Why I believe the UK demolition industry could be heading for a fall.
I am worried. Now anyone that knows me will tell you this is perfectly normal. Worried is my default state. I worry about everything. But in this instance, I am not worried about me, my family, my friends or even my football team. I am worried about the UK demolition industry.
Now before I tell you precisely why I am worried, I have a confession to make. It is an admission that does not show me in a particularly positive light. And it probably tells you more about the nature of news journalism than is, perhaps, appropriate. But what I am about to tell you does reveal the source of my concern, fear and trepidation.
For as long as I can remember, I have kept what I refer to as a watch list of UK demolition companies that, for one reason or another, I believe to be in financial trouble.
On a very few occasions, I have added companies to that watch list based upon my own research. But generally, the companies on that list tend to have arrived there because someone else has expressed a concern about their financial wellbeing.
Now I realise that – like any industry – the demolition arena is not above the invention of scandal. I realise that some within the industry enjoy a spot of mischief-making, rumour-mongering and Fake News, often at the expense of their nearest local rival. And I also realise that such actions can be fuelled by a myriad of factors ranging from the failure to win a contract and the poaching of staff right through to a simple personality clash.
But, even allowing for all this, my watch list today is at its longest for a decade. In fact, the last time my watch list was this long was when the full extent of the last recession had started to become clear. And that is just one of the reasons I am concerned.
For more than 10 years now, I have worked with the Builders’ Conference, a trade association and market intelligence provider that charts the highs and lows of the UK construction sector. If you have ever heard an episode of our Business Briefing podcast, then you will be familiar with the accuracy of their data.
Since I started working with the Builders’ Conference, I have seen average monthly contract awards totals fall from around £3 billion per month to barely topping the £1 billion per month mark at the height of the recession. I have then seen that figure grow and grow. I saw it hit and then remain at £4 billion per month for 11 months of 2018. And I have seen it top the £6 billion mark three or four times in 2019, despite the ongoing and seemingly never-ending Brexit saga.
Driven by housing and landmark projects such as HS2, the UK construction industry is doing really rather nicely.
However, it seems to be a different story here in demolition, even though the fortunes of the former almost entirely dictate the fortunes of the latter. When construction sneezes, demolition catches cold. Yet when the UK construction industry is enjoying a period of almost unprecedented stability and good health, a good many UK demolition companies are scratching around for work and some are looking rather sickly. But why?
Part of the issue might simply be one of timing. According to Neil Edwards at the Builders’ Conference, the average time between contract award and the first spade in the soil is generally around 22 weeks.
Since demolition is often the first responder on a project, that means that demolition firms are currently starting work on projects that were awarded in November and December last year. And let’s not forget that December was comparatively quiet compared to the rest of 2018.
But that is only a minor issue in the grand scheme of things. And a shift of a week or two – while inconvenient – is not going to jeopardise the financial stability of an established demolition firm.
And we also can’t lay the blame for the current situation at the door of Brexit. Yes, it has been a protracted and frustrating saga, one that has revealed more about the political classes than they would have liked; one that will be taught in schools in decades to come as the very pinnacle of mismanagement.
But against a backdrop of government intransigence and economic uncertainty, construction has continued to grow. Indeed, in the month that Brexit should have become official, the monthly total for contract wards easily surpassed the £6 billion mark to make it one of the best months on record.
Maybe the make-up of the work is an influence.
During April 2019, the housing sector accounted for roughly half of all the £6 billion of new construction contract awards recorded on the BCLive league table. So, unless your demolition firm has close ties to the housing market, then immediately you’re out of luck.
Furthermore, while upsurges in housing demand normally fuel a similar upswing in the demand for new roads, rail links, airports, bridges and utilities, spend on infrastructure is currently not keeping pace.
That is compounded by a slip in the education sector. April normally marks an annual loosening of the government purse strings for the construction of new schools and for the refurbishment and upgrading of existing ones. So far, that has failed to materialise this year.
And then, of course, there is the perennial demolition problem of companies over-extending themselves while times are good while making no provision for when times turn bad.
All too often, demolition firms find themselves with expensive equipment that spends more time in the yard than it does on site. They find themselves with more staff than they have work for them to do. And, sadly, rather too many have enjoyed the trappings of short term success that can turn quickly into a long term debt.
The cost of staff, fuel, insurance and a multitude of other business critical costs have continued to rise while the amount that a client is willing to pay for a demolition contract has remained largely unaltered.
Yet for all of this, it appears that no-one is talking about it. Well, at least they’re not talking to each other about it. Instead, they’re talking to me. They’re telling me that larger companies are being forced to take on smaller works that a year ago would have been considered beneath them. They’re telling me that they’re having to work further afield to keep men and machines moving. They’re telling me that even some of the best known and most respected contractors are now finding themselves between jobs.
I can understand the fact that no-one wants to be the first to hold up their hands and declare that they’re struggling. I know that such an admission would be perceived as a sign of potential weakness that might be exploited by a rival.
But unless the industry overcomes such concerns and actually comes clean about the true state of the UK demolition sector today, I fear that many are sleepwalking towards a disaster.
Now you know why I am worried.