Tier ones have duty to protect SMEs, says Costain boss

Major contractors have a duty to support smaller firms to stop them going out of business, Costain’s chief executive has said.

Speaking to Construction News after the publication of the group’s half-year results for the year ended 30 June 2022, Alex Vaughan said he was concerned for smaller suppliers navigating the current economic climate.

In recent months, a combination of factors including Brexit, the COVID-19 pandemic, and rising material costs has put pressure on businesses.

A total of 23 firms went into administration in July, according to data exclusively provided to CN by Creditsafe, the highest figure since March. In the first six months of the year some 115 firms collapsed. Earlier this month, directors at sister specialists blamed their collapse on a lack of support from main contractors.

Vaughan told CN that it was important that tier ones work with a set of shared values to support smaller businesses during these difficult times.

“I’m obviously concerned for suppliers in the sector who are struggling,” Vaughan said. “We get great value from our small suppliers – so we support them, and they build relationships with us and that’s a personal responsibility.

“When we select our suppliers, we are obviously very conscious of who else they are working for and if they work in our sector. All the other tier ones share the same behaviours, so we are all responsible together, which gives us confidence that people working for us, and our peers, are going to be looked after,” he added.

For the period between 1 January 2022 to 30 June 2022, the firm reported that it paid 85 per cent of its invoices within 30 days. This was an improvement on 76 per cent during the same period a year earlier, something Vaughan was keen to highlight.

“We also run a supply chain academy, so we actually train and help the supply chain to be better, and to be stronger businesses. We use our relationships with people like our auditors to provide coaching and to help the supply chain,” he said.

Costain launched its supply chain academy in October, with the aim of supporting and developing SMEs. It helps to align the company’s supply chain partners with the same standard of training and development used by the group itself.

In the interim results for the period, Costain reported that its pre-tax profit increased to £11.2m, compared to £9.1m in the first half of 2021. Its revenue also rose by almost a fifth to £665.2m, from £556.8m a year earlier.

It said its profit was protected by inflation-protection mechanisms written into contracts. Vaughan told CN that the mechanism worked to protect the company against “prevailing inflation rates” which have increased prices of materials such as steel and concrete.

But he stressed the firm is not profiting from inflation mechanisms and said clients are not left to “just pick up the whole tab”, and it looks to buy alternative materials which are less prone to price fluctuations, where it can.

Leave a comment