Dutch Courage

Leadbitter has a remarkable growth record. Since 1985, it has grown at an average rate of 20% a year, with turnover rising from just £300,000 to £183m for 2005. Following the £17m acquisition of Denne in the autumn - Leadbitter's first-ever acquisition - group turnover will reach a projected £254m this year.

Managing director Bob Rendell wants the expansion to continue, be it organic or otherwise, as does Leadbitter's parent company, £2bn turnover Dutch construction giant Heijmans. But Rendell is aware that there are potential constraints on his growth ambitions, namely the trend among public-sector clients towards national procurement frameworks.

"It's a bit of a soapbox issue for me," he admits, brandishing a letter he wrote to Partnerships for Schools (PfS) last May. "I asked them how they expected to deliver the Building Schools for the Future (BSF) programme when they're excluding regional contractors like us, who have long-standing experience of building schools. Also, how they expected to get value for money given the bid costs and the extra margins that will be factored in when the LEPs subcontract the building works.

"We did run with two major contractors, but they withdrew because of the costs, so that was the end of our interest." Rendell didn't get a reply to his letter, which perhaps sums up the attitude of PfS towards those contractors outside the majors. "ProCure 21 was the same," he adds. "It takes much longer and ends up costing the taxpayer more.

"We actually partnered with Taylor Woodrow on one scheme in Crawley, but now they've pulled out, so that's the end of that too!" Some 80% of Leadbitter's workload is public sector, but with healthcare and education likely to tail off, Rendell wants to become less exposed. "We still get bits and pieces of education work that slip through the national network, as we do from health," says Rendell. "But we will have to diversify."

Commercial awareness
The commercial sector is one area he's targeting, as is leisure, where Leadbitter is already active. A £14m leisure scheme in Solihull is the firm's first foray into PFI, although without equity involvement.

"We did that to get our feet wet," says Rendell, "but in future I would like an equity stake, as that puts you on the top table of the consortium. But we'd only look at small scale, low-risk jobs."

Care homes - a speciality of newly-acquired Denne - represent another core sector, and the contractor is capitalising on the boom in university accommodation, currently working on a £20m scheme for the Combined Universities of Cornwall at Falmouth.

But Leadbitter's biggest sector will undoubtedly be social housing. The group's turnover was split around 60/40 between housing and construction prior to the Denne acquisition, but is now 50/50, a ratio Rendell wants to maintain.

Much of its work is new build for registered social landlords (RSLs), but three years ago, Leadbitter followed a growing trend among social housing specialists by launching a starter home business, Leadbitter Homes.

Already it has 292 units either sold or under construction. Rendell reckons it accounts for around 20% to 30% of Leadbitter's housing business, so around £25m for this year.

"It's been driven by the government reducing funding for rented housing, plus consolidation among RSLs," explains Rendell. "They need more money to subsidise their rented stock. So where we're building a new social housing development, it will include some open-market sale homes."

Rendell says margins are better than contracting, although he won't say how much better. "But that's commensurate with the risk we're taking on as the developer," he points out. "Generally, there is a profit-share arrangement with the RSL, or we might give a land receipt to the local authority if it was their land originally, and they can use the funds to prime other areas of need."

That said, it undeniably represents an attractive business proposition that contractors like Leadbitter are well suited to. "The bigger developers have had affordable housing forced on them by the government, whereas it is much more core to our business," reckons Rendell.

Much of Leadbitter's housing is timber frame, and the firm is working with Stewart Milne on the development of a closed-panel timber-frame system. Rendell appointed an innovations manager 18 months ago - a new position at the group - to drive the push into offsite, and make sure Leadbitter kept the skills in-house rather than paying consultants.

As might be expected, Rendell has looked at what's on offer in Holland, but says the problem is that concrete dominates, which is not regarded as sustainable by UK clients.

"But a panelised concrete system is used extensively over there for schools, and we're currently doing a feasibility study on this with a local education authority," he says. "It's very quick to erect, and is flexible in that space inside the buildings can be changed around as teaching methods change."

The structure
Leadbitter is organised into four regional businesses - Western, Central, Southern, and Eastern (Denne) - with each one split into construction and housing. The exceptions are Central, based in Oxford, which has a special works division tackling historical building refurbishments and university work, a legacy of Leadbitter's early contracting days, plus Denne, which is almost entirely housing.

"Boundaries blur a little," says Rendell, "with one business sometimes working in another region - it depends on client relationships, which are what matter most.

"Each region does its own P&L, but they don't have too much autonomy. Every Friday, they all report in to me what contracts they are tendering over the next six to eight weeks, and we have a central estimating manager (as well as regional ones) who keeps an eye on this. Business development, buying and accounts are also central.

"In addition, I organise 'roadshow events' each year in which I visit a regional office, do a presentation about where the company is going, and expect the regional director to do one in return to the main board."

Rendell expects to keep a similar structure in place for future offices, be they greenfield or acquisitions. The next office is earmarked for the East Midlands, probably around Leicester or Coventry, with any acquisition likely to be in the same region, or possibly East Anglia.

"But we're not interested in poor businesses that we could turn around - we want good management teams," he says.

Rendell also denies one rumour that Leadbitter was after an infrastructure business. "That's certainly not the case at the moment," he says, "and if Heijmans did buy one, it would operate as a stand-alone business and wouldn't sit within the Leadbitter group."

Where to now?
Although Leadbitter is wholly owned by the Dutch firm, after Rendell sold his shareholding in 2003, he says they are quite "hands off" in their management style.

"Since Heijmans bought us, the management team has remained the same, and nobody has come over from the Netherlands to take a seat on our board," he says. "My principal point of contact over there is chairman Guus Hoefsloot, who I meet six times a year.

"They're keen to see the current business model continue - we must have been doing something right to grow from £300,000 in 1985." The question is whether the momentum can continue.

"We had to grow in the '90s to have sufficient critical mass to give clients the support they wanted," says Rendell. "During that period, lead-ins on projects increased from three to six months to six to 18 months. "Now things are changing again."

The problem for regional contractors like Leadbitter, believes Rendell, is that nobody represents their interests. "Majors are represented by the Major Contractors Group and in any case they tend to call the tune for our industry," he says, "while SMEs have got the National Federation of Builders and the Federation of Master Builders to help with their issues.

"But we've got nobody to fight our corner when things like BSF are rolled out. Should there be a regional contractors' group?"

But things may not be as bad as they seem. BSF has been heavily criticised for its slow progress, while ProCure 21 has been a non-starter for many of the contractors originally named as principal supply chain partners.

Rendell may not be far wrong when he says: "My gut feeling is that the government will realise the error of its ways and the market will come back to us."

[Contract Journal, 7th Feburary 2007, p18-19]