Rebuilding an industry

Claire Hartnett

The figures say it all. Last year, 453 construction companies went bust – over 30% of the year's total insolvencies. In 2007, over 400,000 people worked directly or indirectly in construction – plummeting to well below 200,000 this year. The most recent CSO figures indicate that the total number of direct employees in the sector stands at just over 130,000 while experts expect the industry to fall in value from €38 billion in 2007 to well below €10 billion in 2010.

And the worst may not be over.

Martin Whelan, Director of Research and Policy with the Construction Industry Federation (CIF), says his organisation is still very concerned about the fall in output and that hopes for a recovery in the trade are premature.

"The fall in output is evident across all subsections of the sector. We're very concerned about the future levels of output – it's a pretty bleak outlook."

CIF is also warning that construction output, already decimated by the collapse in the property market, will dramatically decline over the next 12-18 months because the Government is not delivering on its capital investment programme. The organisation claims that the value of Government projects currently at tender stage is substantially below its commitments and that the aggregate value of these projects in 2010 will be about €1 billion – significantly lower than the €6.4 billion the government promised to spend.

"The Government spends a certain amount of public spending every year on infrastructure. It said it would spend €6.4 billion this year but from our figures, all we can see is about €1 billion work in the next year. €100 million of work was tendered in January which was nowhere near the government commitment and it's also happening at a time when private sector spending has come to a halt."

In terms of insolvencies, Whelan isn't convinced that corporate failures in the industry have bottomed out.

According to statistics released by InsolvencyJournal.ie, the number of construction firms that went bust in January dropped 35 per cent from the December total of 49. But hopes for a recovery were premature. In February, construction was again the worst-affected sector with 47 insolvencies – up 34 per cent on the previous month.

"If the fall off in public spending continues and if the investment programme doesn't pick up then construction will continue in the same downwards trend. But if it's the case that government investment returns, then some confidence will also return. The biggest difficulty is obviously the lack of work but people are also having problems getting paid, and the availability of credit is in a pre-NAMA vacuum. We need to see the recapitalisation of the banks by NAMA sooner rather than later."

When pushed on NAMA, Whelan says that it's the only option available now and it's important that it happens without further delay. "The Government chose to go down the NAMA route and it will be judged to the degree that it gets liquidity flowing again."

There's also concern in the industry about a growing black economy in the building business, which is threatening the already scarce jobs and heaping more woes on legitimate companies struggling to keep their head above water.

"We estimate that the black market costs the state at least €250 million every year. The figures are growing, it's a major issue for our companies and the exchequer. Those operating like this usually have non-compliance issues across the board, it's a huge issue and we're extremely concerned about direct leakage of tax revenues from the state."

One of the proposals put forward by CIF to stimulate the sector again is the use of private pensions as a mechanism for funding capital spending. "Irish pension funds have some €70 billion in assets and the vast majority of it is invested abroad. We've come up with some detailed proposals about how to stimulate the sector through pension investment and we're pushing the government to invest," says Whelan.

Indeed, the CFI is hosting a joint conference with the Irish Congress of Trade Unions (ICTU) on Monday about how pension funds could be used to stimulate job creation through investment in major infrastructural projects.

"Unless we embrace initiatives such as Construction Infrastructural Bonds to help create badly needed infrastructure projects, total employment in the sector will fall below 100,000 by the start of 2011.” says Whelan.

Despite the overwhelming numbers of insolvencies in the industry, Whelan says the CIF's members are still trying to stay positive.

"Our members are very pragmatic, they live in the real world. Everything is hugely competitive now, people are tendering below costs and it's not sustainable - but they don't wallow in it - they get on with it but if the works not there, they have to let people go."

And he says that the downturn in the sector has forced many businesses to seek work elsewhere:

"The construction industry in the main is the building of schools, hospitals, roads, Croke park, Landsdown road, the docklands – that's the construction industry and it's a real asset to the country. But a lot of companies are looking outside of Ireland now and those skills will be used to the advantage of other countries and to improve their infrastructure. There's been a lot of talk that the industry overshot in 2007 but now it's gone the opposite way. We expect the industry to fall in value below €10 billion this year, where it should be €19 billion. It's a massive loss to economy and the knock-on effect of the failure of large firms is exceptionally difficult."

It remains to be seen if the CIF can convince the government to increase capital spending, or to invest pensions into infrastructure, but for now, it seems that the construction industry will continue to dominate insolvency statistics for the months to come.