It has been a tricky year or so for the demolition industry. For a sector that is usually so stoic in its approach to the whips and scorns of the business world, the collapse of some of its biggest names has been something of a shock.
Following close on the heels of March 2023鈥檚 ruling from the Competition & Markets Authority that saw 10 of the biggest firms copping for fines totalling the thick end of 拢60m for bid-rigging and price fixing, the failure of five businesses in a little over four months has raised eyebrows.
To paraphrase Oscar Wilde, losing one major contractor may be regarded as a misfortune; to lose five looks like carelessness.
Of course no one seriously thinks that the failure of some of the sector鈥檚 biggest names is down to carelessness.
But in a world that has witnessed growing pressure on all UK businesses, is the sudden demise of several demolition contractors the result of factors unique to the sector itself or a symptom of the impact of market forces on the wider construction industry?
This article was first published in the May 2024 issue of 海角社区app Magazine. Sign up online.
Figures for the construction industry as a whole make for some pretty stark reading. According to recent analysis by accountancy firm Mazars, construction was the industry responsible for the highest number of UK insolvencies last year. Mazars鈥 numbers put construction at the top of the insolvency tree with more than 4,300 firms failing in the year to 30th November 2023, a hike of 7% on November 2022 figures and a staggering 76% rise on failures in the year to November 2021.
And a further dive into those numbers reveals specialist sectors 鈥 including demolition and mechanical & electrical engineering 鈥 make up almost 60% of the total number of construction-related insolvencies.
Official figures from the Office for National Statistics (ONS) for February 2024, which includes the January 2024 statistics for insolvencies in the construction industry, showed 295 firms had folded that month, down from the 365 that collapsed in December 2023.
So what is fuelling the failure rate and why is it being felt most strongly by specialists?
There is no single reason. It is more of a perfect storm of several factors that much like the weather this winter, seem to be relentless in their bid to rain on construction鈥檚 parade.
The past few years have witnessed unheralded external pressures on the construction sector 鈥 at least since the post World War II rebuild. Brexit, covid, Putin鈥檚 war in Ukraine, soaring interest rates, fluctuating scrap metal prices, increased raw material prices and labour shortages have all in turn taken a swing at a punch-drunk construction industry.
For Mark Supperstone, managing partner at business advisory firm ReSolve, the wider construction industry is likely to face a few more years of difficult trading yet.
鈥淭he construction industry faced a plethora of difficulties in 2023, and the ONS statistics suggest that we are still far from seeing these difficulties ease. The sector is particularly vulnerable to a harsh interest rate environment, which has characterised much of the past two years,鈥 he says.
And despite interest rates now softening, the industry is far from being in the clear:
鈥淎lthough a flattening of interest rates over the first half of this year may benefit the industry in this regard, there are also more industry-specific challenges at play, such as low demand for new homes and volatile construction material prices. As such, we would unfortunately expect to see the industry continue to feature prominently in insolvency statistics over the following months,鈥 adds Supperstone.
Pressure on profits caused by high interest rates is hurting developers. They are being forced to stall schemes and delay projects until the financial market looks a little more favourable 鈥 or at least more certain.
鈥淭here鈥檚 no doubt that the past 18-24 months have been very challenging. The simple reason for developers is that for some schemes the high interest rates mean the cost of borrowing against potential yield makes little business sense. They are being put off breaking ground on projects until the economic environment is more favourable. The same is true for both commercial property and residential,鈥 says one Bristol-based developer who declined to be named.
And if developers are stalling, then firms further down the supply chain 鈥 including demolition contractors 鈥 are open to the financial pressures that delay can bring. They might have borrowed to purchase project-specific plant or seen market fluctuations in commodities such as recycled aggregate or scrap steel leave them high and dry.
Indeed despite the huge fines handed out to the companies named in the demolition CMA ruling (see box below) just one of the 10 鈥 Squibb Group 鈥 has actually folded. When it did so in December 2023, Squibb blamed its failure on a drop in scrap prices and the lingering effects of the pandemic as main contributary factors to its debts of over 拢20m that led to its demise.
The 拢2m fine meted out to Squibb by the CMA was barely mentioned, even though Squibb had planned to appeal the ruling. The other demolition firms targeted by the CMA continue to trade with various appeals against the ruling lodged.
So if demolition firms don鈥檛 already have enough on their plates, what else is there for the sector to worry about?
This article was first published in the May 2024 issue of 海角社区app Magazine. Sign up online.
