This year is being seen as ‘make or break’ for many hvac businesses in the wake of deep budget cuts now being implemented across the public and private sectors
Clients have held back investment and the recovery has yet to filter down the supply chain. And there are concerns that contractors who change their business model to ride out the economic climate will never recover to pre-recession levels.
HVCA president Martin Burton said that tight margins, onerous conditions and unfair payment practices were once again the order of the day for ac contractors contending with the construction supply chain.
Mr Burton said. “There is a real danger that the trust built up between members of the supply chain over the past few years could be fatally undermined by what is going on in the marketplace right now. We do, at least, have the Construction Act in place now, which gives us a mechanism for recovering our money that was not there at the height of the last recession, but things are still very tough out there.”
He cautioned that many construction clients were failing to grasp the principle of ‘best value’ and in driving costs ever downwards were in danger of missing their sustainability goals and fatally undermining quality across the sector.
A number of ac contractors are unhappy at changes to procurement and tendering practices, which are damaging their cash flow. Clients have been accused of “moving the goalposts” part way through the process leaving contractors out of pocket.
“Clients are playing a very dangerous game with our finances,” said Karen Leader of Barrier Air Conditioning. “The tendering process, even for existing clients, seems to be increasingly chaotic. Schedules are ignored and we are informed half way through that they have changed their minds and we need to start all over again. By that stage our people have been tied up in days of site surveys and there is no way of recovering those costs.”
The result is that many annual contracts are not being renewed and contractors are working on a rolling three-month basis with no guarantee of long-term work even on service and maintenance projects. This makes it hard for them to invest for the future, according to Ms Leader.
“The problem is that most contractors cannot afford to walk away from the process,” she said. This applies particularly to the ac sector, which have regulatory hoops to jump through. “We also have had to commit to putting all of our engineers through their F-Gas training – we have to make that investment, but without a clear fix on future workloads.”
Many HVCA members are alarmed by the depth and severity of the cutbacks being put in place by clients. They fear that the impact could be felt long after the current recession is over.
“The biggest worry is that short-termism and the return of sub-economic tendering will become the norm,” said Graham Manly, past president and director of Gratte Brothers “This could change the business model and mean we end up with a much smaller permanently employed workforce in the long-term.”
“We are seeing such deep and profound cuts in budgets and head counts within some client organisations that it is doubtful these will ever be fully reversed. Many are now focused on reducing their own exposure, which means sub-contracting risk and responsibility. Specialist contractors will be left off tender lists unless they agree to take on design risk – this could be a very dangerous trend.”
The HVCA has to work around the fact that recent spending cuts have reduced the number of civil servants allocated to policy issues relevant to our sector. Chief executive Robert Higgs OBE said this meant industry bodies would have to take more direct action.
“For example, the HVCA and CIBSE are working together on a solution to the problem of lack of compliance with the Building Regulations and other environmental legislation,” he said. “We know there is a failure of enforcement. RAC Group members report that many clients are not having their mandatory energy assessments and air conditioning inspections carried out.
“These regulations were created for very good reasons and the Government is aware that unless they are properly supported the country will not be able to meet its energy reduction targets. “