Date Published: 28th November 2012
The Leicester "Economic Action Plan" has come too late to save one of Leicester’s most well established family building and construction firms J H Hallam (Contracts) limited. John Kelly and John Lowe, from business recovery specialists Begbies Traynor, also believe it does not deal with the problems faced by the construction sector and call for more government initiatives to develop building and infrastructures before even more firms go out of business.
There is so little work available construction companies all compete for the same contracts reducing margins to even negative levels, believing they can regain profits via increased productivity on site and maintaining a more austere approach to sub-contractors’ accounts. Whilst this may appear to benefit the clients the reality is many of the companies like Hallams fail and create extra problems for the clients.
John Kelly, regional managing partner at the leading corporate recovery firm Begbies Traynor and one of the joint administrators who has been dealing with construction companies for over 30 years, also believes the sector needs major reforms if it is ever going to perform well.
The sector has been dogged by disputed accounts, poor payments and bad debts, clients get locked into endless arguments about final accounts and sub-contractors go bust because they cannot survive without being paid.
Construction companies end up having to incorporate all aspects of their perceived financial entitlements into their final accounts in the knowledge that the client will expect to dispute the costs. Kelly calls for a more open approach between clients and construction companies and a change in the standard contract terms that still favour the client. Some improvements have been made with some contracts operating on a "cost plus" basis but even that can lead to disputes.
Kelly acknowledges it is unlikely ever to be perfect as construction works often unearth unforeseen problems and the clients hold the purse strings. However, the wasted effort in continuous disputes could be turned into lower costs and improved profitability if improvements in contractual terms could be developed.
In the meantime Kelly calls on local and national government to kick start the construction recovery by implementing building and infrastructure work if they want to avoid more failures like J H Hallam.
Mark is a Partner based in our Birmingham office, but covers the whole Midlands region. He is a Chartered Certified Accountant and also a Licensed Insolvency Practitioner. He joined Begbies Traynor in 2005 having previously gained his ACCA qualification and now has many years restructuring and insolvency experience. He regularly advises directors, management teams and lenders of insolvency options across a range of different sectors and also frequently prepares independent business reviews.