Business planning: home and away

I am about to leave the UK to travel around the world visiting colleagues. We will share our plans for the next few years and decide how to shape our business, but it is not easy to plan ahead when there is so much uncertainty at home and abroad. The harsh realities of the current situation in Libya and Egypt were brought into focus at a personal level recently when I heard the harrowing stories of several of our project and cost managers who are now repatriated. They suffered, what I would term, life changing experiences over the past few weeks as they battled through tear gas and rubber bullets to get to work in Cairo and drove past corpses and knife-wielding militia in Tripoli to flee on Hercules transport planes. It puts the term “bad day at the office” into sharp perspective.

There was no time to ask for a human rights audit when we were all trying to help stave off the ravages of the 2OO8 slump

For some engineers, contractors and designers today’s despotic tyrants were yesterday’s valued clients as we all scrambled to get any work available, in whatever country that wanted our skills. There was no time to ask for a human rights audit when we were all trying to help stave off the ravages of the 2008 slump. Whether this is right or wrong is debatable, but it strikes me as naive when commentators on the sidelines argue that UK Ltd should not have done business with yesterday’s friends who are today’s enemies. I am afraid it is a fact of life that when the last molotov cocktail has been put back in the broom cupboard and one despot is replaced by another, our Chinese and Russian competitors will be rebuilding the region faster than you can say “kalashnikov”. They do not have our scruples and in the new world order they are our true competitors.

At home, however, for many people the Middle East is seen as a distraction and not that relevant to their working lives. Unfortunately, they are misguided as uncertainty in every arena does have an effect on the cost of raw materials, from oil to steel, as speculators seek to capitalise on demand.

We have all entered a snakes and ladders business pattern - hence the challenge of planning ahead. There is more work, which is good news and moves us forward, but it is at small or no margin, which moves us back to where we started. Although the latest output figures of an increase in productivity are helpful, rising prices and unwillingness from some companies to tender for jobs are causing havoc with tender price forecasts. These trends are making life tough for those who have to second guess the market in a time of uncertainty. Those that have lost staff do not see enough certainty to re-hire and they do not want to promise more than they can deliver while costs are increasing.

Two rather worrying pieces of information emerged from different sources in recent weeks. A piece of research from a market intelligence body called the Builders’ Conference, has revealed a slump in the value of work that was put out to tender last year. They collected data on 8,500 contracts in 2010. Jobs awarded were only 2% down on 2009, which at first sight looks to be good news. But the killer fact is that the total value of that work fell 15% to £30bn in the year. One county in the South-east quoted an upsurge of work by 5% on the previous 12 months, but the combined value of those contracts was down a massive 69%. One region in the North saw 21% more contracts awarded with a corresponding 67% fall in values.

When one despot is replaced by another, our Chinese and Russian competitors will be rebuilding the region faster than you can say ’kalashnikov’

The Construction Products Association has said that 2011 will be equally tough, after a survey of firms in our sector revealed that three-quarters of those asked said their cost base has already increased “significantly”, with 60% saying that costs had risen “greater than significantly” over the past three months. The costs are driven by prices for copper, steel, plastics and, of course, oil.

The government strategy of spending cuts is counterbalanced by a substantial rise in private sector work - thus reducing unemployment, which is rising at present. Our sector is one of the largest UK employers and it does not take an economist to realise that if costs are rising and tender prices are not keeping pace with building materials inflation, then we will not tender for the work that loses us money, and we won’t need to hire more staff.

With this month’s Budget not far away, perhaps a policy designed to stimulate growth coming from the industry, by the industry, would have some value.

Richard Steer is chairman of Gleeds Worldwide