At last there are glimmers of hope for the economy but many pitfalls lie ahead for building firms

Tony Williams

Since my time as a cub reporter on Building magazine in the early eighties, I have seen three recessions. The first one was in full flow when I started (either good timing or bad?) and was followed by another at the end of the eighties - and the current one, which is also the toughest.

At the end of last year UK construction activity was almost 15% lower than (a pre-Lehman-Brothers-going-bust) 2007 - even household names have lost pots of money. And, it could have been worse. Indeed, this time around, concerted global government stimulus (circa $US 1.4 trillion and counting) has not only ensured the very survival of the international financial system - it has also softened the recessionary blow (although it may not have felt like it).

But because the denouement was less precipitous, so the upturn will be commensurately more muted. Similarly, all developed national governments (our industry’s biggest clients) will be indebted to the rafters for a generation. State spending is being slashed - and taxes will rise inexorably. Secondly, given the identified mistakes and excesses of the recent past (especially in banking), we will all be more regulated.

But despite this (George Osborne says “because”), there are palpable signs of a private sector led recovery - with housebuilding leading from the front as it always does (and, yes, this is one area where the government has spent money). In the same breath, Persimmon and Travis Perkins are in the FTSE 100 (the latter for the first time).

More builders will go bust looking into the light at the end of the tunnel than when it was totally dark

In the wider building industry, though, this is also an intensely dangerous period and more builders will go bust looking into the light at the end of the tunnel than when it was totally dark, because this is the time when they need a lift on the working capital train, which, in the current climate, may not be made available by the banks.

This is symptomatic, too, of something else that is different this time around. Integrity has gone out the window. As one contractor said to me about disputes: “People want blood now. A few years ago, you could walk around the block with the engineer, discuss the issues and reach an agreement. Not now”. Another said: “I have seen major contractors enforce the terms of trade on a particular job knowing full well that this will bankrupt the subcontractor concerned”. Even intramural there have been fall-outs between owners, which have culminated in litigation.

Is this caused by the severity of the downturn? Its universality? Or, maybe, the duration? It may very well be all of the above. Certainly, there has been a lot of “losing theirs and blaming it on you”. Naked selfishness. The building industry has always been one of hurly burly but it used to be more honourable and it used to be one where your word was your bond.

Tony Williams is founder of Building Value