CJ Construction Blog

HMRC demands more cash from aggregates industry

2008-07-22T13:45:53Z

Things, it seems, are plenty bad enough without HM Revenue and Customs getting on the construction industry's case to demand yet more money. But that's exactly what has happened to some contractors working on civils or alternative energy projects that have involved extracting aggregates. It seems that HMRC officials are now targeting those firms and expecting them to pay the Aggregates Levy - even where any aggregate was re-used in the project. Yes, HMRC's stance on the Aggregates Levy is clear and unequivocal, but the levy has been in place for a considerable time without it being a big issue for contractors. Is HMRC only now beginning to realise what an endless cash cow it could be? Has the government's admission that it will break its own financial rules meant that any revenue-generating government department has been sent into overdrive? If that is the case, it would seem that the industry's plea for more relaxed treatment of CIS fines (see page 1) will also fall on deaf ears. Anyone with any common sense would realise that construction contractors aren't awash with cash. Margins are low enough without government insisting on collecting more and more revenue from the industry. It would be a pretty desperate government that drove one of its biggest industries to the wall in an effort to shore-up its bank balance. But perhaps that's a reflection of the times we are in...

Handle new construction organisations with some scepticism

2008-07-15T08:48:53Z

The construction sector is often accused of being too fragmented, with numerous organisations shouting over each other in their efforts to lobby government. So the creation of another initiative with the familiar remit of facilitating a single unified voice should be treated with some scepticism. The Construction Council, to be set up by the CBI, was initiated at the request of Major Contractors Group (MCG) members, but it is difficult to see how it will have any more success. If the construction interest group is to achieve anything, it will have to make sure its voice is the loudest. It's already made a start by undermining the Construction Confederation by effectively disbanding the MCG. But apart from what it means for the Construction Confederation, questions remain over who the council will influence. There is unlikely to be a direct link to the government as it will be informing CBI policy rather than Westminster. This could allow construction a greater voice in Parliament, but only if it's a CBI-approved message. And will this message now be fed through the proposed new chief construction officer? At a time when bad news abounds and firms are fighting for their futures, what the industry needs is to make sure its concerns are clearly expressed. The Construction Council must fully represent the industry and be certain that its message will not be lost in translation by the CBI. James Stagg Deputy/Commissioning editor Contract Journal

How much has CIS cost the construction industry?

2008-07-09T08:59:06Z

Have you calculated just how much complying with new CIS has cost your company? Even if you have been lucky enough not to be in receipt of one of the 806,000 penalties issued by HMRC, chances are it has cost you time and investment in new software to cope with the scheme.

]]>

But just how much has it cost the construction industry in total? New figures calculated exclusively for Contract Journal put the total cost of the new CIS scheme at an astonishing £500m (see p8). And the individual figures are eyewatering, with contractors shelling out an estimated £310m over the past 15 months solely for administering the scheme. Add the £100m firms spent on the initial set-up, £70m on penalties, and £20m on the cost of appeals, and you are looking at one hugely expensive scheme, exclusively targeting construction.

So is the news that the Tories are thinking about reworking CIS good or bad news? There is no way that any party in government will be willing to give up tax revenue - from whatever quarter - and it may be that companies have invested so much in the current scheme that they are reluctant to change. But given the current mess, if there is an opportunity to introduce a less complex, less labour-intensive option, it would certainly be worth considering.

Lets just hope it won't sting the industry for a further £500m, before any tax is paid.

Building Schools for the Future ups its game with 8 new schemes

2008-06-25T08:26:58Z

So at last, Building Schools for the Future (BSF) is to up the ante. The announcement this week that eight schemes are to be fast-tracked is welcome news for the £45bn initiative that has been lagging behind in delivering what it initially promised. Tim Byles, who heads BSF, has worked hard to accelerate it since he took office. Two reviews have cut eight months off the timescale for each scheme - pre-procurement improving by six months, and the procurement process now being two months faster - all resulting in costs being reduced by 30%. Cynics might suggest that news of the £625m accelerated programme will help drive costs down further. After all, the credit crunch means that developers, housebuilders and contractors in the commercial sector will be keen to find more work - and BSF would suit them just fine. But while there is a hope that the increased competition might "exert a downward pressure" on costs, BSF has never been short of bidders. It has always been a competitive battle, and those that have won contracts have done it on the merits of delivering best value. And that's what BSF and local authorities must focus on. While the temptation might be to go for the cheapest bid, and get more schools for less money, schools must be built to withstand a tough life, and that means best value must still win.

