Margins for error

The sum of love is what you have to pay for it and any time you get it cheap you have cheated yourself.

‘Never again’, ‘lessons will be learned’, ‘preventative measures’: all phrases that are trotted out in the aftermath of disaster, phrases that, all too often, are just that.

World War One was supposed to have been the War to End All Wars, and look what happened there.

We’ve heard those words post-Grenfell, and post-Carillion-collapse too. And yet – even as the dust of the Grenfell Inquiry settled, and the CCPI took shape to ensure the golden thread of product information -, there was a devastating fire in a high-rise in Dagenham, and contractor ISG went into administration, taking thousands of jobs and millions of pounds throughout the building supply chain with it.

The press release that accompanied the news of the descent into administration of the tier 1 contractor is full of the usual accountancy fluff: liquidity constraints, the directors explored a number of options, a suitable purchaser could not be found – i.e. One with deep enough pockets to fill the gaping holes in the ISG cashpot.

All meaning one thing: that the company had operated for two long on the tiniest of margins, yet still managing to fill its shareholders’ pockets with dividends and its top executives’ pay-packets with the wonga. Lots of it.

ISG employed around 2500 people. Of those, only 200 are still employed, on a temporary basis to help the administrators to wind the business up. 2,200 people are now out of a job. It’ll end up being more than that though.

ISG had eight trading divisions, 22 live public sector contracts worth £1.15bn. There are lot of people in business other than ISG who are relying on those contracts continuing, those building supplies being bought, on those buildings being completed, those buildings being put into use.

We are still seeing too many instances of companies buying into what appears to be a broken economic model, one which means low margin contracts are deemed worth the risk, and where contingency funds are more akin to a handful of change pulled from the subbie’s pocket, than a properly planned fund for emergencies or unforeseen circumstances. On a side note, how many of Kevin McCloud’s Grand Design projects end up spaffing through their contingency funds before the half-way advert break?

The repercussions of this sort of short-term, lowest common denominator aren’t just for the industry as a whole. There are people involved. People with mortgages to pay, rent payments due, bread to put on the table. The CEO of a large plc company with thousands of employees is changed, first and foremost with getting the best value for the shareholders of that company. However that CEO is also ultimately responsible for keeping, as far as they can, the people employed through the chain below them, juggling that requirement with the need to maintain shareholder value. That’s capitalism, it’s economics 101, and is, or should be, why they are the ones to get paid the big bucks.

I’ve spoken to numerous independent merchant owners who tell me that their responsibility doesn’t end with the bottom line, that the name over the door means something more than just counting the pennies, but I don’t think that that attitude is confined solely to those who own the company, or who are below a certain size. The problem though is wider, and comes down to the fact that the bigger you get in construction project terms, the more likely it is that it will be run on very thin margins. You only need one project to go wrong and get delayed and you start to have cashflow issues.

It worries me that we can get to collapses like this with precious little warning, or that the warning signs are ignored.

We may have a construction problem in this economy; we also have an oversight and accountancy problem.