The case for making a decent profit


Being a contractor is a risky business, with a widespread expectation of low profit margins - unless that culture shifts not much else will

Why do contractors find it so hard to make decent money? It is not a new question; the problem of contractors and their wafer-thin profit margins goes back decades and continues to dog the construction industry.

The collapse of Tolent, the North-east contractor that went into administration in February, is a reminder of just how precarious a business the world of contracting can be. More details emerged this week of its undoing, and it is a sorry tale involving a multimillion-pound loss on a big project, falling workloads, cash flow problems and ultimately a long line of creditors as suppliers and employees were left out of pocket.

Problems centred on an £85m scheme in Durham, which proved financially devastating for Tolent. Despite cash-raising efforts and staggered payments to HMRC, in the end it was left with insufficient funds to pay its bills. At the time of its collapse it had just £60m of cash in the bank.

Tolent’s demise can be explained by specific factors relating to its contract terms and the decision-making at the top, but – and this is the point – it did not happen in isolation. Tolent’s story is part of a wider narrative that expects regional and main contractors to make low profit margins that average 2% and take on huge risks for low returns.

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