Extreme penalty for late returns

2008-06-11T13:53:09Z

As if the construction industry didn't already have enough to cope with, now firms face the loss of their gross payment status as HM Revenue and Customs (HMRC) clamps down.

]]> The fact that more than 12,000 contractors have had their gross payment status revoked - out of the 30,000 that have been reviewed - will cripple these firms.

All of these reviews and the subsequent loss of gross payment status stem back to the new CIS scheme which, after a year of delay, came into action in April 2007. At that time, there were worries that firms would ignore the complex rules and regulations that came with the new scheme. And that is what has happened. Late returns trigger an HMRC review and that's what has caught out the affected contractors.

There is no flexibility with new CIS - the rules are stringent, and even doing something as innocent as putting the wrong stamp on the envelope can make the return late and so alert HMRC's investigators.

The one in three who have lost their gross payment status is a shockingly high hit rate, which will also surely encourage HMRC to dig further. And with HMRC keen to get its hands on the additional £130m it claimed it would raise from the construction industry, it would appear that this is the start of a real threat for contractors. It may be a frustrating system to deal with, with no leeway, but this news means only one thing - CIS returns have to take priority if HMRC is not going to drive your business to the wall.

Lessons to be learnt from NY crane collapse

2008-06-03T14:46:49Z

Another crane collapse, another set of grim headlines. Two people have been confirmed dead after the crane crash in New York, a tragedy that has striking similarities with the Battersea collapse in September 2006. Both disasters centre on a poorly carried out repair as a shortage of qualified crane assemblers struggled to keep up with demand, resulting in catastrophy. But the response in New York has been markedly different. After an earlier collapse in March, the city's building commissioner lost her job, crane regulations were tightened and inspections increased. Following this latest incident work has been halted on five sites and a police investigation has been launched. In contrast, it took a second crane collapse - in Liverpool - before UK authorities served a prohibition on the offending cranes. And more than a year and a half since Battersea, the police still haven't decided whether or not to pursue criminal charges. The case file of the incident is gathering dust, while officers await the Health and Safety Executive's (HSE) report. Nobody wants the UK to move towards a culture of blame and litigation, but when tragedies occur, the following investigations cannot simply be lip service. If we are to learn anything from such incidents then the HSE should take heed of the approach in New York and in future take decisive action to rectify procedural mistakes and hold those responsible to account. James Stagg, deputy/commissioning editor

Sir John Egan's assessment of construction: right or wrong?

2008-05-29T10:04:51Z

So, how would you rate the construction industry? It might be pushing it to get 10 out of 10, but I am not sure many people would score it at a shockingly low four out of 10. But that's exactly how Sir John Egan believes it has performed in the 10 years since his report was published. In a damning speech last week, he said that housebuilders had failed to improve and had got their come-uppance (see page 1). But his ire was also directed at the government and developers, both of whom he believes are bad clients. Sir John believes the industry can improve and pointed out that Constructing Excellence demonstration projects had shown that it was possible. But even they didn't achieve the efficiencies he believed existed. Perhaps the last 10 years of sustained growth have been the problem plenty of work means there is little or no reason to change. Now, though, there may be some impetus to look at the Egan Report afresh. The problem with tougher business conditions is that it is often too daunting to look at doing things in a different way. Cost-cutting is often the easiest option to start with, but it's not the solution to a sustainable, healthy business. Sir John's approach might not have taken root, but 10 years on and in the face of the credit crunch, there may be some ideas worth looking at. Housebuilders, take note...

Construction: lacking the X-Factor?

2008-05-21T15:45:21Z

What did you want to do when you were 14 years old? Did you know that you definitely wanted a career in the construction industry? Or were you too busy wishing you could become a professional footballer, a popstar or a top designer? At 14, the world is still your oyster, and it seems that anything is possible. The X-Factor, Big Brother and all those other reality shows make it seem like a world of fame and fortune is within easy reach. Perhaps that is one reason why the new Construction Diploma has had a lower uptake than the industry had hoped. At one college, only 25% of available places have been filled, and other college-industry consortia are reporting similar issues. Maybe the world of construction just isn't appealing enough to potential students - and maybe we, as an industry, aren't doing a good enough job of selling ourselves. Current headlines about the state of the economy and construction are hardly likely to see parents encourage their offspring into construction either. Whatever happens, it would be a shame if these diplomas were to fall by the wayside in the first year of their existence. Let's hope there is a last-minute burst of enthusiasm from potential students - if there isn't, it is clearly a case for going back to the drawing board.

One building firm folding every four hours....

