More credit crunch financial woes

Contract Journal has been tracking the impact of the withdrawal of credit insurance available to construction suppliers – a problem that 62% of respondents to its online poll say they have been experiencing.

The problem mainly affects product suppliers, supply and fix companies and small contractors who would normally carry insurance against the risk of a client going bust and not paying their dues. With the current insolvencies and trading difficulties in the sector, insurers have been withdrawing cover – CJ estimates there is £15bn in the market compared to £25bn a year ago.

Now CJ reports that the insurance drought is preventing companies from bidding for possible new work. Barry Mingay of KB Floors, has already taken a £40 000 hit after two insured clients folded – but after Mingay’s insurer had downgraded their credit status to zero, denying the £2m a year company a payout.

Now Mingay says: “There have been six cases where, as a result of credit cover being pulled completely, we’ve said “no” to work that was on offer.”

Also in this week’s CJ, speculation that the three-year Working Rule Agreement on site wages will have to be replaced this summer by an interim 12 month agreement to respond to the upheaval and uncertainty in the sector.

The unions are expecting employers’ representatives to make a 0% pay offer. A union source told the magazine: “I’d expect them to start off negotiations with an offer of nothing when talks get underway. We might go for a 12 month agreement this time and see how different the world is in 2010.”

The WRA governs minimum wage rates for thousands of construction. Although actual rates are often well above the minimum, it is regarded as a safety net below which wages must not fall. In the light of reported pay cuts – PC Harrington is said to have cut rates by 15% - the WRA rates will become more significant.

Meanwhile, Building carries a report that Tesco has asked the architects of its stores and property developments to reduce their fees by as much as 20%, having already demanded reductions in invoices presented by QSs and contractors.

One architect said “Tesco is applying the same logic down the supply chain, and is more aggressive than most. We are under a lot of pressure.”

As Building adds, pre-tax profits at Tesco are likely to be more than £3bn when the supermarket reports in April.