Plant-owning contractors are under pressure

The economic slowdown has put extra pressure on contractors with plant fleets. Phil Bishop explains.

Over the past 10 years or so, it has become unfashionable for main contractors to purchase their own plant. As outsourcing has increased, the specialist plant hire sector has grown and become firmly established.

There are still some major contractors, however, which do still have a substantial investment in plant.

And those that do can be divided into two types. First, there are the likes of Sir Robert McAlpine and Bam Nuttall, both of which have substantial crane fleets, but retain the equipment solely for their own use, on their own projects.

Second are those contractors whose plant operations compete in the open hire market. Notable among these are Select, the plant hire division of Laing O'Rourke that includes the country's largest tower crane fleet, and Kier Plant, both of which are well established. Select even has the country's only contractor-owned fleet of rubber-tyred mobile cranes for hire.

Of the two, Select's fleet is considerably larger and more diverse. As well as cranes it offers piling rigs, concrete pumps, batching and paving, site accommodation, transport and tools, as well as formwork and falsework. Kier Plant, by contrast, is focused on just tower cranes, telehandlers and site accommodation.

Balfour Beatty Plant & Fleet Services owns cranes, site cabins, railway trackside plant and general plant and appears to straddle both of the above two models. While this business focuses mainly on group companies, it also has "a number of preferred strategic external customers".

Selling off

Also in the group is Birse Plant Hire (BPH), acquired in 2006, with the wider Birse contracting operations. While Birse had followed the trend and sold most of its plant operations in 2000 to hire specialist A-Plant, BPH still retains a substantial fleet of crawler cranes and piling rigs, both for its own use and for open hire.

In recent years several concrete subcontractors, including PC Harrington, J Reddington and Lancsville, have also set up tower crane hire divisions - respectively called HTC (acquired from Hewden), London Tower Cranes and Henry Cranes.

But as the boom years turn to harder times, each of these business models face different pressures.

The contractor with an inward facing plant division - one which owns its own plant for its own use - might consider offering any under-utilised machinery for hire to competitors.

However, says Colin Wood, chief executive of the Construction Plant-hire Association, "There is a natural reluctance for contractors to rent from their competitors." As the hire industry has developed, contractors that hire plant have increasingly gone down the preferred supplier route, and few would choose a competitor as a preferred supplier.

Anyway, says Wood, "No one in their right mind is getting into plant hire now." Hire rates are down, machinery availability is up and it is firmly a buyers' market. The likelihood of more contractors moving into plant hire in the current environment seems very remote, he says.

Outside business

For the subcontractor-owned hire fleets, there is less of an obstruction finding business outside of the group. PC Harrington, for example, says Alex Lowe, general manager of HTC, is not regarded as a competitor by the main contractors that give HTC 90% of its business. Harrington also has a division called Specialist Plant & Equipment for general plant.

Unlike HTC, this operation is focused exclusively on servicing the parent company.

Kier Plant may be considered more exposed to competitorprejudice than the subcontractors' plant hire operations. "I'm sure there are [some] contractors that take the view they don't want to use a competitor operation," concedes Ian Gordon, managing director of Kier Plant, although he has yet to experience any negative effect from this, he says.

"Most contractors just want to get the job done in a professional way," he explains, and regard Kier Plant as a supplier of premium quality products with good service and a good safety record.

Gordon acknowledges that utilisations and hire rates have both fallen in recent months, but adds that "utilisation is still good, considering the current market" and the company has continued to invest in its fleet.

Buying and selling machines is all part of maintaining the asset base, ensuring it is up-to-date and meets the needs of the market.

Gordon says that while Kier may downsize its plant fleet a little according to demand, the company is committed to plant hire. Kier Plant may only account for £35m of the group's £2.5bn turnover, but its profit contribution is considerably more significant, he says.

Kier Plant has the benefit of approximately 50% of its work coming from within the group, providing a cushion against any increase in the number of contractors preferring to use independent specialists.

Gordon also believes that Kier Plant is protected to a degree in other ways, too. While it has expanded its fleet a little in recent years, specialist plant hire companies have expanded much more and are therefore more exposed to plant lying idle.

Second, because it has focused its investment on keeping its fleet modern, with premium brands, resale value is maximised and the equipment is easier to sell on the international market. Third, compared to Laing O'Rourke, for example, Kier subcontracts a lot of its construction work. The burden of any downturn in work is shared with subcontractors that are laid off and take their kit with them.

International work

While Select might be considered a little more vulnerable in this regard, on the other hand it is helped by Laing O'Rourke's considerable international spread of work. When equipment is no longer busy in the UK, it can be shipped directly to projects overseas.

Select has a huge operation in the Middle East, for example. This also has the side-benefit of generating closer contact to the international used equipment market. Every business model, it seems, has upsides and downsides.

The obvious solution for any company with under-utilised equipment in the current market, whether they are a contractor or a plant-hire specialist, is to sell it - preferably overseas for the sake of the domestic market, to maintain equilibrium between supply and demand.

However, so soon after enduring waiting lists to purchase machines and experiencing a lack of good used equipment on the market, the worldwide market hassuddenly turned.

New and good used equipment is readily available once again. As a consequence, of course, re-sale values are plummeting and buyers are scarcer. Selling may seem less attractive than just sitting it out and waiting for demand to return.