Landlords forced into ‘rethink’ amid soaring number of contractor insolvencies

Gerraint Oakley, executive director of growth and development at Platform Housing Group, said the risk to SME house builders is part of a much broader challenge facing the sector. 

“There are many different factors to consider, many of which have been significantly affecting the construction of new homes, but are now much more damaging in light of the  threats of an inconsistent (often unreliable) planning system, rising costs and skills shortages,” he said.

He added: “When we look at the people affected when we lose these SMEs, we are losing critical skilled labour that exists in so many of them and their broader supply chain. When we lose these people, it’s quite often the case that they don’t come back. 

“We know SMEs can’t flourish in this financial climate unless they have a guaranteed pipeline. A secure pipeline that one, or a group of housing associations, could provide could be the lifeline that many of these businesses need.”

Mr Oakley pointed out that the top 10 landlords combined have huge development pipelines and he appealed to SMEs to approach Platform and other housing associations to discuss where they can target growth areas together. 

He added: “We’ll still be working against tough conditions in the sector, but as well as sharing the risk, it is about sharing the gain, too. Our decision-making is based on values, how we want to work with other people and how we best make those relationships work.”

One association, which wished to remain anonymous, said it was on the cusp of signing a design and build contract for the development of flats in London, but the contractor pulled out due to insufficient funds in their company to make the project viable through the building phase.

The association said: “This leaves the project vulnerable as there is no easy way to take on board another contractor at this point of the development phase. 

“The vulnerability of the market, investors being very risk averse and the general instability of product suppliers has made this a very tricky phase for small [registered] providers [RPs]. 

“We are looking to rethink relationships with small construction companies and environmental housing material suppliers so that they can provide a secure and financially stable pipeline from the construction point of view for the small RP in the development of small to medium schemes.”

Another anonymous landlord said this had become an increasing issue for the company after two contractors went bust in the past six months, which affected three of its developments. 

This resulted in increased costs of delivery, delayed rental income and customers waiting for homes. The landlord said this highlights several issues from a risk perspective. 

The landlord said: “The cost of bonds are currently too high and don’t cover the losses of an insolvency, parent company guarantees can’t be put in place for SMEs, and increased scheme retentions hurt developer cash flow. 

“We are also finding that some SMEs are overexposed in the market and this is hard to pick up other than by word of mouth because credit checks rely on historical data. 

“Options we are looking at include two-stage tender to enable testing of costs and delivery capacity, ensuring subcontractor supply chain is mostly identified pre-contract to give price/delivery assurance, potentially direct payment of supply chain.”