M&E firms seeking public sector housing contracts in response to the collapse in activity in the private residential property market are wasting their time – that market is at a virtual standstill too.
The warning was issued by Neil Hunt, a quantity surveyor working across all 13 sites of Bryant Homes amid rumours that Taylor Wimpey, the UK’s largest housebuilder by production, was informing its supply chain that invoices would not be paid as it sought to shore up its finances ahead of its half-year results.
“All the major housebuilders and hundreds of smaller ones are shedding their staff at an alarming rate,” Mr Hunt said. “A lot are mothballing their sites [work is stopped and sites closed].
“This is having a huge impact on their subcontractors, who were already hit with invoice reductions at the start of the year and were losing 2.5 per cent on their rates anyway. They’re being told that when the job they’re working on is finished, there’s no more work available.
“Subcontractors are letting their own staff go because they’ve no follow-on work. We’re hearing that housebuilders are getting between eight and 10 calls a day from subcontractors looking for work. Distributors are being hit as well. An electrical wholesaler told me that it is doing virtually no business – people are not buying electrical equipment because of the slowdown.”
Mr Hunt warned: “M&E contractors should not place their faith in the public sector housing market either, because the slowdown in residential is spilling over into the public sector market.”
“Housing associations [HAs] typically place their developments as part of the planning process and these are tagged on to major housing developments under Section 106 agreements,” Mr Hunt explained.
“The problem HAs have is that since the land acquisitions and housebuilding development processes are not taking place, Section 106 agreements are not being delivered”.
Section 106 agreements are the principal method through which the planning system secures agreement for the provision of affordable housing as part of new developments. Central government policy guidance allows local authorities to negotiate with developers for up to 25 per cent affordable housing in new developments in exchange for planning permission.
The National Housing Federation, the body which represents 1,300 English not-for-profit HAs, confirmed this was the case. “The vast majority of the £20 billion funding for the 2008/11 public sector housebuilding cycle was secured before the credit crunch, so the money is there to be spent,” said a spokesman.
“The problems affecting housebuilders are having an impact on our ability to build homes for our social housing tenants. Existing delivery targets for 2008/9-2010/11 are unlikely to be met since HAs rely on private developers to deliver their social housing commitments through Section 106 agreements. If private homes aren’t being built, then social housing homes aren’t being built either,” he added.
A Taylor Wimpey spokesperson said June’s invoices would be paid but refused to comment on future invoice payments. Commenting, chief executive of the Specialist Engineering Contractors’ Group Professor Rudi Klein said: “To not pay an invoice would be a breach of contract and under the Construction Act subcontractors can legally suspend their work.”