When appearance is everything, taking work at any price becomes a tempting but risky solution. But signs of recovery suggest there’s no need to panic, says Richard Steer
This year has started as I believe it means to continue. It is going to be the year of mergers and acquisitions as the inflated forecasts and false dawns that have kept many businesses afloat are stripped away and their financial frailty becomes apparent. The vultures are circling and those feeding at the waterhole are getting twitchy.
Let’s look at the current picture. Mouchel is resisting bids from Costain and an assortment of potential suitors; the twitching corpse of Rok is being carved up by all and sundry and the corporate slide rule may be run over more than one consultancy in the quantity surveying and project management sector. The rumour mill is churning away like a turbo charged cement mixer.
Since we took down the Christmas decorations, I have heard of one QS consultancy that is “rumoured” to be in financial difficulties and another that has apparently been courted by the Americans looking to replicate last year’s Aecom deal with Davis Langdon.
It is possible to ignore the speculation if you are independently funded and managed, but if you are controlled by the stock market or a bank then you will feel the need to show that you are winning business - no matter how unprofitable. This may explain why 2011 has kicked off with some firms “buying” work in an effort to stay solvent, as well as to appear busy.
In recent weeks we have seen several projects go to the lowest bidder where the price quoted has been completely ridiculous. They will make a loss but believe that it is worth it to seem busy. Herein lies the route to madness. During challenging times, cut throat bidding has always plagued our industry but at the moment, underbidding in this way is distorting the market. The client will lose out in the end as corners are cut and jobs fail to be completed. I am sure that my own organisation has been guilty of this at some time and of course we all want to win work. However, this is the equivalent of using a stinging nettle to hide your genitals rather than a fig leaf. With so many predatory bidders from across the Atlantic and Europe eyeing consultants for perceived weaknesses, you may as well put up the white flag and get Del and Rodney to sort out a sale price.
Get a grip: it is not all bad out there. In spite of the latest negative predicted output figures we are seeing some sign of recovery in commercial property. The sector has realised that there is a shortage of stock, and rental values climbed 14% across London last year as restricted office space continued to drive up rates.
Capita Symonds has said that at the root of this lies the dwindling stock of grade-A space and a development pipeline that is at a historically low level. In the city, just 1.3 million ft2 is due for completion in 2011.
If you are in the Manchester, Liverpool or Newcastle, areas that have been hit hard by the public sector cuts, you may feel this is irrelevant. However, where the South-east leads, the ripple effect usually follows.
In my own business we are finding projects coming from commercial landlords who want to quickly reconfigure space or refurbish property in an effort to capitalise on the shortage of space before larger developments like the Shard come on-line. The hotel and leisure sector is also aware that there are simply not enough hotel rooms to meet the demand to be brought on by the Olympics. London needs to get its act together. This means construction work and it is needed quickly.
It is going to be a long, slow, grind to get out of recession but clients know that it is a good time to buy. We all need to be careful how we price our work, for the decisions made today will need to be paid for tomorrow. Commodity and oil prices are not going to drop dramatically, the demand from the Asian continent is still going to skew supply and inflate costs but also offer opportunity. Our labour costs may well also start to rise due to skilled artisans leaving the industry in recent times.
Finally, if you still want to be part of a business that has an established name and heritage in which you can feel pride, then my suggestion would be not to panic and not to take work at any price. Apply basic economics and learn the lessons of the past few years. The waterhole has many feeders and you don’t want to be the one with the target on your back.
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