Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Life after Lakesmere: Are building envelope specialists at risk?

While many specialists are avoiding the problems afflicting tier ones, the high-profile collapse a year ago of the UK’s largest building envelope contractor highlighted the perils tier twos can face.

Lakesmere’s failure, which led to more than 100 redundancies, was a stark reminder of the dangers for specialists – even those that boast healthier profit margins than tier ones.

The firm’s collapse was blamed on a “number of unprofitable” contracts. Whether this was due to the way the business was being run more than the state of the market is not entirely clear. But the bottom lines of the building envelope specialists in this year’s top 10 reveal once again the risky nature of contracting

Half of these firms reported a drop in pre-tax profit in their latest accounts, with turnover also falling for the majority. On top of this, building envelope specialists are grappling with both projects stalling due to Brexit and the implications from last year’s tragic events at Grenfell.

Grenfell’s variable impact

With a huge focus on the type of cladding used on the 24-storey west London tower block, contractors are aware more than ever of their responsibilities.

As well as publicly owned buildings coming under the spotlight, only three of the 199 private residential blocks found to have cladding similar to Grenfell’s have had it replaced to date.

The fallout from Grenfell continues to dominate conversations across the industry. But for building envelope specialists, particularly those that deal with cladding, it is very much a live issue. 

Raj Manak, managing director of Kent-based Stanmore, admits there is an extra level of caution from all project stakeholders. “It’s happening at all levels – developers, contractors, architects – everyone is taking a cautious approach,” he tells Construction News. “It has put a lot more emphasis on making sure we look at every aspect of performance and specification – you don’t just take people’s word for it.”

Inevitably, Mr Manak says, this has meant a rise in costs due to testing materials and the use of more expensive products.

The issue for the industry, he says, has been confusion over the checks and requirements needed and understanding Building Regulations. “It was not a deliberate attempt to use the cheapest materials,” he says. “But some [in the industry] came across materials that were aesthetically pleasing – and went for it without asking too many questions.”

Grenfell Tower clad June 2018 P0HXWE

Grenfell Tower clad June 2018 P0HXWE

Post-Grenfell there has been confusion over the checks and requirements needed

Gavin Hamblett, managing director of Prater, which is owned by German group Lindner, says he is pleased to see the government providing clarity by banning the use of combustible cladding.

“Part of the issue was too much subjectivity around the regulations,” he says. “We are not a fan of risk assessment – we would rather have a clear-cut understanding on what is acceptable and what isn’t.”

Mr Hamblett admits there has been a “huge amount of looking backwards” in the industry in the last 12 months. But he insists that none of Prater’s projects will require remediation work. “With the level of technical due diligence we do, it has kept us in a good place,” he says.

Stanmore says it has not had to do any remediation work on its portfolio either. However, Mr Manak says conversations with clients and suppliers are ongoing and there is the possibility cladding will need to be changed. “A lot of people are nervous and not 100 per cent sure about changing the materials,” he says.

The repercussions of Grenfell have not been the same across the board. Francis Keenan, boss of Manchester-based FK Group, says his business has not had to change its approach. “Every project that we work on has a cladding consultant on it – we wouldn’t try to put anything on that wasn’t 100 per cent correct,” he says. “It’s had no impact on our systems and processes and how we go about our QA and general design.”

“Part of the issue was too much subjectivity around the regulations. We are not a fan of risk assessment – we would rather have a clear-cut understanding on what is acceptable and what isn’t”

Gavin Hamblett, Prater

The other major industry event to have put pressure on the sector was the collapse of Carillion in January.

Prater was owed £3.5m by Carillion when it went bust, but the group was protected by credit insurance and has recovered that money. It has also gone back on site to work with Balfour Beatty at the high-profile Midland Metropolitan hospital. “We’re trying to make sure the building is watertight and there is no further degradation to the site as Balfour steps in and tries to understand the magnitude of what needs to be done,” Mr Hamblett says.

For the roofing industry, National Federation of Roofing Contractors (NFRC) chief executive James Talman says many members have been affected but it could have been far worse.

“Thank goodness it wasn’t the time when Carillion was doing more schools because it would have hammered our sector,” he says.

At FK Group, Mr Keenan declines to talk about Carillion, while Stanmore says it has not been affected.

Brexit ‘shenanigans’

Aside from Carillion and Grenfell, for many the last 12 to 18 months has produced a harsher, more unstable business environment as Brexit looms.

Mr Manak says the market has become “tougher”, with material and labour costs increasing. In Stanmore’s latest set of results to 31 March 2018, the firm reported that pre-tax profit nearly halved to £12.5m on a broadly flat turnover of £124m. However, Mr Manak says he is not perturbed by the results as Stanmore’s pre-tax margin of 10 per cent remains above the industry average.

The firm is doubling down on its efforts to reduce costs and is formulating contingency plans, including stockpiling, should materials prices spike after next March.

Mr Manak admits that a no-deal scenario could affect the price of facade materials such as aluminium and metal. “We are trying to find clever ways of being more cost-effective and have bought some metal in advance [of Brexit] in case of any issues – in excess of £500,000-worth, at least,” he says.

