CIF Director Paul Sheridan: The traditional measure of growth in Irish construction is turnover but should that move towards sustainable profits when considering the health of our industry?

by | Jul 4, 2022

Last September I wrote a piece that was generally upbeat, describing the potential opportunities for growth and innovation coming on the back of the increased Capital Investment committed to by the Government in the National Development Plan and Housing for All.

However, this year, the horizon facing this year’s CIF Top 50 Contractors is much more uncertain. This uncertainty is driven by both domestic and international factors. The industry is still dealing with the fallout from Brexit, Covid-19, public health measures and now the Russian invasion of Ukraine, which again has heaped more pain on an already burdened industry.

The impact of these events is having a profound impact on supply chains and material costs. We have seen huge spikes in the cost of key raw materials such as fuel, steel, timber and concrete, which is making it a very difficult trading environment. With inflation running at levels not seen in over 20 plus years and the era of negative interest rates coming to an end, Central Banks are now looking to begin increasing interest rates, which undoubtedly will affect public and private investment and consumer sentiment.

Without the necessary reforms committed to by the Government to increase its ability to deliver on the NDP and Housing for All, then the pipeline of public investment will continue to further constrain optimal infrastructural delivery.

It is likely that we are entering a period of sustained volatility and because of globalisation and Ireland’s open economy; distant events are now directly impacting us more regularly. To meet the Government’s climate action goals, we need to build more sustainably. It means we need to build based on Quality and Whole Life Cycle Cost.

This requires attracting new talent into our industry with a greater focus on innovation and the adoption of New Engineering Contract (NEC) type contracts, new technology, Modern Methods of Construction and Main Contractor involvement.

CIF Director of Main Contracting Paul Sheridan. Picture: Maura Hickey

The political concept of Fixed Price-Lump Sum is unviable in this contemporary world. The transactional approach to construction is also no longer tenable, whereby public and private clients seek to transfer unknown, unmeasurable and unsustainable risk onto the contractor.

We need reform of the Public Works Contracts and less bespoke private contracts to ensure they are based on collaboration, equitable risk management and flexibility. With this backdrop, where do growth opportunities lie for Main Contractors? Well, firstly, we know that meeting our climate goals is now essential. Secondly, Ireland must solve its housing crisis and to do this it needs infrastructural investment.

Thirdly, Ireland is one of the leading countries in the world to do business and is highly attractive to foreign direct investment across IT, manufacturing, and financial services. The UK and Europe face similar challenges. These are the areas where growth opportunities lie both in a domestic and international sense. Before I finish, I would like to leave the following thought.

The traditional measure of growth in Irish construction is turnover and we celebrate it through the Top 50. However, most other industries measure their health primarily on sustainable profits, which can support innovation as well as investment in new technology, skills and talent. Given the challenges the industry faces now in terms of risk management, improving productivity, sustainability, attracting talent and the adoption of new technology – should we be measuring growth based on profitability, turnover or a combination of both?

Whatever is chosen, it will determine how Main Contractors win future work and the risk they are prepared to take.

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