Even fit-out contractor Overbury, which last year issued a press release on its euro-readiness, admits that none of its clients has asked about trading in euros. Managing director Steve Elliott still believes that the ability to price and be paid in euros will prove a plus point for its City clients, but feels that "people don't want to be the first and get their fingers burnt".
The euro's impact on the industry's accounting systems now seems likely to be a gradual process, picking up speed by the summer at the earliest. But if construction companies are tempted to settle back into complacency, then perhaps they should look at the wider economic picture.
The euro does not means only technical and practical problems for firms, but the opportunities and threats of greater cross-border competition, less currency volatility and more integrated financial markets.
Minimising exchange risk
The reduction of exchange rate risk in construction contracts is the first change that will affect UK firms, albeit not as positively as their Continental competitors. Until now, a contractor, supplier or consultant taking on a contract in a foreign currency carried the risk of costs rising if that currency strengthened, or its purchasing power in sterling being eroded if the currency weakened.
The euro has eliminated that risk for companies within Euroland, but only lessened it for UK firms that still have to work with sterling/euro rate changes. Nevertheless, the change could tip the balance for potential euro dealers. "Not many UK firms are tendering abroad, but for those that are, it's now less risky," comments one City analyst. "Currency risk is a big problem if you're working on wafer-thin 1% margins." Dutch construction giant HBG charitably predicts that removal of exchange rate risk could reduce costs for clients. "Currency risk is normally included in the contract. If you take it out, the project becomes cheaper," says spokesman Arno Pronk.
Consultants are also affected: Foster and Partners once experienced a "falling income stream" in an Italian lira-denominated commission, so its finance director Barry Cooke welcomes the fact that weaker currencies will be shored up by the euro.
HBG also raises the possibility that the euro could compete with the dollar and the yen as the currency of choice for construction contracts in the Far East or elsewhere. Such a move would favour Euroland contractors at the expense of UK-based firms, which would still risk sterling-euro rate shifts.
A single market for construction?
On the up side, sterling's independence could be the indirect saviour of UK building materials producers. For the past two years, sterling's strength has hit exports, but, argue economists, a strong and popular euro would exert downward pressure on sterling.
Weaker sterling could also make UK companies more attractive to European buyers, says industry economist Martin Hewes of Hewes & Associates. However, he believes interest is likely to be directed at the materials and aggregates sectors – as evidenced by France's Imetal's current bid for English China Clay – rather than at contractors.
Contractors agree that the single currency could help achieve the level-playing field of cross-border competition that the single currency was designed to introduce in 1992. Quoting all prices in euros in the European Union's Official Journal and reducing exchange rate volatility will make it "easier to compare subcontractor and supplier prices across Europe," a Bovis spokesman says. HBG's Pronk agrees: "In the procurement stage, you might be more likely to get quotes from suppliers outside your own country." But an increase in cross-border estimating is not seen as a forerunner to cross-border travel for main contractors, as the euro will not homogenise the national and regional variations in markets that are the traditional barrier to international trade. "To take up a contract in a new region, you need to know about the culture, the workforce and the suppliers. Currency risk is not the largest risk," says Pronk. "I don't see that the euro will affect an Italian contractor's ability to work in Spain, or vice versa," agrees Amec group finance director Simon Batey.
But one area where Batey does feel that the euro will have an impact is project financing. Most European countries have had much tougher restrictions on the outflow of capital than the UK, and some of these restrictions have disappeared. "The euro has the potential to create larger capital markets for project finance – German funds for UK hospitals, for instance," he predicts. Hewes agrees: "I think it will definitely widen the capital market." Meanwhile, the consumer goods sector expects the euro to usher in a new age of pricing transparency, where manufacturers can no longer sustain different pricing structures in different countries. But the same phenomenon in construction – an equalisation in the prices of products, materials and projects themselves – is not thought likely, since industry suppliers tend to operate locally. "There could be an effect, but I think it would be minuscule," comments Davis Langdon & Everest associate Peter Fordham. "And as for wage harmonisation, I expect that's at least a decade down the line."
Learning the new rules
Other changes could be fairly subtle. For instance, levelling the inflation and currency playing fields could make pan-European benchmarking studies easier to compile and more common in government exhortations for greater efficiency. Likewise, corporate performance in the industry could be more readily compared across borders when companies start to report in euros.
It is clear that the new currency has rewritten Europe's financial rule-book. Although some of the forecast implications of the euro may prove to be mere hype, and some will disappear if Britain joins Euroland, the length of the list should make it clear that preparing for the euro goes far beyond updating software or opening a euro-account.
