Jordan Connachie is managing director of Kori Construction
The construction industry has been rocked by the number of reputable contractors forced to call in the administrators over recent years.
Business failures in the sector reached 312 in the 10 months to October 2023, a 58 per cent increase compared with the same period in the previous year. Among these are some great names – including those with many years of heritage and an enviable track record – that have fallen victim to the economic turbulence of inflation, interest rates and other external events.
Along with this comes a human cost, too. And with the festive season recently concluded, there were plenty of families across the UK worrying about how they would pay for Christmas.
“Specialisation enables you to get to know the players in the marketplace – the good and the not-so-good – and avoid the not-so-good”
The situation raises serious questions about the future of the construction sector and how contractors will be able to weather further economic storms. The modern fixed-price contracting model places significant risk on businesses – more so than in previous times – and this is having a disproportionate impact on mid-tier contractors turning over less than £100m.
Without the resources to develop truly multidisciplinary teams, the risks of working across multiple sectors is amplified, leading to contractors securing contracts where margins erode quickly. And with the number of administrations looking unlikely to slow down for the immediate future at least, further pain may well come as more businesses fall victim to unrest in the domestic and global economies.
So, what’s the solution and how can the UK’s regional contractors de-risk and create a sustainable business for 2024 and beyond?
Sector specialisation
In my experience, the most effective strategy for achieving a sustainable business is sector specialisation. Specialising can help contractors forge cast-iron relationships in their supply chains because they know their suppliers know what they are doing. This is not just a strategy being employed by main contractors, but subcontractors too.
New sectors mean new people, different legislation and going back to first principles estimating for establishing costs. All of this introduces a level of risk that would now be deemed unacceptable.
At its most simple, specialisation enables you to get to know the players in the marketplace – the good and the not-so-good – and avoid the not-so-good, which is an incredibly valuable exercise in risk mitigation.
The benefits of specialisation are also cumulative. Over time, the sectors you work in become an integral part of your brand – a mark of your expertise in that area of the industry. And, of course, it enables you to build teams that have a profound knowledge and experience of your sector to deliver superior schemes that vastly increase the chances of repeat business.
To see evidence of this, you only need to look at how the different disciplines operate within the industry. Sectors such as later-living, industrial, multi-room and education all operate predominantly in silos, with teams of experts banding together to bring the most relevant skills and experience to a development.
The simple truth is, the better you understand these silos, the more risk you can remove from your business.
This is also why tier-one, multidisciplinary construction companies break down their specialisms so comprehensively on their websites, to ensure they are speaking with authority across all the disciplines they work in.
They have learned the advantages of specialisation and how it plays an integral role in their growth and success. It also shields them from the turmoil that plagues different parts of the industry at different times.
Smaller, regional contractors are well-placed to learn these lessons too, in a bid to future-proof their businesses and mitigate risk as far as possible.
With the traditional model of sector-agnostic regional contractors becoming less fit for purpose, a move towards specialisation could provide a viable and sustainable alternative.
With that in mind, perhaps 2024 is the year businesses should consider a more laser-focused approach to the work they take on and, with it, help make the industry as a whole better, healthier and more sustainable.