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No pain, no gain

Comment

Civil engineering contracting is booming. The figures in this week's NCE Contractors File show outstanding performance, with fims reporting growth in turnover, order books and profit.

With total turnover up £2bn from last year to over £12bn and work in hand approaching the £20bn mark, we really do see a sector that is basking in riches.

But look beyond these numbers and we see that the contracting sector has indeed come a long way in the past five to 10 years. The revolution in procurement across the industry, while perhaps still incomplete, has had a dramatic impact on the lives of contractors.

As projects get bigger and clients increasingly seek to offload their construction risks, consolidation has been inevitable. A 'seething pool of sharks' perhaps. Certainly everyone has been looking hard at the factors that differentiate them from the competition.

On the one hand, contractors have seen themselves elevated up the food chain with more opportunity to convert risk into reward and increasingly the employer of consultants rather than the employee. On the other hand they have been operating against a backdrop of international competition with ever lower barriers to entry and ever-increasing regulation and risk.

Over the past few weeks, as a British Construction Industry Awards judge, I have had the privilege of once again touring many of the shortlisted projects.

There are many examples of great contractor performance and great teamwork leading to outstanding infrastructure and client satisfaction. And without question there has been a revolution in quality, safety and project management to deliver clients more, for less. Yet it remains a tough business and no matter how sophisticated and business-like modern contracting might have become, the difference between success and failure remains a fine one.

Hence within the positive news in the Contractors File lies the perennial rider regarding the fact that, regardless of workload forward bookings or client satisfaction, it gets no easier to make a profit.

The File again reports average margins languishing around the 3% mark and while 45% of fims expect these figures to climb beyond 5% by 2007, quite how remains unclear. Certainly through even better project management. Certainly through better, earlier project planning.

Certainly through increased innovation. And certainly through economies of scale.

But high volumes of work will not necessarily make it any easier to make money, particularly when you add in the extra dimension of skill shortages across the sector. Then again why should it ever be easy to make a profit?

Besides, as contractors will point out, with large amounts of cash being earned and spent, the measure of success goes beyond the simple headline profi based upon the relationship between revenue and expenditure.

I heard someone recently describe their business as being 'in a painful place', suggesting that this was somehow a bad thing. I'm not so sure. Isn't a bit of pain a vital component in the success of any venture - a measure of how hard to push?

Even in a booming market a bit of pain around the business makes it that much easier to take the hard decisions - the ones that often make the difference between winning or losing, leading the market or following, making a profit or being forced to throw in the towel.

Antony Oliver is NCE's Editor

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