Chairman complains of overcapacity, cut-throat tendering and low margins as firm reports £1.8m loss.
Contracting is a "waste of bloody time", Birse chairman Peter Birse complained last week.

The contractor had plenty to grumble about, with his company reporting a £1.8m pre-tax loss on turnover down 14% to £193.7m in the six months to 31 October 1998. The company's shares fell 2p to a 12-month low of 8p.

Birse blamed the drop in profit on a combination of restructuring costs – it spent £500 000 making 10% of its staff redundant – and a fall in workload. The overall loss was compounded by a loss in its engineering division, Birse Process Engineering, although the company expects to make this up in the second half.

Birse said the company's strategy in the past six months had been to tender for work on better margins. However, this led to a 12.4% drop in construction turnover that offset the benefits of higher-margin work.

He said: "We tried to be more selective. Perhaps we've been overselective." He said the company will now be concentrating on increasing turnover. "We need to get turnover up and improve the quality of margins." However, he added that this would be difficult, as contracting margins remained tight.

"If you are working at margins between 1% and 3%, you need an awful lot of work to make money. Unfortunately, it only takes one or two bad jobs where you lose 5% to throw it all away."

The chairman said that this was not just a problem for Birse, but the whole of construction. "The industry has to stop thinking in terms of 1% profit margins, or it will never get anywhere," he said. "There are people who will take on jobs as a contribution to overheads only. I'm not discussing anyone in particular, but there are one or two people around who are prepared to win contracts for unacceptable margins."

Birse commented that the industry is still suffering from overcapacity, with hundreds of firms competing for work. "General building work is a bloody waste of time," he added.

And, according to Birse, tender prices remain too low. "I don't think the industry is ever going to do anything about it. What we have to do is find customers that we can strike a better deal with."

Birse has not won any private finance initiative work, although the chairman did not rule out looking at it in the future. "We had a look at PFI in health, but we got messed about. We spent a lot of money and it was a waste of time. The result is too unreliable at the end."

Some contractors have protected themselves from workload fluctuations by diversifying into facilities management-type work, but Birse ruled out such a move for his firm. He said: "We are not into window cleaning or anything like that. Sitting on the side of a motorway fixing a crash barrier is not what I set this company up to do.

"I've got a belief that if you stay in construction and you keep on getting better at it when other people are getting out, you should do well in the long run. It should sort itself out." Birse said there were no plans to take the firm off the share market despite its shares consistently underperforming the construction sector average.