Building firm pins losses on public sector housing deals

PERTHSHIRE construction company Algo has blamed pre-tax losses of £3.5 million on two local government contracts.

Bosses at the firm said they would have recorded a profit of more than £722,000 to June 2023 with the contracts treated as exceptional items in the annual accounts.

Algo signed fixed-price deals to build social housing projects in Kirkcaldy and Dundee, with Fife Council and Caledonia Housing Association respectively.

A regeneration project of 36 flats in Kirkcaldy and a housing development on Coldside Road were awarded in 2019.

Director Murray Alexander said Algo tried without success to renegotiate with Fife Council and Caledonia after building material costs rocketed by 40% – resulting in a gross loss of £4.5m.

And the director warned building firms could be put off in future from taking on “much-needed” social housing projects.

The rapid rise in building material costs, inflation and the cost-of-living crisis resulted in a shortfall for the firm, which still “honoured” the contracts and completed the builds.

Mr Alexander said: “The contracts were negotiated before the pandemic. The contracts are traditionally fixed price, allowing for 2-3% inflationary costs.

“But we were hit with at least a 40% increase in material costs over the course of the contracts.

“We tried to negotiate because of the severity of the increases – we got a little bit from Fife Council, but nothing

from Caledonia. Algo was able to pull on resources from elsewhere to complete these contracts.

“There is a real need for affordable social housing to be built, but government rates have not caught up with post-Covid inflationary costs.”

He added: “We have learned a lot. We think now: ‘Do we go back and do more?’

“Perhaps, but it needs to be at a much more increased rate where we can actually afford to pay our subcontractors and come out the other end.”

Fife Council was asked to comment. A Caledonia spokesperson said: “It would not be appropriate for Caledonia Housing Association to comment on a third-party supplier’s annual accounts.”

Builder Algo’s headquarters in Perth.