Shortly after the autumn Budget, a story caught my eye. It’s a cautionary tale for all of us working in the built environment and concerns the holy trinity: Brexit, builders and banks.
It related the trouble Laing O’Rourke experienced in getting vital funding from the banks when it was unable to get its accounts signed off by auditor PwC. To the outside observer, there might not seem to be anything wrong.
One does not see queues of angry customers claiming that one of the UK’s largest contractors has failed to deliver. It is part of a consortium that won a £746m contract to build the Thames Tideway Tunnel and is one of very few UK organisations capable of servicing clients that need large-scale projects like Crossrail – on which it is currently working.
The issue with the banks was apparently one of confidence and process. Since the collapse of Carillion and with Brexit flattening the market, no one wants to be caught holding the metaphorical baby if things go wrong – and it has been reported that Laing O’Rourke filed its 2017 accounts five months late.
However, let’s look at the forward order book. We need 300,000 new houses per year, we have just had another £1bn put into infrastructure by the government, and Hinkley Point, HS2 and Heathrow all represent significant opportunity. The construction industry, which showed modest 2.1% growth in output during the last quarter, will pull through this moribund and depressing period, but it will need support from the banks to do so.
What worries me about the Laing O’Rourke story is that the industry has seen a number of its core firms disappear this year. This has put pressure on others in the supply chain to pick up the slack, slowing down all the regulatory, financial and administrative processes. Chief executive Ray O’Rourke said in his response to news of the audit block: “We have nation-building infrastructure to deliver. It’s a tragedy to see the industry starved of oxygen like this.”
If firms upon which we are reliant disappear due to short-term financial issues, the taxpayer will end up losing as the few that are left will charge more to build. It is basic supply and demand economics and this could be an expensive and unwanted long-term legacy of the Brexit downturn. Perhaps the Treasury needs to put pressure on banks to look to the long term.
After all, the Chancellor himself is a beneficiary of the trust that owns a controlling stake in contractors Castlemead Group, a property and construction firm that slumped to a loss in 2015. One cannot but wonder if this firm had a sympathetic bank to help it over the bumpy period.
Richard Steer is chairman of Gleeds Worldwide