Ill wind breathes hope for specialist contractors
Last month we heard how Northern Ireland's building services engineering sector has suffered more than any other UK region during the recession. Now, although things are starting to pick up, the chairman of the SEC Northern Ireland Brian Hood urges caution
MORE THAN 26,000 jobs have been lost in Northern Ireland's construction sector since 2008 - largely down to the dramatic reining in of public sector spending. The liquidation of the 100- year-old Patton Group in November 2012 was a further blow. Many specialist contractors were among creditors owed £60m by the failed Ballymena based builder.
As a result, construction output in the first quarter of 2013 was 12 per cent lower than the same period a year earlier. There are signs that the worst may be over with market analyst Glenigan recording a five per cent underlying rise in project starts, but no chickens are being counted just yet.
'We are naturally cautious because payment remains a huge issue,' says Brian Hood, managing director of Belfast-based m&e contractor Sheridan & Hood (S&H). 'After Pattons went bust it became clear just how much subcontractors had been funding their cash flow.
'The publicity was all about the 200 Pattons employees who lost their jobs, but there were at least 2,000 people affected in the wider economy. This was a real eye opener for the Northern Ireland Assembly and it was a bit of an ill wind, because it led to amendments to construction contracts.'
Specifically, Project Bank Accounts (PBAs) are now being implemented by the local government on all its projects over £1m. This measure, which will help to protect the cash flow of specialist sub-contractors from payment abuse and main contractor insolvency, is something Mr Hood has been campaigning for in his role as chairman of the Specialist Engineering Contractors' (SEC) Group Northern Ireland.
'The penny has finally dropped,' he says. 'The parliament now recognises that they were listening to the wrong people. The construction industry had persuaded them that all was well and that sub-contractors were well looked after. So Pattons was a real kick below the belt.'
Speaking at the launch of the Group during a ceremony at Stormont, Mr Hood stressed that anything hindering cash flow was to the 'ultimate detriment of the finished product' and would undermine efforts to build a more sustainable and high quality construction industry in the province.
Des Armstrong, director of the Northern Ireland Civil Service's central procurement division, said payment practices were a particular concern. 'We are working hard to introduce legislation and policies that will improve industry performance,' he told the launch, adding that poor behaviour would be 'taken into account' when considering companies for government contracts.
Mr Hood believes that once PBAs are seen as the norm in public sector work there is no reason it shouldn't spread to the private sector. However, there will be resistance.
'Construction firms seemed to embrace the idea at first, but now they realise they won't get their hands on other peoples' money they are not so happy. One steel firm told me this would mean they might have to get their figures right for once and not stand on other people's shoulders.'
The launch was the final piece in the jigsaw making the SEC Group a truly United Kingdom wide organisation representing the interests of specialist contractors at the top political level. S&H is a prominent member of the Building & Engineering Services Association (B&ES) in Northern Ireland and Mr Hood previously served as chairman of the construction sub-contractors' body CASEC, before this was converted into the local SEC Group.
B&ES and the SEC Group have been campaigning energetically for the adoption of PBAs and the Westminster government is half way towards its target of having £4bn worth of public sector contracts supported by PBAs. The Scottish Government is also about to implement a trial of the mechanism in a bid to stamp out abuses like late payment and unfair payment retentions.
Mr Hood says he will keep up the pressure in Northern Ireland because 'we are now making some real progress and are determined to keep the momentum going'.
His own company was able to fall back on its long established service and maintenance work to emerge relatively unscathed from the recession, although it has seen workloads tumble like everyone else. However, it has also taken the opportunity to diversify and is gaining a reputation for innovation in the renewables market.
Most notably it launched a pre-packaged plant room and biomass boiler manufacturing business, BS Holdings, which is proving to be a valuable new source of income and works with Sheridan & Hood who do the installation work. Northern Ireland has abundant local sources of biomass fuel and easy access to even more in nearby Scotland. Also, it has only recently implemented a natural gas grid so many buildings still rely on oil for heating. This makes them particularly well suited for conversion to biomass, but many have run into technical difficulties.
'We felt biomass needed to be done better,' said Mr Hood. 'So we developed a modular system to avoid many of the problems associated with putting in single, large boilers, which are often difficult to fix when they have problems.'
The Renewable Heat Incentive (RHI) is also driving demand for biomass, but Mr Hood still says more must be done to provide upfront funding to get the projects specified.
