Allan Connell has been watching his family construction business bear the brunt of Britain’s often harsh economic weather for nearly half a century. Now, he said, small builders are being “kicked from all sides”.
“In every case, be they doctors or high court lawyers, right across the board, people are saying ‘I need it to be done cheap’. And my problem is I’m already at rock bottom,” he added.
After riding a recent construction boom, the owner of a small building company in the coastal town of Poole who represents the Federation of Master Builders in the south-east of England, faces a brutal reversal.
Tens of thousands of other small building and construction companies in the UK are in a similar position as consumers trim budgets and stop spending on big-ticket items such as loft conversions and home extensions.
The gloomy outlook is not isolated to small builders, extending across the construction sector. Large government contractors, construction materials companies and small subcontractors are struggling in a market unsettled by Britain’s decision to leave the EU, sterling weakness and concerns over bank credit.
“We’re standing on the edge of a cliff but no one knows quite how big the cliff will be,” said Julie Palmer, partner at Begbies Traynor, the insolvency and rescue specialists. She warned that a wide swath of companies could be forced out of business in the sector in the next few years.
The problems are clearly reflected in the data with the number of construction and property services businesses in severe distress rising 16 per cent in the past quarter, while construction contract awards fell 15 per cent in September, according to data from Begbies Traynor and Barbour ABI.
The collapse of Carillion, the public and private-sector contractor, has also had an impact on confidence in the sector, hitting debt-laden construction rivals, which also provide low-margin support services for the government such as office cleaning and maintenance.
These include Interserve, in the hands of its lenders after racking up losses, Amey, put up for sale by its owner Ferrovial, and Kier, which is fighting for survival following a profit warning in the summer.
Elsewhere, life has been difficult for large publicly listed construction materials companies. In October, SIG, which supplies roofing and insulation products, warned of significantly lower profits, driving its share price down and rattling the nerves of rivals.
There is a more upbeat mood among the listed housebuilders and infrastructure contractors.
Builders, such as Persimmon, Berkeley and Barratt, are showing no signs of financial stress as they slow production to retain profitability, in contrast to the aftermath of the financial crisis a decade ago when many were severely burnt.
The infrastructure contractors have been buoyed by their international operations and a pipeline of work that includes wind farms, the nuclear power station at Hinkley Point, London’s Crossrail train line and preparations for the HS2 high speed railway line.
Another positive is the fewer bankruptcies than expected in Carillion’s supply chain as the company subcontracted work to smaller groups, which were able to continue business despite the failure. But this could turn into a negative further down the line.
Noble Francis, economics director at the Construction Products Association, warned the sector’s difficulties may be about to deepen.
He cautioned that although subcontractors avoided immediate bankruptcy in the wake of Carillion’s failure, the slowdown in cash flow may “push them into problems”, adding that difficulties could arise because banks are starting to tighten lending.
“It is small firms that tend to take the strain as they are the most dependent on cash flow and lending,” he said.
In September, Northern Irish group Blackbourne collapsed because of these cash flow problems.
Other construction failures include Lancashire-based Marcus Worthington & Co, which blamed difficulties securing “additional borrowing from our bank lenders”, and Dribuild, which cited “insurmountable funding challenges”. Both companies worked on commercial projects, where construction has fallen by 9.5 per cent in the past two years, according to the CPA.
“There’s undoubtedly worries when larger players like Carillion have bitten the dust and others have come close,” said Mark Reynolds, chief executive of Mace, which is working on HS2 and Crossrail.
Back in Poole, Mr Connell is hoping for “stability” — both political and economic. “All businesses need good foundations to run on — just like houses,” he said.