After confirmation that administrators had been called in at Middlewich-based contractor and developer Pochin’s, Place North West investigates what could have gone wrong for the long-established regional business.
Administrator Grant Thornton, appointed on Monday, cited “legacy issues from earlier contracts” as a major component to the collapse. The construction arm posted a £6m loss on a £50.5m turnover in the year to February 2018.
Pochin’s built offices, warehouses and residential schemes. Market speculation points to the contractor’s exposure to residential as a contributing factor in its demise.
In particular, issues are understood to centre around work for DeTrafford at the City Gardens apartment block in Manchester.
City Gardens started on site in 2017, and is believed to be running behind schedule and over budget. Sources suggest that during construction, unforeseen elements were found in the ground, while Pochin’s is also understood to be in a dispute with the client, DeTrafford, and architect, Ollier Smurthwaite, regarding issues with the design. Pochin’s was also contractor on the neighbouring Sky Gardens.
A statement from DeTrafford said: “DeTrafford wishes to reassure its customers and suppliers that despite this unfortunate news, our robust contingency plan is now in place.
“We intend to complete construction of Sky Gardens and City Gardens, the two projects Pochin were employed on through our in-house construction business, DeTrafford Construction Limited in order to minimise the impact for our customers. As such we have issued the appropriate termination notices to Pochin and are preparing the team to complete the remaining works, largely relating to fit-out works only.”
DeTrafford and Ollier Smurthwaite have yet to comment regarding the legal dispute.
While a further statement is yet to be released from Grant Thornton over the future of Pochin’s eight companies and 120 staff, the administrator warned earlier this week there was “a high likelihood of redundancies”.
Below we analyse market factors which could have contributed to Pochin’s collapse:
Construction contracts are largely awarded on a design-and-build basis, with tenders likely to be given to whoever offers the lowest price. This has led to a race to the bottom on pricing, leaving little wiggle room for contractors operating on profit margins of around 1% to 2% should the cost of delivering the scheme increase over the construction period. Some contractors go so far as to ‘buy work’, deliberately quoting at a price which will make a loss on the promise of future profit-making work with the same client.
Rising construction costs
Manchester’s city centre residential sector is a particularly tough market to work in on a fixed-price basis. Construction costs have increased by 15% in the last two years alone, rising from around £150/sq ft to £180/sq ft.
This has been driven by a number of factors. The city has become a victim of its own success; 78 sites under construction, including tall and dense development by prolific developers such as Renaker. Sub-contractors and materials are in short supply.
According to one architect, “there’s a shortage of brickies, and if someone offers them 50p more per brick to go to a different site, then they’re off”. One Manchester city centre developer said sub-contractors walking off site mid-contract for a better offer had become common. The result; contractors are having to pay more to keep staff, eroding an already delicate profit margin.
Meanwhile, Brexit has impacted on import prices. Most materials come from Europe, and with the pound worth 20% less, imports have become more expensive and supply competitive.
City centre residential market
City centre residential is “a unique skill”, one prominent city architect told Place North West, with significant experience necessary to be successful in the market. Pochin’s only entered the city centre market relatively recently, winning its first project with DeTrafford in 2015.
The cost of delays is high. If a building finishes late, impacting sales or lettings, a penalty on the contractor could equate to the level of lost income felt by the developer. For city centre schemes demanding increasingly high rents of around £1,000 per flat or even higher, a contractor could face a penalty of hundreds of thousands of pounds per month until it is finished.