There’s a lot of silliness currently being talked about building industry sub-contractors being left unpaid following the failure of building companies. Calls for builders to maintain trust funds ignore practicalities.
But let’s get one thing straight. Being left out of pocket through commercial failure goes with the territory of running any business. My company here and abroad would lose on average over a decade, 5 to 10 million dollars through lessee failure. So too suppliers to retailers, and retailers themselves through hire purchase failures, theft, unsold stock and so on. Publishers produce books which bomb, retailers buy a line of goods customers reject, and so it goes. No‑one is immune, even professionals when their clients go belly‑up.
Retailers, particularly fashion are committed to leases and are going over like nine‑pins worldwide, thanks to internet purchasing.
The failure of building companies in recent years has seen the media treat the directors as villains, as if they deliberately failed. The Mainzeal case specially irritated me, the directors quite wrongly being prosecuted for trading while insolvent. That was an absurd allegation. Here’s why.
In pricing a job, there’s an unavoidable degree of speculation about future costs. A quantity surveyor, indeed no‑one, can never know for sure what lies ahead. All sorts of impossible-to-anticipate things can go wrong, moreso when as with Mainzeal, the builder is dealing in very large construction projects over a several years construction time.
What went wrong with Mainzeal, Fletchers and others with their massive losses on large projects, was an unanticipatable building boom, driven by a dramatically improving economy and a huge surge in immigration. Thus the cost of labour and materials surged.
But what specifically annoyed was the ludicrous assertion that Mainzeal traded while insolvent.
A construction company, no matter how big, is not a capital business. It may own its offices or heaps of equipment but its principal asset is goodwill.
Periodically it may find itself, for the reasons outlined above, halfway through a large fixed price job it will plainly take a beating on. It deals with that by taking on further, hopefully profitable jobs and trading its way out of the losses, which is exactly what Fletchers, Mainzeal and others tried to do. Alas, the boom rolled on, until a point of no return in ever‑rising, unanticipatable costs.
Thus I believe the prosecution of the Mainzeal directors was an absolute disgrace.
Implicit in the functioning of a market economy is commercial failure, whether through misfortune, incompetence or competition.
If those things didn’t regularly occur the result would be a few massive corporations owning and controlling everything.
I say it again; the prosecution of the Mainzeal directors was a disgrace.