Or one where firms know they’ll lose money on the contract they are about to sign?
An environment, indeed, where any variation in the final settlement usually means endless arguments or bringing in the lawyers?
Welcome to the world of construction, 2011-style.
I was chatting yesterday to Robert Moyle[pictured], the chairman and chief executive of North Midland Construction, the biggest home-grown construction and civil engineering outfit in Nottinghamshire.
Moyle is a thorough-going gent who rises above mud-slinging. On a more pragmatic level, he has been running his business long enough to have seen robust commercial behaviour many times before, and the nature of North Midland’s business means it is insulated from the worst of it.
But he was concerned, nevertheless, about a commercial environment in building and construction which is having a corrosive impact on the contracting chain. And the lower down you go, the worse it gets. In building, small and medium-sized contractors have been suffering a hand-to-mouth existence.
The re-pricing issue is a problem which has been seen among those who tender for public sector contracts. The contract spec is issued, the tenders come in and then comes a request for a new tender to a different spec. Sometimes it’ll happen again. And again. In a climate of financial uncertainty, the work never goes ahead.
Private-sector building, though, has turned into a dog-eat-dog environment, one where business is so scarce that desperate firms are scrapping for contracts to the point where their tenders suggest cash flow is good news, profit is Christmas.
This is what Moyle told me yesterday: “Some of the prices I’ve seen quoted are absolutely crazy. The policy people are adopting is ‘screw the supply chain’ and the sub-contractors are suffering in a major way.”
This can manifest itself in a number of ways, most of which will come as no surprise to seasoned observers of the trade: paying late, paying less, or not paying at all. And this among businesses who can’t afford lawyers. You don’t need to be a business recovery expert to imagine the consequences.
Moyle and NMC are doing their bit. What has, historically, been a fairly paternalistic company has a high proportion of people who are directly employed. “We’ve got a good supply chain and we do what we can to keep our partners going – better payment terms, whatever it takes.”
But he may well be a lone voice, and the worry is what this is doing to an industry which is now in its fourth straight year of extremely difficult trading conditions. It hit the skids first when the housing market fell over in the immediate aftermath of the credit crunch, had to cope with a recession which took the shine off most areas of the market, and has now seen large-scale public sector work dry up.
There are no easy answers to what is, at heart, a consequence of an economy still trying to find its feet after a catastrophic financial collapse. Businesses are tentative and prefer to manage growth within existing or temporary resources, banks are reluctant to lend against anything remotely risky and they still have a boat-load of debt related to the property collapse.
For Moyle’s NMC, there are plenty of profitable markets. It doesn’t just build – it is a civil engineer, a mechanical and electrical engineer and it is locked into a series of large-scale framework contracts involving utilities, telecoms and power engineering – all sectors with strong, long-term prospects driven by the need to invest in the UK’s infrastructure.
But his business is sizeable, and the exception rather than the rule. Outside the world of domestic home improvements, the lower reaches of building are a fraught place to be right now.
The signs are that its prospects will improve decisively only when the economy locks firmly on to growth.
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