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.