2008-05-07T10:47:59Z

Contract Journal hits your desk, a total of 42 companies will have become insolvent. ]]> It is a frightening figure - and one which exceeds the number of retailers going into insolvency, a sector which is widely known to be suffering as a result of consumers ratcheting back their spending. According to PricewaterhouseCoopers, the number of insolvencies in construction has risen 20% compared with the same time last year, and is higher than the all-industry average of 12%. It is worrying that construction has been so badly affected, and after such a short time of economic upheaval. As expected, subcontractors working in the housebuilding and commercial property sectors have been worst hit, but there are signs that the downturn is biting deeper. Contractors across all sectors are seeing debtor days increase and that feeds down the supply chain from main contractor to the smallest subbie. Construction certainly isn't an easy industry to be part of in a downturn - when your biggest cost is people, who need to be paid regardless or whether or not your firm has received payment for the work, you are entering difficult territory. It may be that this shake-up will see the industry emerge with a fitter, highly professional pool of contractors. The fittest, who manage their businesses well, take tough decisions before they become crises, and who work to ensure clients cannot quibble with invoices, should survive. And that should be good news for an industry where, just perhaps, it has been too easy to set up in business and take advantage of the boom times. And let's not forget that infrastructure and other public sector work is still going strong. Add to that the fact that ConstructionSkills believes more people will need to join the industry to meet workload demand, and the news isn't all bad. It might be a rough ride for some just now, but it's not all doom and gloom.

It's not all doom and gloom for the construction industry

2008-04-29T14:11:52Z

There will have been plenty of people in the construction industry who will have felt a chilly shiver run down their spines last week as Persimmon announced that it is halting work on new sites. According to contractjournal.com's new economics blog, one Merrill Lynch expert believes industry volumes will drop by a quarter this year. Worryingly, that is as large as the peak-to-trough fall in the housing recession in the early 1990s. Despite Persimmon's gloomy outlook, it is actually working on 5% more sites than this time a year ago, so it isn't all entirely bad news. But the announcement will have been enough to worry government. And perhaps that is what housebuilders would wish for, as any relaxation on stamp duty levels would help buyers get onto the property ladder in a market facing tightening availability of mortgages. Government is also likely to be determined to drive through its housing targets. Meeting those will take some doing, and it will need to be mindful of the risk that where housebuilding comes to a standstill it could take years to ratchet back up to current output levels. But even those nuggets of positive news do little to cancel out the worries in the market. Housebuilding is, sometimes thankfully, a little removed from the contracting industry in general, but economic worries hardly help anyone secure a regular, profitable flow of work. The government and the UK's financial institutions will have their work cut out to keep the economy on an even keel. Let's hope they manage, and that Persimmon's statement is the only one we hear. ]]>

The fall-out from Black Thursday

2008-04-23T08:24:46Z

It wasn’t pretty, was it. Shortly after the Office of Fair Trading published its Statement of Objections last Thursday morning, accusing 112 construction companies of bid-rigging activities, the consumer media tore into the industry. Respected construction men (and women) found themselves grilled by hard-nosed hacks under the glare of TV cameras, wild stories circulated of schools and hospitals being ripped off to the tune of £50m, and the general image portrayed was of an industry that would mug its own granny for her pension. Of course, the reality is somewhat different. As Construction Confederation chief executive Stephen Ratcliffe points out on our back page today, only nine out of the 112 firms accused by the OFT have been accused of offering compensation payments to rival bidders, involving just 12 potentially suspect contracts. The overwhelming majority appear to have been accused of cover pricing, which while still illegal, is hardly a rip-off of tax payers on a grand scale. This was the line taken by many of those who spoke up for construction last Thursday. But, in trying to put the OFT’s accusations into context, they unwittingly had the opposite effect. Indeed, their words were twisted to appear as though they were actually defending the practice of bid-rigging. Unfortunately, the consumer media doesn’t play fair. Nor, it seems, does the OFT, which made little attempt to distinguish between cover-pricing and more serious acts of bid-rigging when it released its statement. This was never going to be an easy story for the industry to deal with. But next time, construction might want to think a bit more carefully about how it prepares its defence. Though after last Thursday, let’s hope there isn’t a next time.

