Downfall of a contractor: How high-profile collapses and fixed price jobs helped send Readie under

High-profile main contractor collapses, fixed price contracts and subcontractor failures all helped send logistics and warehouse specialist Readie Construction under, a report by its administrators has said.

The £421m-turnover firm, set up in 2007, sank into administration in February with the loss of 160 jobs making it the biggest contractor failure of the year so far.

The Essex-based company collapsed owing £34m with the largest trade creditor owed just over £3m.

In an update filed at Companies House, administrator Begbies Traynor said subcontractors were owed nearly £19m with other trade creditors owed a further £6m. HMRC is owed £8m while staff are owed £1.2m.

But in separate update, also filed at Companies House, the administrator laid bare the knock-on impact on the wider industry of firms going under during the first weeks of last autumn.

The report said: “During the autumn of 2023, two large main contractors failed which, consequently, created shocks in the trade credit insurance markets as well as the bond surety markets. The ability of [Readie’s] subcontractors to obtain trade credit insurance was severely reduced and, in turn, the availability of performance bonds was also massively reduced.”

Although the contractors which collapsed last autumn are not named, Buckingham sank last September with M&E specialist MJ Lonsdale falling a month later.

Begbies Traynor said Readie was also hobbled by the failure of two M&E firms which it said caused “significant problems as the cost and time involved in finishing the uncompleted works on a number of projects created considerable strain on margins and completion dates”.

It said fixed price contracts also caused havoc with materials inflation spiking, especially in the wake of the Ukraine war which helped “create further procurement delays”. It added: “This situation created extreme pressure on the company and its supply chain and it experienced a large number of subcontractor failures across many projects. The process of sourcing replacement subcontractors caused significant harm to the company’s margins as well as to project completion dates.”

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Readie, which at one point last year employed 275 people, began to cut jobs with 11 staff on their probation periods axed while a further 19 were due to be made redundant at the time of its collapse. Board directors also took pay cuts with one agreeing to a 25% reduction from the start of the year.

Preliminary costs were also reduced while initiatives to save money on site set up costs and cleaning costs were also put in place.

But Begbie Traynor said Readie’s problems spiralled in the first weeks of this year with the firm seeing a Time to Pay agreement with HMRC scuppered while it was told performance bonds would only be honoured if it got £5m in external funding with this search also hitting the buffers. “The company had previously made attempts to seek assistance from its bankers in the form of a rolling credit facility; however, the bankers had confirmed they were not willing to support this option,” the report added.

And it said Readie had £2m withheld by two clients at the start of this year “in lieu of bonds” while its expected cashflow for February was down by £5m after the work it carried out was valued at a lower price by clients rather than the figure stated in a QS forecast. Contract starts were also delayed, “worsening” Readie’s cash position, the report said.

“Trade credit began to be pulled by the supply chain and the company had an increasing number of supplier and subcontractor accounts during the last week of January that would only agree to trade with the company on a pro forma basis. It became clear that the company was unable to trade without a significant cash injection.”

A white knight came and went after a potential saviour decided not to buy the stricken firm and at the start of February the firm went into administration after alternatives, such as a CVA and a restructuring, were ruled out. “By [the time of the administration on 5 February] the rumours within the industry were rife and most sites had no subcontractor or staff attendance,” the report said.

HMRC is expected to get some of its missing money back but unsecured creditors, owed just over £26m, are unlikely to get any of their missing money back. And employees, owed £1.2m between them in missing salaries and redundancy payments, have also been classed as unsecured creditors meaning they are unlikely to get their money back as well.

In its latest published accounts, filed at Companies House last October, Readie reported a turnover of £421m in the year to March 2023, a rise of 22%.

But pre-tax profit nosedived two-thirds to £1.7m, although its cash balance at the year-end improved by £1.2m to £12.3m. The fall in profit meant the Romford-based firm’s pre-tax profit margin was shredded to just 0.4% from 1.6% last time.