“Only when the tide goes out do you discover who’s been swimming naked”.

Alastair Stewart

Warren Buffett’s investment maxim sounds particularly apposite in light of the police investigation into alleged bribes in London construction.

Alastair Baird, the head of Barratt Developments’ London division, was arrested by the Metropolitan Police on 19 October and suspended by the company the same day.

A former Barratt London employee was also arrested, “on suspicion of bribery”, according to the Met.

Barratt Developments released an official Stock Exchange announcement confirming the arrests and the suspension of Baird, the regional managing director for London, one tier below the main board.

Police logo

The arrests, it pointed out, resulted from Barratt alerting the police in April 2016 to the initial findings of an internal investigation, which had begun in August 2015 following an internal audit and related “to possible misconduct in the process for awarding and managing certain material and subcontract supply contracts in the London region”.

The investigation also led to civil legal action that commenced in October 2015 against an employee who was dismissed in February 2016, the statement continued. The Met said that investigations were ongoing.

That much we know. It remains to be seen what type or types of materials and subcontracts are involved.

‘Klondike take 2?’

A further question is: will the net be spread wider than the one company? Barratt indicated in its announcement that it was a London-specific problem: “London procurement processes differ from wider group processes, reflecting the non-standard and one-off nature of London construction projects.”

A scan of the division’s projects shows they come in all shapes and sizes, but contain far more towers than in any of the other regions, where the standard products are mid-sized detached homes or semis and are very replicable.

Any observer of construction in the capital over the past few years could be forgiven for comparing it with the chaotic conditions in Gold Rush-era Klondike.

Securing subcontractors has been a major headache, as has trying to stop them then walking off site to rival offers. With skill shortages and construction delays, monitoring the supply chain must be a challenge to any company’s management.

Klondike gold rush

Klondike prospectors ascending the Chilkoot Pass — Source: George Cantwell/Library University Washington/Public Domain

Costs of building developments have skyrocketed. Sales rates, however, have slowed and there is plenty of chat about developers now offering bulk discounts.

Any suggestions that individuals up or down the supply chain have privately enriched themselves could be leapt upon in an attempt to claw back some of the cost overruns.

Are there other areas ripe for scrutiny? London has gone through one of world history’s great property booms, with cash flooding in from all corners of the planet, some with more questionable provenance than others.

With private and public sector resources cut back and the volume of property deals at record highs, the task of oversight has been inevitably stretched.

There appears to be growing evidence that the tide is now turning in at least the high-rise new-build segment of London’s residential market. Only time will tell whether any of its participants are going to get caught out.

Alastair Stewart is an equities analyst and commentator