In the past few months, the construction industry has become an anxious and uncertain place. To help us make sense of it, we’ve asked a student, a subcontractor, a small builder, an architect, an entrepreneur, a forecaster and a consultant to form a panel.
They will keep us updated over the months ahead on how the recession is affecting them. Their first instalment, which begins our austerity special feature, doesn’t make pretty reading, as Roxane McMeeken and Emily Wright discovered.
The small builder: Markham Jones, Owner, 1st Choice Property Services, North Wales
The phone hasn’t rung in months. If things don’t improve, I’ll go bankrupt. No two ways about it.
People are terrified of spending money at the moment. If the roof has fallen in they might call a builder. But if you’re worried that you won’t have a job in three months, you’re not going to get a builder in just because you fancy a new kitchen.
I used to turnover about £500,000 a year but this year I’ve done £11,000 – it’s a derisory sum. Thankfully I don’t employ anyone and don’t owe money to any suppliers or subcontractors. But I do have a mortgage to pay and I’m not making anywhere near enough to do that. I’ve cashed in all my ISAs and I’m eating into my other savings. My car – a very nice Mercedes – will be the next thing to go. The value of my house has fallen about £100,000 but I’m not in negative equity yet. But I think the price is going to fall further. I know my mortgage provider will stand for me missing three months’ payments before the game is up.
I asked my accountant what I should do and he literally had nothing to suggest. The bank was no help either – they just tried to sell me insurance and advised me to keep my £10,000 overdraft but I know they won’t stand for me missing payments.
I’m 59 and I’ve been through two other recessions while I’ve been a builder and neither was as bad as this. In the last one people would put in their own kitchen but then they’d struggle with something like fitting the worktops so they’d call in someone like me. So there was at least a bit of work.
This time, it’s different. I’m an old fashioned builder–joiner and I’ll do anything, I’m not being fussy – I did one job recently that involved fitting two roof tiles – but there simply is no work around.
I have had a good life but it seems to be coming to an end. I’m being hammered and I don’t know what to do if that phone doesn’t start ringing soon.
The student: Jaymie Carmack, 21 Made redundant from student placement
I was working part-time for contractor Holloway White Allom while studying construction management at Westminster university. I was getting fantastic experience. Then it all came crashing down in October when Holloway made me redundant and stopped paying my university fees.
I tried not to be upset by it. It was a business decision and they did what they had to. I was shocked, though. I thought my future was looking bright and I was earning good money. I was making £21,000 a year.
I’m going to try and find a part-time job now, but it’s not going to pay that kind of money. I’m determined to pay for my course somehow, though. I don’t want to give up on construction yet, but I will probably not stick with construction management. I’m thinking of becoming a QS or project manager as I think I’d have more job security.
I wanted to join the industry because it has a shortage of women so I thought I’d be in demand. It doesn’t feel like that now though.
The subcontractor: Diane Johnson Director of electrical contractor Northwich
We’ve tenders out worth £2.4m but nothing is happening with any of them. We’re doing okay for now, but come next year, if none of those tenders come off, we won’t be able to keep on the workforce we’ve got, particularly our apprentices.
We’re seeing more and more double tendering. You go in to tender with a main contractor and he wins the job, so you think you’ve got the job. But then the contractor comes back and says you have to tender again – basically he’s asking you to cut your price. It means profit margins are being cut from 12-20% to 5% or even less.
Training is suffering, too. This year we had 50 staff including 15 apprentices. But we’re down to 45 because we had to let five apprentices go after they’d finished their training.
We’re a family business, so succession is really important to us and that’s why we’re keen on training. But with things so tight, how can you factor in an apprentice when you put in a price?
We were hoping 2008 would be our best year ever. We had done £1.8m in turnover between April and August and I’d hoped we’d do £2.2m for the year to April 2009, but I doubt we’ll make that.
One advantage we’ve got is that we own our premises so we’ve not got rent to worry about. But we still have a fleet of 23 vans, 15 apprentices, mobile phones and staff costs to cover.
We’re not having too many issues with late payments at least, although maybe some are coming through a couple of days later. I’m pleased the government has said it will pay in 10 days – but will it come down through the supply chain?
The start-up: Mark Kennor Founder, Pure Fit Out
Our timing is clearly fantastic – we got our first contract around the time Lehman Brothers went down. To be fair, we had the idea to launch Pure Fit Out in March, when the economy was not in such a desperate a state. It was before people were saying we were definitely in for a recession.
I’m still upbeat but we’ve obviously had to revise our plans. We were aiming for £2.5m turnover in our first
year. Now it’s £2m. We have also got to go after a wider range of work. The initial plan was to stick to luxury hotels but we’re now also looking at leisure, offices and residential jobs.
In some ways we’re better off than the big boys. We don’t need loads of jobs to keep us going because there is only me and my business partner to keep employed. And because we’re a start-up, we’re working from home and on site and we’re paying ourselves nominal salaries. So we don’t have the overheads of a large firm.
