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Don't do business for business's sake

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Robertson Group comprises 21 companies and is one of the largest independently owned construction, infrastructure and support services businesses in the UK.

It is no secret that construction is one of the most significant industries in the UK and is a key contributor to the nation’s economy (employing approximately 1.4m and equating to 6.4 per cent of overall UK GDP).

However, with a footprint that covers the length and breadth of the country, it continues to suffer from a lack of collective appreciation of the changing market it operates in.

Hugely progressive and innovative, construction has risen to major challenges ranging from the extraction of oil from the North Sea, to adopting long-term maintenance of public sector assets like the engineering of Crossrail, to designing and building the Shard.

Defying the downturn

Despite the fact that many companies, large and small, were either lost or seriously devalued mainly as a result of the recession, the industry’s supply chain has continued to advance – innovating and diversifying as it progressed.

Margin, however, or the perception of it as portrayed in construction, will continue to dog the industry and unfairly question its reputation and value in the market.

The root cause seems to have been facilitated by larger contractors who, over the last four decades, have gradually offloaded responsibility of risk, direct employment and training in favour of using the supply chain to carry out their operations.

“A relatively small number of main contractors – producing 1-2 per cent margins or indeed losses that stem from their continued need to restructure – have undermined the whole industry”

Following that and working in a positive cashflow environment, major contractors continue a pursuit of growth, substituting margin for volume to a place where construction margins of 1-2 per cent are considered an acceptable norm.

Truth is, for major or international contractors trading in billions, 2 per cent or even less could match the aspiration of their business model. But for SMEs or even larger contractors, it is not sustainable.

Undermining the industry

One outcome of these changes is that the supply chain, because of its diversity in size and scope, has applied a ‘business for business’s sake’ approach to its position in the industry. They did not follow the lead of their main contractor employers on the margin front.

The anomaly that exists now is a relatively small number in the industry (main contractors) – often publicly listed companies producing 1-2 per cent margins or indeed losses that stem from their continued need to restructure – have undermined the whole industry. They prevent realism being tabled by clients and their advisers.

There is a perception that these low main contractor margins should be the norm. Having said that, management contracting does have a strong place in today’s market and where fees are based on a percentage of the value of the works, low margins would be an acceptable norm.

To round off the confusion, the market is now seeing a growth in numbers of ‘multi-trade’ subcontractors seeking a bigger share of their erstwhile employers’ supply chain.

As they become main contractors in their own right, perhaps their presence will help improve margins and lead to a more sustainable future.

Bill Robertson is CEO and executive chairman of Robertson Group

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