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Adonis: 'Indefensible' contractor margins 'cut down to size'

National Infrastructure Commission chairman Lord Adonis has dismissed fears over low margins in the construction sector, arguing that the public sector is “getting a good deal at last”.      

The former Labour transport secretary, who took the post of NIC chair in April, said he had no concerns over findings from this year’s CN100 which revealed that average margins among the industry’s top 10 contractors had slid into negative territory

“I’m not worried in the slightest about the reduction in margins for major and extremely well-resourced contractors,” he told Construction News.

“I think it’s a sign that the public sector is getting a good deal at last. Indefensible margins have been cut down to size, I’m not concerned at all.”

He added: “[Contractors] are still making a very good return from the public purse and it’s the job of the public sector, on massive projects like HS2 and Crossrail, to get value for money.”

As chair of the NIC, Lord Adonis is responsible for advising the government on major long-term infrastructure challenges. 

His comments are likely to increase fears that some political figures do not consider current industry margins to be a problem. 

However, NIC deputy chairman Sir John Armitt said clients needed to acknowledge that low contractor margins were not viable in the long term. 

“Clients have got to come to terms with more collaborative forms of contract, and they need to recognise that if contractors are going to have a sustainable business, taking work at 2 per cent margins is not sustainable for them or their shareholders,” he told CN

Warnings from industry figures over the danger low margins pose to the sector have been increasing in recent weeks.

Balfour Beatty chief executive Leo Quinn told Construction News earlier this month that profit margins below 5 per cent were not sustainable for the industry. 

But Lord Adonis said if the cost of projects fall, then it would give more opportunity to smaller contractors.

“It’s much more likely we’ll get more of a market in local businesses and contractors who have been squeezed out of the market,” he said. 

Readers' comments (8)

  • His comments are as stupid as his name.

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  • Dad. I imagine he believes in the tooth fairy as well.

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  • Remember that is 2% on turnover not capital involved. If it were on capital no one (major/general contractors) would be in the industry to complain about. We (both parties are fortunate in that generally payments are monthly so the contractor has only has to finance/use its capital to cover the first two months.

    Trust this will prove of use in understanding the industry on both sides.

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  • Remember that is 2% on turnover not capital involved. If it were on capital no one (major/general contractors) would be in the industry to complain about. We (both parties are fortunate in that generally payments are monthly so the contractor has only has to finance/use its capital to cover the first two months.

    Trust this will prove of use in understanding the industry on both sides.

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  • From what I have observed in Rail, clients are terrible at allocating and managing project risk optimally. The approach is to blindly offload every risk to the contractor including those they are in the best place to manage and it does not work. The result is low margins for contractors and projects that go way over budget and time, thus costing the taxpayer much much more. Just look at the National Electrification Programme. The amount of money that could be saved for the taxpayer if risk was allocated, and subsequently managed, optimally would allow productivity to be doubled. Adonis is wrong if he thinks low margins are a sign of success and I would expect him to give a more nuanced view to a matter of such national importance.

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  • He is a joker - what other industry can live, let alone expand and improve when they have no money to re-invest?.
    5% margin is not sustainable. He will watch from his ivory tower as hundreds of companies go bust due events out of their control with no reserves.
    Come on Leo Quinn give him another barrel of reality.
    Why talk the industry down?
    Smell the coffee Lord Adonis.

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  • Lord Adonis is right if there's equitable risk share. There never is, so he's squeezing the toothpaste tube from both ends. Back to the underworld for the winter Adonis.

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  • This Adonis guy obviously has no shares in any construction business! I suspect he only has shares in some of the greedy fat cat companies raking it in from the NHS? No real business can sustain such low margins

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