'The Carbon Trust gives 0 per cent interest loans in Northern Ireland and in Wales there are loans of up to £400,000, but there has been a complaint that this breaches European rules. This funding is driving investment in LED lighting; solar; PV and biomass - so if that dries up - where is the cheap funding going to come from?
'It doesn't seem fair as the banks are getting plenty of government funding. So why shouldn't the Government support carbon saving loans?'
Tesco was an enthusiastic early adopter of the BS Holdings modularised pre-packaged plant room solution - leading to the company installing plant for the retail giant's largest store in Europe. Tesco was already sold on the modular approach because BS Holdings had come up with an alternative to the consultant's design on an earlier project where a one tonne gas-fired boiler was
due to be installed in a roof-top plant room. If the boiler had ever failed, the plant room would have had to be dismantled. 'They had seen us do it with gas; so were keen to see what we could do with biomass.'
BS Holdings (BSH) is also leading the way in Northern Ireland by introducing car dealerships to biomass including the new Charles Hurst Ferrari and Jeep showrooms in Belfast as well as Galgorm Castle Golf Club in Ballymena, which recently hosted the NI Open Golf Challenge. The Lookers Group specifically chose the BSH biomass systems to roll out through their network of vehicle showrooms in the UK, a potential £8.4millon in biomass sales.
The growth of the biomass business has prompted the company to move after 20 years and spend £200,000 of its own money ('we don't like borrowing from banks - they ruined the UK economy after all') to develop a new site with room for expanded production facilities.
'We will still be an m&e contractor, but now we will be a manufacturer too,' explains Mr Hood, who says biomass boiler manufacturing will initially be responsible for about five per cent of turnover.
'If we send 10 men to work on a project for a builder - we have all the risks. If I have three guys working here building something; I hardly have any risk - what would you do?'
The company has also developed cooling from biomass with absorption chillers, the first company to do so in Northern Ireland. Not only does this reduce the end user's carbon footprint for air conditioning, it also qualifies for RHI payments because heat is generated to drive the cooling process.
So, innovation has taken it a long way since the company was set up in 1968 by Mr Hood's father Stewart and Victor Sheridan - both had worked for larger engineering businesses before striking out on their own. Ironically, it was Patton Group founder David Patton who helped S&H to grow in the early '70s by reusing the company many times on the building of commercial estates around Belfast.
The company also developed a good reputation for warm air heating and grew to around 50 directly employed staff. Brian Hood became a director in 1995 and then bought Mr Sheridan's shares in 2000. Stewart Hood stepped down as managing director in favour of his son, but remains involved - mainly on specific projects. 'He still enjoys the hands-on engineering.'
Mr Hood (junior) was not interested in joining the business originally and had his heart set on farming when he left school. 'But I had my arm twisted - and went to technical college.' His qualifications are in electronics and microelectronics, but he says he is much more focused on the mechanical side today 'as that has most potential thanks to renewables'.
It has been a varied and often surprising journey since that has taken the company to £3m turnover and 50 directly employed staff.
One of Mr Hood's most colourful stories relates how S&H came to be a favoured contractor for the UK Foreign Office (FO). Apparently it was all thanks to a chance meeting with the British Ambassador at a garden party in Kazakhstan.
'I was out there working on a project and got invited to the party. I was just chatting to the ambassador who said he was having some trouble with the taps in his official residence - so I sent round my plumber who replaced a couple of washers,' recalls Mr Hood.
'He also mentioned there were some electrical problems, so I took a look at those too. I found that the system was totally unearthed and the wiring for the chandeliers was unsafe. So I had to warn him that he might be electrocuted.'
This prompted an irate call from an official at the FO, but three weeks later the company was given the contract to rewire the ambassador's residence. This led to pricing and work in various trouble spots around the world, including, The Falkland Islands, Cuba, Mozambique, Indonesia, the Congo, Greece, France, Uzbekistan, Iran and Albania. 'Coming from Belfast they obviously thought we could handle those places!'
Mr Hood did pull his men out of Albania when the deputy ambassador was stabbed - just in time as it turned out because the next day someone threw a hand grenade into the pub they used to frequent. So it was probably a case of mixed feelings when that line of work dried up after the FO started running everything through builders 'to save money'.
And for the future?
'We'll keep doing what we're doing. We don't want to get too big. £20m turnover is £20m of headaches. We will grow as the economy improves, but we'll take it steady and make sure we get paid on time,' says Mr Hood.
21 January 2014