One of them 鈥 possibly the most significant 鈥 is the political torpor hanging over UK business while the government waits to decide when would be the best time to call a general election to give it any chance of winning.
For many, the phoney war of political point-scoring and pre-election jousting is providing another excuse for developers to keep their wallets in their pockets. Once again the net result is a tailing-off of projects entering an extended planning pipeline that already takes far too long for schemes to travel through.
鈥淚ssues around the pending change of government are commonly mentioned when we talk to our clients,鈥 says David Doherty, director at construction recruitment firm Options Resourcing. 鈥淒evelopers, main contractors and specialist contractors are like everyone else, they just need to know who they are going to be dealing with for the next term. Until the general election is announced it is difficult for them to make concrete decisions and so projects are being put on the backburner until there is a little more certainty,鈥 he adds.
And even if developers do decide to set off down the planning route, hold-ups at the local planning authorities are often making them wait more than a year to get the green light of planning permission.
Local authorities blame underfunding and a lack of resources exacerbated by a huge logjam of applications that built up during the pandemic for the glacial progress of even the most minor of planning applications. Major developments face far greater hurdles including legal objections at both local and national level.
These delays are an issue the government has recognised and promised to address. Its introduction of higher planning application fees for schemes in December 2023 is aimed at helping to tackle the backlog and improve processing times.
And although planning authority delays are beginning to fall from their 2021 post-covid peak, they are still having an impact on project timelines and demolition contractors.
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鈥淒elays through the planning system are one of the biggest concerns facing demolition contractors that we hear about,鈥 says one key supplier to the sector. 鈥淚t can take months and considerable investment for some firms to get geared up to start a project. That will mean they are exposed to high interest rates and credit charges, which can soon mount up if delays continue and could push some businesses close to becoming unviable.鈥
If the UK looks like a bleak place for demolition businesses at the moment there is hope. The industry itself has never shied away from a challenge and with its innate ability to react to market changes, diversification is key.
Some of the industry鈥檚 biggest names have started to reinvent themselves as specialist engineering contractors and the relationship with the waste and recycling sector has always been close. The old adage 鈥榃here there鈥檚 muck, there鈥檚 brass鈥 still rings true.
The Bank of England is also working hard to keep a cap on interest rates and there is hope that the downward trend will continue, reducing the cost of borrowing and helping to stimulate the market by persuading developers to let go of the purse strings.
And if all else fails, there鈥檒l be a general election soon 鈥 won鈥檛 there?
This article was first published in the May 2024 issue of 海角社区app Magazine. Sign up online.
Demolition Divers
The demolition sector has seen a flurry of business collapses over the last few months 鈥 with some big names among them.
Rye Demolition 聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 Feb 2024
Wooldridge Contractors 聽聽聽聽聽 Feb 2024
Blucon聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 Jan2024
Squibb Group 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 Dec2023
McCormack Demolition 聽聽聽聽聽 Nov 2023
Firms fined in DEMOLITION cartel
In March 2023 ten demolition contractors were fined and several of their directors banned from running businesses following a lengthy investigation by government watchdog the Competition & Markets Authority.
They found that between January 2013 and June 2018 each firm was involved in at least one instance of bid rigging 鈥 where those companies had colluded on prices through illegal cartel agreements when submitting bids for supposedly 鈥榗ompetitive鈥 contract tenders.
The investigation team also found that five of the firms had been involved in arrangements where the designated 鈥榣oser鈥 of the bid would be compensated by the winner 鈥 by more than 拢500,000 in one instance.
The scale of the fines reflected the size of the contracts 鈥 a total of 19 high profile contracts including those at the Met Police Training College, Bow Street Magistrates Court, Selfridges (London) and Oxford University 鈥 which were worth more than 拢150m.
Several firms had reduced fines meted out to them after admitting their part in the cartel but nevertheless the penalties for those involved were huge.
Erith 聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢17,568,800
Keltbray 聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢16,000,000
Scudder 聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢8,256,264
JF Hunt 聽聽聽聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢5,600,000
McGee 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢3,766,278
Brown & Mason 聽聽聽聽聽聽聽聽聽聽 拢2,400,000
Squibb 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢2,000,000
颁补苍迟颈濒濒辞苍听听听听听听听听听听 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢1,920,000
DSM 聽聽聽 聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽聽 拢1,400,000
Clifford Devlin 聽聽聽聽聽聽聽聽聽聽聽聽聽 拢423,615
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