Cash is King
Julie's PDI column February 2018
As you know, I try not be too absorbed by issues in the UK in this column, because what’s happening in Britain doesn’t necessarily always resonate with fellow professionals all around the world.
In this instance, I will, however, be focussed on a massive piece of news that has had major implications for all areas of the construction industry in the UK but, by the same token, I will throw out a plea to everyone who is reading this. More on that later.
So the big piece of news was the collapse of a company called Carillion – a massive player in the construction industry in the UK and behind some of the biggest contracts across the country.
The fall out has been huge, requiring Government intervention and industry-wide reaction and support to those affected.
While many issues were individual to Carillion, what it highlights again to me – and to others in our sector – is that construction in the UK continues to live right on the edge when it comes to profit margins.
It’s understandable, to a degree. The client wants to drive down price on the main contractor and it, in turn, looks to make savings with each of the sub and specialist contractors it uses to deliver a job.
“Great,” thinks the client, “That was great value.” But at what cost?
I am writing this at the start of February – the time of year when social media goes into meltdown over the film Groundhog Day as the famous movie is based around the repeated events of February 2.
And, quite honestly, it feels a bit like that in this situation as we have this debate about margins and slow payment yet again.
We, in the industry, have to work together to avoid the race to the bottom – we have to work as a supply chain with the client to deliver value and efficiency but we have to make sure we build in sustainable margins when we are quoting for work.
If we don’t then, quite honestly, we will see more and more companies going the way of Carillion in the UK.
I, like so many other specialist contractors, want to be able to earn an honest margin in order to be able to invest in the latest technology, in training & apprenticeships and in the business as whole.
We are not talking about massive amounts here, but enough to remove some of the risk that comes every time you take on a job that you know doesn’t have any room for financial manoeuvre.
Of course, add to that the staple ingredient of late payment and it’s a recipe for cashflow disaster. And that is when businesses start to fail.
But it requires the industry – and its client-base – to work together or we risk losing more great businesses that simply can’t survive if we carry on as we are.
So, here’s my plea to my colleagues around the globe. Tell me, please, how you do it?
Do you avoid the situation I have described above and, if so, what is the process that your country or your industry has adopted to insulate yourselves from this issue?
Or are you in the same situation that we find ourselves in still in the UK where companies chase so hard for contracts that we end up in a race to the bottom – delivering projects for cost or, worse still, at a loss just to bring the work in?
It’s an issue that I am sure will never be fully resolved but my genuine belief is that we can come close to solving it if we create the right atmosphere for dialogue between all parties involved.
It has to start with the client and educating them that cheapest is not necessarily best and that picking up the pieces of a failed contractor is going to be more costly than paying a bit more from the outset.
But, as I said, I’d be grateful to hear your thoughts on this and if there is anything we are missing or any systems that are working around the world, I’d love to know about it.
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