To say the construction industry is in crisis is an understatement

I, like many in the property world, was sad to see the Osborne group become the latest contractor to throw in the towel. It joins a growing list of firms that have been around for decades but were caught out by the impact of sharp rises in material costs across the board, chronic labour shortages, massive rises in interest rates imposed at record pace by the Bank of England and wafer-thin margins.

Builders Merchants News recorded 4,370 firms going under in the year to November 2023, which represented 17% of all insolvencies in that year. That’s nearly a dozen a day. To say the construction sector is in crisis would be an understatement. But coming from a corporate background that includes a variety of companies, I have never understood why any person of sound mind would bid for a contract on margins often close to cost. Indeed, when I was a minister in John Major’s government, I saw multimillion contracts being bid at zero margin on the basis the contractor would make their money on the variations.

Given government was the client, that was probably a good bet seeing how bad the government is at managing its own developments, but it is extraordinary that so many very sensible and intelligent business people are prepared to work on what amounts to thin air. There was a time when almost every airline on the planet was losing money as they fought each other for market share. It’s the reverse of a cartel and cost the industry billions collectively.

The recent list of building industry casualties includes many whose problem was bidding a fixed price three or four years ago for work. But a fixed price is a fixed price. Thankfully, we are now seeing the emergence of the management contract where the client procures the major packages and the contractor manages the project. I can say from personal experience of a contract in excess of £100m that it works, delivering a successful outcome at a sensible price.

Could we have sourced a cheaper quote? Undoubtedly. But isn’t one of the great unwritten rules of purchasing that whether for personal use or corporate, the cheapest may be a long way from being the best value? The industry has the solution in its own hands, and it has been warned.

I read an article recently by Sam Dumitriu and Ben Hopkinson who run Notes on Growth and who’ve been offering some interesting left-field solutions to London’s housing crisis. One that intrigued me was the suggestion that perhaps we should think of building on some of the city’s 95 golf courses. Who knew? But while many in our industry still love the game, too many of those small courses are just about clinging on these days, kept solvent by retired bank managers and friends whose wives are only too happy to have them out of the house.

A sexist caricature for sure, but not far off reality, and if those courses become nine holes rather than 18 and, in the process, can deliver big numbers of low-rise apartments and single-family homes why on earth not? Local planners should welcome the chance to protect the amenity and deliver housing numbers at the same time.

They’ve also talked why London has so much land zoned for strategic industrial use when if, as in many cases the land is less than five minutes’ walk to a station, it would make obvious sense to carve out that piece for housing. London obviously needs industrial land to make the city work and provide jobs, but I’d love to think that third term-elected Sadiq Khan will be thinking like this, outside the box, given the lamentable shortfall of housing in the nation’s capital.