Comment – Heading for a two-tier industry…

The length and ferocity of the recession is paving the way for a two-tier demolition sector.

The UK demolition industry is on the cusp of a step change that could alter the sector forever.

Yes, that does sound like scaremongering torn straight from the pages of the Daily Mail guide to modern journalism. But think about it for a second and you will see that the industry faces an almost perfect storm; one that could blow away a century of tradition in a single gust.

First of all, we have an unprecedented recession that has already claimed victims like Controlled Group, Armoury, Goodman Price and Border Demolition. We also have a seemingly endless upward spiral in fuel costs that make it difficult for smaller demolition companies to leave their native territories and compete for work further afield. Escalating equipment owning and operating costs mean that only the bigger companies can afford premium quality machinery, leaving smaller companies reliant upon ageing machines, cross-hire or the purchase of lesser-known equipment brands. And, of course, we have the ever-increasing administrative burden placed upon contractors large and small as they struggle manfully to stay on top of constantly changing legislation and regulation.

Taken individually, these factors are unlikely to upset the status quo. But these factors have now arrived as a deluge with the potential of sweeping aside all but the biggest and strongest companies in the demolition realm.

It is almost three years since the Plimsoll Report into the financial future of some 800+ UK demolition companies first suggested that all was not rosy. Dismissed at the time as headline-hunting scaremonger tactics, that report identified:

• 255 aggressive companies that were chasing sales at the expense of prudence
• 251 demolition contractors that were in financial danger and that would struggle to survive
• A third of companies that were operating at a loss

The fact that just a handful of notable demolition contractors have called in the receivers since that report was published in July 2009 suggests that the “251 contractors struggling to survive” came from the “glass half empty faction within the Plimsoll organisation. But, if anything, its other two key predictions (above) have proved to be something of an understatement.

At this point, it is worth noting just what a client actually buys when he employs a demolition contractor. And for all the modern talk of partnership agreements and solutions providers, the fact remains that a client effectively buys three things:

• Specialist knowledge
• Specialist skills
• Specialist equipment

At present, these three things are neatly packaged under a demolition contractor umbrella, housed in a costly headquarters manned by an equally costly workforce using an increasingly expensive fleet of equipment. But this era could be coming to an end.

The industry already has a proliferation of demolition consultants that are variously qualified to advise on the most appropriate methodologies and whose business it is to stay one step ahead of changing legislation. And as Heavy Decom International (HDI) has proved, you don’t need a huge organisation or plush headquarters to support a specialist item of equipment that is available on a hire-only basis. And, if you’re working purely as a consultant or an operated equipment provider, you don’t need a huge amount of manpower and the tax, national insurance, health and safety and other administrative burdens that go along with it.

We have already seen a gradual leaning towards the industry’s big names when major public spending contracts are let. And with some of the UK demolition premiership having been hand-picked for the Magnox and National Grid framework agreements, it is a trend that shows no signs of abating. Furthermore, if the DemolitionNews email inbox and the industry rumour mill are anything to go by, there are a number of smaller companies currently staring down the barrel of collapse or cut-price takeover.

Should it happen, a switch to a two-tier demolition industry would not occur overnight. But the perfect storm of recession, escalating owning and operating costs and increasing administrative burdens are already changing the demolition landscape. How that landscape will look when the industry finally returns to some sense of normality, only time will tell.