taken from the green shoots appearing in the last nine to 12 months in a market which he describes as an “interesting, complicated place that is, for some, quite unpredictable”?
“We have made as many errors as the rest of the market, but understanding where you are trying to get to is the key thing”
“We’re beginning to see the end of [the downturn] now, but the fall off in supply chain prices of 15 to 20 per cent is coming back to haunt all the major contractors operating on fixed-price contracts and trying to buy from an overheated supply chain.”
Mr Willmott says the market success rate for single-stage tenders is probably “one in 15, which is horrific, but a reflection of how desperate contractors are to fill their books”. He adds that Willmott Dixon now avoids single-stage tenders.
Successful framework policy
Its policy of targeting high-volume public sector construction frameworks has been a success, most notably through local authority-backed provider Scape, to which the company has been reappointed twice as sole major works framework partner since 2005.
Scape has grown alongside its preferred contractor and helped Willmott Dixon ride out the storm of recession with minimal fuss, as more and more public sector authorities turn to it for centralised procurement expertise in the wake of the downturn and the ensuing strain on public sector resources.
“Every UK contractor will have had that sort of individual project pain that takes up more time than you can possibly imagine”
“Our aim is to secure a position on high-volume frameworks which contemplate quality as much as price - in fact, ahead of price,” Mr Willmott explains.
“We have been lucky, successful – however you want to phrase it – in securing a position on some of those key frameworks.
“We have made as many errors as the rest of the market, but the key thing is understanding where you are trying to get to.”
Satisfying business shape
Revenue has been stable around the £1bn mark since former support services arm Inspace was brought back into the group in 2008/09. Mr Willmott says holding the business’s shape together at a time of prolonged downturn in the industry gives him the most satisfaction.
“We had one or two jobs that got away from us and have done some damage. That was down to poor management, poor pricing… a change in the market.
“We have walked away from a number of what look like good opportunities because it’s not worth the risk”
“Every UK contractor will have had that sort of individual project pain that takes up more time than you can possibly imagine.
“Once it’s out of the way then it’s back into reminding ourselves constantly of the things we need to avoid.”
He recalls a time, more than 15 years ago, when the firm would have to call in light aircraft and personal goods in order to recover money owed from companies. “We don’t want to go back there, it’s so much grief,” he says.
Past lessons on third parties
Mr Willmott is keen to emphasise that lessons have been learned. “We wouldn’t contract with third parties who do not have the balance sheet to support a project.
“We have walked away from a number of what look like good opportunities because it’s not worth the risk.”
Willmott Dixon Partnerships has been busy securing long-term repair and maintenance contracts with local authorities and registered providers, and now provides services to around 150,000 homes across the UK.
“When the guardian architect is retained, you as a contractor have absolutely no chance until hell freezes over of changing people’s minds”
The appeal of long-term, negotiated frameworks is again evident here, and the company picked up two new long-term Midlands deals worth almost £100m in April alone.
The Partnerships business has increased its tendering activity in the sector over the last six to nine months following a period of “embedding” a series of deals it had won in 2012.
This is, in part, down to changes in procurement style in the sector, with clients no longer “all about price”.
‘Lunacy’ trend of guardian architects
Clients need to make more educated decisions at times, he argues, to get the best solutions.
One “flavour of the month” that doesn’t impress is the use of “guardian architects”, a trend Mr Willmott says is on the rise, particularly in London.
The term refers to certain designs and products being chosen at the expense of cheaper, more readily available alternatives to satisfy local authority planning needs.
“I don’t think there’s a client on this earth that would walk away, given the option of picking something better, more sustainable”
The company suffered on a job where 2m bricks were brought in from Spain by the client and designer; it’s a trend Mr Willmott describes as “lunacy”.
“When the guardian architect is retained, you as a contractor have absolutely no chance until hell freezes over of changing people’s minds, which ends up with you being in a restricted place for finding competitive pricing and sometimes building a product you’re not really proud of.
“We end up building with a new product we can’t change, we don’t like and our supply chain can’t use properly, but it’s retained as a key facet of design and that seems to me to be lunacy.
“I don’t think there’s a client on this earth that would walk away, given the option of picking something better, more sustainable. Rather than going to Denmark or Spain for your bricks you can find them in the UK. It looks pretty much the same, we can provide six alternatives – it just seems crazy to me.”