I also think if we can keep ticking over through a downturn, we’ll come out of it extra strong. [Boxer] Nigel Benn used to train at altitude and have a couple of pints of blood removed. When he got back down to sea level and had the blood put back in, he’d be fully charged up for a fight. I reckon we’ll be like that and come out of this fighting fit.
Personally, I am finding that I’m having to cut back. I lived a fairly affluent lifestyle – I’m a big fan of mini-breaks. I won’t be going on any of those for a while. Maybe I’ll go on the odd camping trip!
The architect: Pascale Scheurer Director, Surface to Air Architects and RIBA Trust Board member
Despite the downturn we have been incredibly lucky. We have chosen the right sectors to be in, like education and other public work. I can’t reveal exact financial details but we’ve doubled our turnover year on year and expect it to continue.
We haven’t been asked to revise designs – all our projects are going ahead as planned, in both the public and private sectors. We have noticed our clients getting better value for money, as contractors are pricing tender returns more competitively, which is great.
In these circumstances, when it comes to redundancies, the mistake people make can be not cutting enough – if job cuts are necessary then it’s a case of more is more. The way we’re cutting costs is by using freelance designers. It may not sound cheaper in the short term, but when work is so up and down it’s the most cost-effective way to hire people; it means they are not doing nothing when things go quiet. I would also recommend the option of asking people with families about four-day weeks. They might well be keen on that idea anyway and you will have a happier employee and save 20% and will probably get the same level of efficiency from them.
Nobody knows yet how serious things are going to get, but some things are certain. At the start of the year, we were seeing young people coming straight out of college asking for £30,000. And some weren’t even that good. Now people are struggling to find work. We have seen the number of CVs landing on our desks increase five-fold every week.
This is the first recession I have worked through and I’m hoping that I’ll learn a lot from it.
The consultant: Steven Barker Partner, RLF property and construction consultant
For us, local authority work has been a saving grace as the housing market has dried up, so we are holding up quite well. For SMEs like us, I think we should be encouraged that there are noises coming from Gordon Brown and old Darling Alistair that small firms will be helped out by government, although it is difficult to say much more until we have been given some details.
Turnover to May 2009 is expected to be about £13.5m with £1.8m profit, down from a predicted £14.6m and £2.2m this year. This drop-off is owing to schemes being stopped or delayed, mainly in residential, retail and offices.
The way to survive the tough times is planning and preparing, in my opinion. That’s what we’re doing. We have made projections and gone through every what-if scenario and come up with contingencies. We haven’t had to lay anyone off yet and we don’t go in for scaremongering ,but the key in difficult times is to try and be as open as possible. As far as recruitment is concerned, we’re reviewing our strategy.
I am 52 and therefore officially a grumpy old man and I actually think that we needed a correction. Not a recession, which is unfortunately what we’ve got, but definitely a change. Not too many months ago, people were borrowing five times their salaries to buy a house. That’s silly money and people need to go back to being more sensible. It is this kind of ludicrous spending that catapults businesses into doing the same and that’s where we saw all this out-of-control lending.
I noticed that construction and property became full of unprofessional people who felt they could make a quick buck. Institutions should only lend to experienced people who know what they are doing. Property is a complicated business, but it was made simple by uncontrolled lending in the market. So I’m actually happy there has been this forced change.
The forecaster: Michael Ankers, Chief executive, Construction Products Association
We don’t have people ringing us up every day saying, “Oh my God, oh my God.” It’s not that dramatic yet. But we are seeing companies coming to us wanting our economic information and research so they can be better prepared. There is a thirst for knowledge.
We haven’t seen a lot of complaints coming through to us. It’s mainly just people mentioning an increase in bad payment practices – and we’re being alerted on a regular basis, of course, to redundancies. But that’s the extent of it so far. I have also had meetings cancelled with companies who suddenly find themselves having to make cuts or rethink their businesses – meetings become movable and less important.
It is worth remembering that despite the downturn, there is still about £70bn worth of work to be won. It’s not all doom and gloom. But the recession will change the industry; there will be casualties. It is still too early to say whether the industry we have in 2012 will be one we’d recognise now.
In an effort to gauge the mood of the industry, we will be returning to our panel at regular intervals to find out how pessimistic they’re feeling about the times ahead. In an entirely unscientific fashion, we’ve asked them to rate their mood on a scale of 0-10, with 10 being very pessimistic indeed. An average of all seven ratings will then be taken as that month’s “Grimdex” forecast.
This month’s ratings are:
- Markham Jones 10
- Diane Johnson 9
- Michael Ankers 7
- Steven Barker 4
- Jaymie Carmack 3.5
- Mark Kennor 3
- Pascale Scheurer 2
- Gloomwatch average 5.5
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Gloomwatch - Building's industry panel assesses the downturn