The margins in construction have never been high. And for smaller contractors, times are now getting tougher.
But how do you keep your head above water with the price of raw materials going up and your clients pushing for cheaper prices at the same time?
For many suppliers, this is a concern. But for one firm, things have been particularly tricky. Scottish steel contractor Bone Steel was founded 70 years ago and has come through a difficult time where its cash reserves were diminished, having been tied up in a legal dispute over a contract in the Middle East.
Now with steel prices increasing by about 30 per cent over the past six to nine months and contractors asking the firm to cut or fix prices, chief executive Chris Bone, 37, decided to be bullish.
“Rather than reducing our prices we’ve been asked to fix them, which we’ve refused point blank to do,” he says.
“We’ve lost millions of pounds worth of work for not doing it but we stand by that decision. Had we done it, with steel prices going up, it could have cost us a lot of money. We were happier to walk away than take that risk.”
Tighter client strategy
Mr Bone took over the family business in April, with his father Sandy – who had run the company for over 30 years – stepping down as managing director.
He has brought in new board members and is tightening up the firm’s client strategy.
“One of the key concerns is the financial stability of some of our clients. We have now put in place a pretty strict policy that we’re going to select who we work for,” he says.
“It might seem a bit strange given the current climate but I think it’s as important that we’re working for someone that’s financially sound - we’ve picked six or eight to focus our time and energy on.”
Getting through the legal dispute took up time and energy when the rest of the industry was booming. But how is the firm bearing up having entered what is now a recession?
“We’ve had to fight doubly hard. We are focusing all our attention on building up a war chest for next year when the industry’s going to be struggling. It’s the year after which contractors are worried about,” he says.
Mr Bone is candid about how difficult things can be for the industry as a whole.
“Lower margins don’t leave you much manoeuvrability, if one project goes wrong, we sometimes question why we do what we do, because you are taking huge risks on every single construction project with very little money in it at the end of the day,” he says.
“And as we do that, the main contractors are doing exactly the same. If one goes slightly wrong you haven’t got that big cash surplus generated through profit to live off.”
Bone Steel has diversified to help those margins. Skelton Onsite is a services business providing secondary structure and remediation work, fire protection and specialist welding.
But the firm is filling up its order book for next year. It has recently won about 60 per cent of next year’s work including the provision of 2,000 tonnes of steelwork – worth about £3 million to £3.5 million – working with Bam Construct UK on South Cheshire College.
Unlike many family chief executives, Mr Bone started off working at the firm but then spent almost 10 years out of it. First off he developed a fire engineering business with Ramboll Whitbybird’s Mark Whitby.
“We’d worked on Whitbybird projects before and I got a call from Mark asking if I was interested [in running a business together] and an hour and a handshake later we were off. It was one of the best decisions I ever made,” he says.
He sold his part of the firm which is now Whitbybird fire engineering, and started up an agency arranging highend sporting experiences, which he now calls his “hobby business”.
But now he is firmly back in the saddle at Bone Steel and is focused on the business being a contractor rather than simply a fabricator.
“Being project-led is fundamental, the steelwork contractors of the past worry about how many tonnes they can produce a month, a week, a year, but our clients only really care about how their building is built and how quickly it’s built - to cost and quality,” he says.
“We’ve got to almost flip the business on its head to become project managers with the capability to manufacture the product.”CHRIS BONE IN THE SPOTLIGHT
What might a typical day involve?
My time is split between our offices in London and Scotland. But I am now spending more time in the Middle East, where we’re working on re-establishing Bone Steel.
What has been the hardest thing you have had to do so far in your career?
Selling the engineering consultancy I launched in 1999 to Whitbybird. I’d have to say it was one of the hardest, and perhaps saddest, days of my career.
What about the best?
Being given the opportunity by my current chairman, Hugh Hayes, to return to Bone Steel at what is a very exciting time for the business.
How can we get better leaders into construction?
We need to create a more stimulating environment that will attract talent.
What frustrates you about your job? How do you deal with it?
That people don’t fully appreciate the creativity and innovation that runs through the construction industry. Some have a perception of an old-fashioned industry that’s rooted in the past, which couldn’t be further from the truth.
How could you do your job better?
Everybody has room for improvement and it’s important that we recognise this. It’s about surrounding yourself with the right people, which is something I’ve strived to do over the past six months.