Construction UK decline

Too big to go bust? – not for PLC’s in Construction

There’s not much argument that PLC’s in construction are having a hard time of it. In 2018 it was Carillion making headlines and now just a quarter into 2019 it’s Interserve in administration – although pretty much everyone saw that coming. Maybe not the executive bonuses paid out the week before the paperwork started, but Interserve has been on a slippery slope for some time now. Is this the future that other PLC’s in construction can look forward to?

One would think that the many reporting requirements of PLC’s would keep them in check. But it seems that in construction fudging the numbers is just part of the trade. Because projects run over several years, technically it’s not illegal when exactly they report a profit or a loss. However, it has resulted in a skewed perspective which is not at all a true reflection of what is really going on in the organization. Carillion serves as a prime example having reported strong profits on the back of new contracts just months before their demise.

PLC’s positive starts rarely end as well

Most Construction PLC’s are very good at reporting when they win big contracts, using it as a way to assure shareholders that there’s work coming in which will provide the capital needed. However, projected profits are seldom realised, and when these are reported too early, it only serves to increase the loss later on. It seems to be the accepted norm that project delays will occur and costs will mount towards the end of a project lifecycle, yet it’s not the norm to account for this in financial reporting. Why not?

Perhaps the biggest problem is the idea that losses are just temporary glitch the PLC (because of it’s size) will be able to quickly and easily recover from. Unfortunately when that recovery isn’t realized, as it hasn’t been in the past decade, and PLC’s don’t change their strategic approach, it spells trouble for the industry.

What will change?

While there have been many industry voices calling for change, there isn’t a lot of evidence that it is actually taking place. So what will it take? In my mind company executives have a lot to answer for and getting the right people in place is where an organisations can start to make a positive cultural change. Strong leadership supported by a team of organizational expertise are what PLC’s need.