The Construction Products Association has also flagged the potential impact of a no-deal Brexit. “We saw a depreciation in sterling post-referendum and a similar depreciation would lead to double-digit rises in imported construction products prices,” says CPA economics director Noble Francis.

While the CPA estimates only around a quarter of construction products used in the UK are imported, two-thirds of these are from the EU.

Prof Francis adds: “That doesn’t mean that UK-manufactured products costs wouldn’t be affected indirectly, as a depreciation in sterling may impact upon energy prices, which would raise costs for energy-intensive domestic product manufacturing.”

For Prater, the situation is not so critical. With a German parent company, the firm has a cushion to fall back on. “We can use Lindner to sort issues like that out for us in the European market,” Mr Hamblett says. Nevertheless, Prater has bought a significant amount of euros in case there is a post-Brexit period where the currency markets are “adversely affected”.

EU flag European Union flag Brexit referendum

EU flag European Union flag Brexit referendum

The pre-Brexit market has become tougher, according to specialists, with material and labour costs increasing

Brexit is also still sparking fears over the labour market. While the government has been making positive noises about how EU workers will be treated, there is still frustration.

“We are still relying on Eastern European labour, but we are finding fewer workers are coming over now,” Mr Manak says. He points to the fact that more Eastern European workers are being tempted to stay in their own countries where living costs are less than the UK, or opt to work in Germany, which is closer to home with a strong economy.

At Prater, Mr Hamblett says: “There has definitely been some people who have gone back but it’s not a massive reduction. We’re not putting serious contingency plans in place. I think there is still a strong core of people that will ride it out.”

But he adds: “The uncertainty that is being created by the political shenanigans that are going on doesn’t help anybody.”

Mr Talman warns the government to think seriously about the impact. “We don’t want Mrs May to turn the tap off [of EU workers]. I can’t see how the government can contemplate that.”


While many firms are yet to see an exodus of EU workers, they are still concerned about the long-term effort to attract UK-born workers to the industry.

At Stanmore, Mr Manak is particularly worried over how the sector is viewed by the younger generation. It is a familiar concern, but he feels the cladding sector is particularly vulnerable.

“It’s difficult to attract apprentices willing to be cladders or dryliners,” he says.

Prater launched a new training apprenticeship academy this year in an effort to tackle the problem. The firm is investing in taking four or five apprentices a year in the hope they will go all the way through the business. But as Mr Hamblett says: “With young people, it’s [about] trying to see which part of what we do lights them up.”

FK Group also has its own apprenticeship academy as part of an increased focus on training expenditure.

“With young people, it’s [about] trying to see which part of what we do lights them up.”

Gavin Hamblett, Prater

Despite the challenges, the firms Construction News has spoken to have painted a positive picture for future opportunities. In particular, the North-west is being targeted as the region continues to witness a construction boom fuelled by investment in PRS schemes. Both Prater and Stanmore have put a stake in the ground by opening offices in the Manchester area in the last 18 months.

“The North-west for us was a bit of a no brainer,” Mr Hamblett says. His firm spent £1.5m this year on a permanent office in Cheadle, Greater Manchester. “The market is warming up,” Mr Hamblett continues. “HS2 is heading up there and it’s bringing really credible developers into that market. We’ve done some good work already in the area and we didn’t want to be seen as a contractor stepping in for a short-term play.”

Stanmore has opened new offices in Manchester and Birmingham in the past year. Around 85 per cent of Stanmore’s work comes from the residential sector and the push into the North is a bid to capitalise on booming urban markets. “We are trying not to miss that opportunity,” Mr Manak says.

The firms are encroaching into FK Group’s backyard. But Mr Keenan echoes the strength of the market. “Resi demand and the PRS sector is incredibly strong, particularly in Manchester,” he says.

What lies ahead?

While dark clouds loom, building envelope contractors are remaining optimistic. Prater, which in its last full-year reported a slight drop in revenue to £98m, is buoyed by the fact that it has upped its focus on the public sector market to avoid being hit by any fall-off in private work.

“We’re quite positive at the moment,” Mr Hamblett says. “We took a decision to make sure we had enough work in the public sector – infrastructure, railways, MoD, nuclear power – so if the private sector struggled, with the political uncertainty surrounding Brexit, we had enough of a balanced position across the sectors to ensure if there was a dip in the private sector we didn’t dip with it. We’ve been really successful on that front.”

The NFRC’s Mr Talman says his members are reporting a “relatively buoyant” market. He adds: “This is slightly ironic with all the dreadful uncertainty.”

But while there has not been a slowdown in work, he says, there has been a slowdown in starts – particularly in London and the Midlands.

Mr Manak says the market is “still busy”, away from London in particular. Mr Keenan is similarly upbeat, having last month reported a 59 per cent jump in group annual pre-tax profit to £1m despite a slight drop in revenue. “Residential, commercial and the shed market – all three of those sectors have remained strong and positive.”

All this comes with one eye still on exiting the EU next March. Flexibility appears to be the key. As Mr Keenan says: “We have to remain agile and be ready for a few eventualities.”

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.