Huge pressure on construction contractors

Madam, – Seeing two construction companies fold in Dundee breaks my heart because I know how hard the management will have been working to save their businesses.

I know the stress they will have been under.

Firstly, works have to be ‘estimated’ where we make many assumptions which might not be clear at tender stage.

We then have to compete against, often, six other contractors for the work.

So prices have always to be skimmed to the barest minimum before works even start.

There is no payment for all the efforts put in to tendering.

Only the successful tenderer gets any form of reimbursement.

Once secured the works will proceed but payment terms become a farce.

Many contracts state 45-day payment terms, but that is seldom met.

Works carried out in January are invoiced at the end of the month but seldom paid until the end of March, meaning the contractor has to finance three months of costs.

It could be a lot longer if the client decides to challenge any of the charges made.

Things have eased a bit but we as a specialist company went through many years of average payment times from issue of invoice to payment of 96 days, thus we were financing roughly 126 days business.

You then have to add into that a 5% ‘retention’ that the client will hold on to for a year after completion of the contract.

That can be reduced to 2.5% if all works are approved, but it is still 12 months after the ‘final’ invoice.

We cannot pass this retention on to product suppliers who demand 28-day payment terms .

McGills will have struggled through December and January because of the two week shut down over Christmas and New Year where each month is reduced to three productive weeks.

Contractors also have two full weeks wages to pay out with no financial return.

I appreciate that other industries have the same problem but they do not have the same tendering pressures as the construction trade.

When pricing contracts you have to assume maximum productivity and cannot make accurate allowances for weather restrictions such as rain snow frost or, believe it or not, extremely hot weather .

The ‘hot’ period’ of 2018 cost my companies a lot of money, because many of the products we use have temperature restrictions on them.

Also, tendering is often done well in advance of a contract proceeding, so inflation may have occurred between tender and contract start dates.

There is a process on larger projects to make claims for inflation but not on small contracts.

Even claiming back the time formulating a ‘claim’ is often more costly than the inflation so it creates a negative return.

I read so often of the work related stress of doctors, teachers, bankers etc, and I shake my head.

My staff work ‘silly’ hours under constant stress to achieve quality and meet completion dates which are seldom realistic .

I would say a 12 hour day and a six-day week are fairly standard for my managers. They are also likely to drive 800 to 1,000 miles a week travelling round contracts.

As well as estimating and contract management, they have to be social workers, dealing with the problems of a wide range of operatives .

We receive approximately 2,500 tender inquiries per annum which have to be priced.

Our success rate is approximately 10% although it used to be 30% only 10 years ago .

However it was 30% of a smaller inquiry level.

To all the staff at McGills I offer my sincere condolences and am so sorry that you have been put in this dreadful situation.

Fraser Bruce. Managing Director, The Fraser Bruce Group.