Redundancies among above ground construction firms are well documented, but this is the tip of the iceberg. By Rob Withers
The ripple effect of the recession goes literally far deeper and is having a profound effect on firms and suppliers involved in below ground activities.
The insurance industry – a major source of work for contractors – is providing fewer opportunities. Claims have been down anything up to 30 per cent, great news for them, but not so good for contractors. Given it’s widely recognised that sub-contractors are being forced to charge less and the outlook continues to look bleak for this beleaguered sector.
How can ground engineering contractors recession-proof their businesses?
Review the business strategy and key areas within it. Consign five-year plans to the bin – companies need to react to today’s trading conditions and plan ahead for one-year at the most.
Reassess expenses and materials. Escalating material and labour costs, wholesale energy prices have risen higher than most of the rest of Europe. This inevitably leads to a fall in profits so re-negotiate costs and make savings. Everything has a base cost but further discounts and deals can be had. It’s all up for negotiation – from materials and vehicles to equipment and communications.
Consider the return on investment from a people perspective. Who actually delivers the business profits and who is ‘carried’? Businesses are built on their reputation and bad workmanship can cripple an order book. Look at those delivering the profits and those who don’t and act accordingly.
Accurate accounting. Regularly review monthly management accounts – although this may be considered a chore, it assesses the work in progress (enabling a business to identify trends early on) and provides a potential loss warning mechanism.
Safeguard the business. Credit insurance is vital as it will protect a business if clients fail to pay. Some insurers are choosing to exclude the construction sector due to its high risk, but the Credit Insurance Alliance says not all are following suit. It advises contractors to buy now and if possible, obtain a two-year fixed deal.
The Alliance concedes there are fewer quotes available in the construction sector, but says it’s not impossible to get this type of financial protection. Rumour has it that credit insurers do not want any construction business, particularly from firms with a balance sheet geared towards property. So while this type of cover provides a financial safety net for businesses, it may be difficult to source.
With contractors forced to lower tenders, it might be tempting to cut corners on liability insurance and health and safety responsibilities to keep the quote competitive. Those that that do risk losing their business should an incident occur. Insurers have been warned against driving premiums to an unsustainable level and contractors must ensure they meet statutory health and safety requirements and maintain their cover.
Broaden horizons. Diversify the business and spread the risk. For example, underpinning and foundation firms could not only offer restricted access piling and subsidence work, but services in other insured perils, basements and the housing sector. Consider niches/specialisms and cross-sell to other sectors such as Local Authorities.
Rob Withers is managing director of insurance repair and foundation firm The Withers Group