Site Waste Management Plans are here

2008-04-08T15:22:18Z

Site Waste Management Plan has arrived. It's the latest in a long line of acronyms to hit the construction industry, but ignore this one and you could be fined up to £5,000 or even end up in prison, as well as being seriously out of line with industry targets. Site Waste Management Plans came into force last Sunday (6 April) and now every site above £300,000 in value must have one. ]]> The penalties sound draconian, but when you consider the fact that construction produces an astounding 1.45t of waste for every person in the UK every year, it's a waste mountain that clearly needs tackling. To put it into context, just imagine more than 6t of construction waste dumped in a 'standard' family's back garden each year. More worrying is the fact that 13% of all construction materials are thrown in a skip without ever being used. Tell that to an industry outsider and they would laugh when firms complained about struggling to achieve a margin of only 2% - their immediate argument would be that reducing wastage by better procurement is a clear way to better returns, as well as providing an environmental benefit. Government is determined to halve construction waste to landfill by 2012. SWMPs might just be the latest in a long line of government initiatives, but since most of the industry has clearly failed to tackle site waste voluntarily, it's another piece of red tape to comply with. It might not be a popular move, but products and materials are expensive - as is landfill - so getting it right should benefit both the planet and contractor's pockets.

OFT investigation: getting our message straight

2008-04-02T10:52:07Z

The Office of Fair Trading (OFT) is not an organisation you'd want to tangle with. Much like its sister body, HM Revenue and Customs, its approach to things is pretty much "we say, you do". Its recent interest in construction through its cover pricing investigation has stirred up something of a hornet's nest. Ask anyone involved in estimating, and they would tell you that putting in a higher bid in order not to win a contract has been a widespread practice for years, at least until recently. But the key motivation behind it wasn't greed - it was to ensure companies remained on lists for future jobs. The bit the OFT doesn't appear to like is the fact that people allegedly talked to one another about their bids. Of course, it is too early to say what - if any - action the OFT will take as a result of its investigation. What we do know is that the industry is gearing up to respond. Some might argue that the Construction Confederation is being profligate with its money by already engaging the services of a PR and communications agency - before there is any hint of an outcome. But I believe this is a shrewd move by the industry - which, for once, has got its communications sorted out and can actually respond appropriately, accurately and quickly to whatever the OFT has to say. Such joined-up thinking doesn't often happen in construction, with contractors and specialist sectors all too often left to fight their own corner in the face of negative publicity. So this, it would seem, is a first. It is a pity it has taken such a potentially explosive issue to galvanise action. But the very fact that the industry is beginning to think of its approach to this - whatever the outcome - is a sign that it is, at last, starting to think about the messages it is putting out to the world at large.

The death of sustainability?

2008-03-26T15:20:43Z

The credit crunch affecting the housebuilding sector appears to have struck an unlikely victim - the government's zero-carbon homes initiative. It was dealt a body blow when a further two bidders walked away from English Partnership's flagship carbon challenge project in Peterborough. Now the initial shortlist of six has fallen to three. Homes on the site were to be built to code level six - the highest standard, and one that is rarely achieved in practice. But it is a goal the government is aspiring to, and one that it clearly wanted to see achieved across a multitude of new developments. The credit crunch, though, has changed things almost overnight. Homebuyers are unlikely to want to part with additional cash just to have a greener home - and housebuilders are unlikely to be willing to spend extra time and money building houses they can't sell for a premium. While Part L revisions later this year will make code level four mandatory, it's unlikely anyone will want to go any further than that. Yes, there are good environmental reasons for aiming for code level six homes, but with buyers and bankers already being ultra-cautious with cash, that sort of reasoning is soon forgotten. Cash - and cashflow - are clearly king. And when times are tough, the things that people regard as 'nice to have' often face the axe. Training has borne the brunt in the past, but today, sustainability could be one of the easiest targets. Striving to meet ever-higher green targets, paying more for greener products, working in a sustainable manner - all clearly have long-term benefits. But will all the work on green construction simply be forgotten when accounts start going into the red? The Contract Journal Construction Industry Awards launch this week, and we're seeking entries from throughout the construction industry. Whatever size of contracting business you run, or whatever part of the sector you work in, there's a category to suit you. And we've made them quicker and easier to enter too, so visit www.cjawards.com for more details. Good luck.

Congratulations in order for Heathrow's new Terminal 5

2008-03-19T08:48:50Z

It's not often that we have some really good news to celebrate, but Heathrow's new Terminal 5 is a triumph all round for the construction industry. After so many things have gone so horribly wrong with recent high-profile projects, it was fantastic that the construction industry received such great praise at last Friday's official opening. It was made clear to all the invited guests and media covering the event that the construction industry was responsible for the delivery, not - as is often the case - just the architect. Click here to follow all our T5 coverage, including photos and a virtual tour. ]]>