Not that clients or designers are wholly to blame, Mr Willmott is quick to insist, saying contractors “haven’t got on the message early enough to influence change”.
He insists there are times when clients should “exercise their authority and personal choice by contemplating a sensible option of alternative design or product”.
Regional competition grows
It’s not just London where pressures are being felt by contractors. Trade being sucked into the capital from the regions is making conditions increasingly competitive outside London and the South-east as well, he says.
How does Willmott Dixon intend to protect itself from being over-stretched? “We take each sector seriously and have specialists who understand client requirements.
“We draw on the experience of our supply chain as well to support bids. We have good people, process, supply chains and networks and keep close to our key customers.”
Public sector spending is set to be scrutinised in the coming years as the 2015 election approaches, and with the possibility of a new government in power in less than a year’s time.
General election concerns?
But Mr Willmott is unconcerned, pointing to the fact that public sector spending has held up for the company in core markets such as education since the last election, when the industry feared the worst over spending cuts.
The contractor qualified for the South lot of the £4bn Education Funding Agency Contractors’ Framework in November 2013 and was shortlisted in all six lots of the EFA’s £5bn Regional Framework in April.
“Those schools that have been left behind have got to be brought forward; that’s why I still see education as strong”
He feels education will remain a strong sector. The EFA will publish its property data survey later this year and have evidence-based proof of which schools require the greatest funding.
“You have got students working out of 1950s rubbish, with asbestos and all that, and then you have those operating out of a brand new facility; you can’t possibly compare the academic output of those two facilities.
“Those schools that have been left behind have got to be brought forward; that’s why I still see education as strong.”
Caution over new sectors
The contractor is expanding its Regen division through its private rented model be:here (see box, left) and Prime Place (homes for sale), which has more than 1,000 units under development or awaiting planning or funding decisions.
But Mr Willmott rejects the notion that the company would want to move into those new markets where there is expected to be strong spending in the future, such as energy.
“Essentially, the market for the top 20 reduced by more than 50 per cent and we held our own in that market”
“I think people can get really hung up on the debate about energy infrastructure. Should we be building a nuclear power station? It’s not really our strategy and I don’t think we need to be.
“Look at the last four years: it’s been the worst possible situation in the UK market. Our data would suggest it has gone from a market where the top 20 contractors might expect to pick up £37bn to £40bn in any 12 months and at its trough that was about £15bn.
“Essentially, the market for the top 20 reduced by more than 50 per cent and we held our own in that market.”
Asked to look to the future and set out how Willmott Dixon will stay ahead of the curve, Mr Willmott’s response is upbeat.
Margins will return to 2 per cent “or more” in 2014, from 1.6 per cent last year, he predicts confidently. “We need to keep our share of the market, keep our noses clean and not drop too many spanners – then we’ll do well”.
Suppliers invited to EarlyPay scheme
Willmott Dixon has invited more than 400 Category A suppliers to take part in its EarlyPay scheme.
The contractor trialled the supply chain finance solution with a small number of subcontractors between January and March and has now launched the voluntary scheme in partnership with Lloyds Bank.
The bank charges interest based on the value of the payment, interest rate and number of days early the payment is drawn down.
The current interest rate is APR 2 per cent, which is charged to suppliers between the earlier standard payment term dates and is refunded by Willmott Dixon up to its extended terms of 65 days.
Similar schemes operated by other companies have drawn criticism for extending payment terms, but Willmott Dixon deputy chief financial officer Graham Dundas stresses any subcontractor who wishes to quit the scheme will return to their current payment terms.
Those being paid on 42-day terms can opt to receive payments 28 days after the valuation date, while suppliers currently on 30-day terms will be able to receive payments 21 days after the valuation date.
“Yes, the agreement comes with extension of terms, but it’s voluntary,” Mr Dundas says.
“Everything in signing up to it is as favourable as you can possibly make it. No one is expected to wait [65 days] for their money, nor do they incur cost to get paid within the normal timeframe.”
As subcontractors become more selective about the firms they work with and contracts they pursue, Mr Dundas says he hopes it will help make Willmott Dixon more attractive to work with.
“Some of our existing supply chain are now actually willing to do a higher percentage of their workload with us because the cashflow dynamic has changed.”