McAlpine says delays and shortages on several jobs costing firm ‘£33m more than it expected’

Sir Robert McAlpine has put the cost of its restructure earlier this year at more than £8m as the firm said delays and inflation on several big contracts meant the cost of finishing those jobs was going to be up to £33m more than it expected just nine months ago.

McAlpine completed a rejig of the business in the spring which saw around 40 jobs go, two senior directors leave and the firm switch its focus to sectors rather than regions.

It said the cost of the initiative was £8.4m but was expected to result in annual savings in excess of £20m “over a 12-18 month implementation period, the significant majority being completed in the current financial year [which ends 31 October 2023]”.

McAlpine is focussing on five core sectors, including healthcare and commercial offices, along with “a strong pivot to infrastructure/cost plus and away from fixed-price work”.

It added: “A lower cost base will allow us to navigate the ongoing challenging economic environment, as well as to maximise operating margins.”

But in its 2022 report and accounts, the firm said that since the 2022 year-end “some of the company’s material long term contracts, scheduled for completion in 2023, continue to be affected by a series of delays and events, financial and non-financial, such that the outturn on those contracts is now expected to have deteriorated by a further £23m to £33m more than could have been anticipated at the Balance sheet date”.

It added: “However, management teams have identified a number of actions to improve the outcome of these projects and are focused on implementing them.”

A McAlpine spokesperson told Building: “We have faced unprecedented challenges in construction, including materials and labour shortage, inflationary pressure, and the widespread impact of the conflict in Ukraine. As a result, such fluctuations affecting large and complex projects are not uncommon across the industry.

“Our transition from a regional operating model to a national, sector-focused model with supporting centres of excellence has been designed to mitigate the impact of the inflationary environment, reduce risk to the business, drive profitable growth and set us up for long term success.”

The firm has declined to name the jobs which have seen costs escalate but in the report and accounts, McAlpine said it had made an £11m provision “recognised for onerous contracts in respect of forecast losses to completion”.

McAlpine, which is working on the HS2 scheme in the Chilterns as well as a £340m office scheme at 1 Broadgate and a £120m makeover of the former Barkers of Kensington department store into office space, said that turnover during the year to October 2022 was up 16% to £1.1bn with pre-tax profit edging up 2% to £9.3m.

The firm said its secured order book was up 4% to £1.3bn although its preferred bidder workload slipped 6% to £909m. Cash at the year-end was £99.5m, down from £106m last time, with the firm adding it was debt-free apart from “modest finance leases”.