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Hudson Contract’s predictions for 2019

Following on from the review of 2018, Ian Anfield predicts top subbies will earn £1,000 a week in 2019, and takes a controversial stance on several issues you’ll be hearing more about in the next 12 months

. . . LOOKING FORWARD

Top of my New Year wish list is that in 2019, our large housebuilding firms and major contractors will be held to even closer scrutiny by their shareholders, the government, and the public.

After all, Carillion has shown us we can’t rely on accountants and auditors.  Carillion’s core skill seems to have been PR, and their books are so complex they could tell any tale they wanted – right up until we all discovered it was, in fact, a horror story worthy almost of Stephen King.

It makes you wonder if the likes of Kier, Interserve, and others are any more robust than Carillion was, and I predict 2019 will see yet more selling of assets and subsidiaries, company mergers, restructuring, refinancing and endless management reshuffles at the top of the industry.

I also hope that local government procurement practices will be challenged in 2019.  

We’ve accumulated ample proof that large long-term frameworks agreements do not add value.  Instead, they slam the door on small local firms, drive up costs, and diminish service levels.  Like PFIs, lumping small works into large frameworks has to come to an end.  There’s a local builder within spitting distance of every pothole, leaky council house roof, or collapsed park wall in this country, and in 2019 we have to start using them.

Equally, there is a growing number of so-called Tier 2 construction companies that are far more agile, have leaner management structures, greater accountability and ability to deliver than the household name Tier 1 contractors.

The Tier 2s act as main contractors for selected clients and carry out their own developments when the opportunity arises, as well as servicing the major contractors when it suits.  If the industry wants leadership, this is where it should be looking . . . but then again, these guys are too busy earning money to sit on committees! 

And the skills crisis?

When it comes to skills – and the much-reported skills crisis – all the talk will be of Brexit.  However, pre Brexit demand for skills has been steadily rising since 2007.  

Meanwhile, skilled freelance builders have been earning £900-a-week on average during 2018 and unless consumer credit is tightened, this figure will continue to rise.  This is bound to attract headlines, but personally, I don’t see why subbies earning £1,000-a-week should be controversial.  After all, if the CEO of a housebuilder is worth £75m, surely the bricklayers, joiners and plasterers who actually deliver the product have to be worth £50k each?

Let’s not forget the CITB’s latest ‘initiative’ to bridge the skills gap.  They plan to follow up their £1m investment in their ‘Go Construct’ website with a further £10m of hard-earned levy payer’s money – starting with PR and marketing in 2019.

The aim is to compete with other industries for our brightest school leavers. The irony is, that apart from taking money from building firms and handing it to tech and marketing firms, the website is likely to achieve nothing. Tradesmen earning £1,000 per week will have far more impact and will create a much-needed draw.

What about offsite construction?

There’s been much debate and significant investment in offsite construction projects this year.  For example, in housebuilding, Barratt wants to achieve 20% of its total annual build as offsite construction by 2020.  Berkeley Group intends to build modular homes at its new factory in Kent.  And a new offsite factory in Yorkshire owned by Ilke Homes has a pipeline of 1,000 homes, built for as little as £65,000 each.

Offsite is not new, far from it, but it is financially risky, requiring large premises, high research and development costs, transport costs, and material and labour costs. 

Clients have traditionally tended to be large contractors who are notoriously bad payers, and many innovative and creative offsite manufacturers have been driven out of business due to cashflow problems.  

Now, with housing associations starting to stipulate that their architects and contractors must use offsite or modular structures – and clients becoming better informed, better engaged with design and delivery, and managing the project finances – offsite could begin to succeed on a larger scale.

The biggest danger in 2019?

Construction is on the brink of a huge financial shockwave . . . one that could lead to many failed businesses.

HMRC plans to launch reverse charge VAT rules on all CIS transactions from October, meaning sub-contractors will not collect VAT when dealing with construction industry clients, but will have to pay it out on invoices to materials suppliers.  

Only small firms that deal with domestic clients outside CIS will be unaffected. Everyone else needs new accounting methods and careful financial planning to soften the impact on their cashflow.

Ian also takes a look back at 2018 - read the full article here

Ian Anfield

Ian Anfield

Managing Director, Hudson Contract

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