Over the next two months we will be highlighting the impact that a main contractor’s sudden collapse can have on small building firms. This month, Professional Builder’s Lee Jones talks to carpenter Simon Huddart about his experiences.
In recent years there have been a number of high profile incidents of large-scale bankruptcy in the building industry, not least Carillion, which collapsed owing its supply chain a colossal £2 billion. That was the largest liquidation in UK history, affecting up to 30,000 smaller firms, and was indicative of the seismic shocks that can, with little warning, swallow up sole traders and SMEs.
Given the industry’s reliance on sub-contracting, small construction companies are uniquely vulnerable, as Kent carpenter, Simon Huddart can testify. “I started out just working on my own, when a larger contractor offered me a couple of new builds,” explains the 36-year-old chippie. “It wasn’t a job I could do without help, so I took on two other guys. More work like it came along, and we fairly rapidly had seven or eight employees on our books.”
Tradesmen will know it as ‘a knock’ but it is a phrase that scarcely does justice to the devastating impact it can have on a business owner who has painstakingly built up their firm, as Simon recounts. “We’d been occupied on a number of jobs in central London for a contractor with as solid a reputation as you could wish for. Not only had they been trading since the 1940s, they also held a royal warrant for building and decorating services to the Queen. They’d set up a new build division, undertaking very high end projects, and it was good work for us. Then, without any warning whatsoever, they suddenly went into liquidation.”
With carpentry contracts and workers on two different sites, Simon was left cruelly exposed. “There was no inkling from anyone in the company that they were in any way in trouble. In fact, just a week before we found out, they were pushing me to start on another job.”
On that occasion, the total loss amounted to £33,000, with little prospect of retrieving any of what was owed. When a main contractor goes to the wall, whatever funds remain are first settled on the likes of HMRC and the banks, leaving sub-contractors like Simon a long way back in the queue. “We received a letter from the administrators listing all of the failed company’s liabilities, including our own claim. I was eventually offered 4p for every pound, but even that has failed to materialise. I’ve since been getting letters around every six months for the last five years, which supposedly keeps us informed, but trying to contact them in return is virtually impossible.”
The result was a drastic downsizing in his operation, but Simon was able to battle through and continue trading. Eager to protect himself against similar future shocks, he then investigated what resources exist to protect sub-contractors against a main contractor’s bankruptcy – only to be disappointed. “There are insurance policies available but the premiums are so eye-wateringly expensive, you’d quickly be paying out more than you’d ever be owed,” he laments. “Similarly, invoice factoring is an option in other sectors but, because construction is such a high risk industry, it’s not even offered to the likes of us. Not only that but I’ve never been paid on time by any main contractor I’ve ever worked for. You only ever see the profit in a job two or three months after it’s finished and if something like this happens then that’s completely wiped out.”
The predicament of Simon, and millions like him, is exacerbated by that perennial problem of late payment. As a result, if the worst does happen, sub-contractors are owed a disproportionately large sum of money. At the time of their demise Carillion were settling invoices on terms of 120 days and beyond. Whilst that would be amongst the most unscrupulous of examples, there are still far too many companies who are not paying their subbies even close to quickly enough.
“It took about two years to fully recover, and we then started to pick up bigger contracts, to the stage where, just a few months ago, I was employing around 22 carpenters, and at our peak we turned over £620,000 in a year’s trading. We were starting to feel like a real success story when disaster struck once again.”
This time it would be an email at 6:30 on a Monday morning that would deliver the news. Simon was abruptly informed that the main contractor he was working for had gone bust, and all sites were closed. He was left £48,000 in arrears with little prospect once again of any recompense from the administrator. Indeed, on this occasion it was a loss from which his company, Huddart Carpentry has been unable to recover.
Simon is still working as a carpenter, a job from which he draws genuine satisfaction, but is determined that he will not be stung for a third time. Instead, he now concentrates on his own small, residential new build developments, where he is both the client and builder. “I’ve been wracking my brains to see if I could have done anything differently,” concludes Simon, “but it just seems to be down to luck whether this happens to you or not. For the smaller guys it’s very frustrating knowing that you’re so far down the food chain you’ll never see any of your money back. I don’t know what the answer is, but there must be some way of ensuring that a contractor has the money to complete a contract before they start it, or if there was a means to make insurance policies more affordable.”
So is there anything you can do to protect yourself? There are certainly no easy answers and, as Simon has discovered, once a main contractor does go into liquidation there is very little chance of recouping outstanding debts. Next month a leading law firm provides its counsel on what construction companies can do to at least be forewarned – and hopefully forearmed.
If you’ve been affected by any of the issues raised in this article then the Citizens Advice Bureau can offer advice and support
