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HVAC supply chain braces for bad news after Clugston administration

Construction group falls into administration, leaving HVAC supply chain fearing further risk of losses

Construction-to-FM group Clugston has called in KPMG as administrator in a move that surprised many in the industry and left the HVAC supply chain braced for news of unpaid debts.

While alarm bells rang at the fact that the group had not filed full 2018 accounts at Companies House, the fact that the company posted a 49 per cent revenue increase of £176 million in the year to January 2018 was seen as sign of its ability to bounce back and in August 2018, the group reported it had ’made real progress in building the foundations for sustainable growth and profitability.’ However, the construction division posted a pre-tax loss of £0.5m in the year. Clugston said in its accounts that “product and quality difficulties on several projects” were respinsbile, which it blamed on quality problems in the supply chain.

Clugston Construction has a division which designs and builds commercial buildings, offering its own M&E services and bringing it into collaboration with HVAC suppliers. It is also heavily involved with building Energy Centres, often requiring CHP installation.

The administration has again emphasised the problems with payment in construction and their impact on the supply chain, particularly if the contractor has withheld retentions from its subcontractors. It is estimated that the average contractor has £27,500 of its money held in retentions.

BESA chief executive railed against the endemic payment problems in construction at the recent BESA National Conference. He said: “The huge burden of debt created by the ongoing abuse of cash retentions is forcing many SMEs out of business and robbing our country of their vital expertise. Mr Frise claimed that civil servants in Whitehall were terrified about the impact that another financial collapse of a major construction group – similar in scope to Carillion – might have on vital public sector infrastructure plans. He added that such an insolvency remained “very possible” due to a lack of clear commitment to payment reform.

A range of trade bodies with representation in the HVAC sector have campaigned for a number of years for legislative reforms to mandate ringfenced retention payments and the wider use of project bank accounts to ensure that any money owed for completed work is protected.

Mr Frise has argued that a failure to address these issues reflected wider concerns raised by dame Judith Hackitt in the Independent Review of Building Regulations and Fire Safety. Dame Judith concluded in her findings last year concluded that there was wide ranging failures in how buildings and their systems are designed, installed and maintained.

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