The following article was published in the April 2009 issue of Concrete.

With the building industry in the grip of the economic downturn, the inevitable knock-on effect is being felt by those involved in concrete supply. Michael Gerard of Michael Gerard and Co argues that it is possible to survive and even thrive in times of recession.

After an unprecedented economic growth of 63 consecutive quarters it was inevitable that the current economic recession would come as shock to many – despite the fact that the warning signs have been plain to see for some time.  As many in UK building industry struggle to survive, those in associated industries will also find themselves severely affected. The Construction Products Association recently predicted a 32% reduction in private housing starts alone, in addition to the 43% reduction in 2008.  Overall, construction output is predicted to fall by almost 15% by the end of 2010, although even this may prove to be optimistic.

The Government has recently announced several initiatives in order to inject movement in the building industry including plans to bring forward future public spending projects such as, Crossrail and schools and hospitals, and also buying thousands of newly built empty homes, and although Ian Cox, Chief Executive of The Concrete Centre, has welcomed these developments, the outlook must remain decidedly downbeat, as concrete producers such as Marshalls and Ennstone, continue to axe jobs whilst others such as Bison and Britannia, succumb to the economic slowdown by closing the doors.

However, with versatility, durability and sustainability credentials on its side including its low embodied energy status when compared to other materials such as steel and hardwood, concrete has a sound future.  As we are able to produce all the concrete we need here in the UK, and even export to other countries, the industry also has some independence from international economic fluctuations and currency issues (notwithstanding that most of our concrete producers are in fact in foreign hands). 

So, the message is mixed: demand in some areas of construction should remain steady, whilst in others it will be very tough.

There is therefore, no time for complacency, and it is important to ensure that your organisation has good, efficient management practices in place if it is to survive the inevitable repercussions of depression within the construction industry.  The good news is that there are some practical steps that those working within the concrete trade can take to protect themselves against the issues that prevail during times of economic hardship such as cash flow.

Protect yourself. Have a comprehensive contract in place and make no room for ambiguity.  Ensure that all of your terms are clear and concise and that you know exactly what has been contracted for in terms of timing, payment periods, rights of set-off, insurances and damages. 

Maintain your cash flow. As a supplier, you are always vulnerable to problems with cash flow and this issue will inevitably become more of a problem as the recession deepens, so take steps to protect your company.

• Offer incentives such as discounts for early settlement
• Run a client credit check before entering into any agreement to supply
• Never trade above the credit limit that your checks have confirmed are appropriate
• Consider introducing special terms in the contract such as retention of title (commonly referred to in legal circles as the Romalpa clause), and interest on late payment.

Look to diversify. Fortunately as a supplier, there are other segments of the market for your product, so don’t just stick to what you know if it isn’t profitable.  There may even be other markets for your product.

Despite the gloomy predictions, there is still plenty to be optimistic about in the concrete industry in 2009. Now is the time to re-evaluate what you are doing, to be proactive and to ensure that you put the strategies into place that will ensure your organisation’s survival.  Undoubtedly difficult times lie ahead for those who supply the construction industry, but with a practical approach, you can seize the opportunities that still exist, improve your business practice and seek new markets. So, don’t just try to survive the economic downturn – aim to thrive on it – and pass the Slump Test!

© Michael P. Gerard

Author background

Michael is a barrister, chartered builder, registered adjudicator and accredited expert in quantum and planning matters. He is also the Managing Director of Michael Gerard & Co www.michael-gerard.co.uk, a company of chartered building consultants and quantity surveyors who provide a specialised service in the areas of construction law, quantum, programming, business recovery and insolvency support to the construction industry.