Far East Global arrive in the UK – a cladding contractor’s perspective

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Constructive

has newsConstructive read with interest the that Far East Global, the Hong Kong based world top five ranked cladding and curtain walling contractor, has set up in London to target work in the UK and Europe. This indicates that Far East, along with other international players such as Chinese based Yuanda who set up a European base in 2010, have identified a gap in the market, perhaps because many UK and European based cladding and curtain walling contractors such as Schmidlin have gone into liquidation since the recession hit. Smaller companies have been especially hard hit with the likes of Colourclad, Dialan Cladding Systems and CDW Ltd all entering insolvency processes in 2012 alone. The recession has hit the construction sector particularly deeply both in the UK and across Europe and most areas of the industry are suffering, but wanted to explore if there are any particular reasons that cladding and curtain walling subcontractors are struggling to survive. We spoke to the ex-MD, Gary Heywood, of a leading UK cladding and curtain walling firm, which entered into a creditors’ voluntary liquidation during the recession.

What is your reaction to the news that Far East Global are to set up a UK base?

I think they have rightly identified a gap in the market as there is a dearth of UK cladding contractors. This has always been a problem in the UK cladding industry as the construction sector is particularly vulnerable to boom and bust, but the current recession has hit particularly hard. When the industry is buoyant everyone is stretched too far and a lot of subcontractors are guilty of taking on too much work which can affect quality. Work then dries up in recession and many companies start “suicide bidding” and taking on work at prices which are loss-making.

Why in your opinion are subcontractors particularly suffering at the moment?

As ever, cash flow is a major issue. From client level downwards every penny is being squeezed out of projects and inevitably this ends up hitting the smallest companies lower down the food chain, the subcontractors, the hardest. These companies frequently do not have the resources and cash flow to enable them to fight when main contractors and / or employers decide to restrict payment, even when that restriction is made on grounds which are not legitimate. Adjudication has become a protracted, expensive and sometimes overly legalistic process and it is too often the case that subcontractors with little resources are having to spend money which they will never get back just to secure payment they are rightfully owed. In my opinion it is not fair that you cannot get your costs back in adjudication if that adjudication concerns a payment issue which is critical to cash flow. As there is so much competition for work in the current market and very little work out there many subcontractors are having to sign up to extremely onerous payment conditions and finding that they simply cannot operate their businesses within the inevitable cash flow restrictions which result.

So do you think that the culture of the industry is a problem?

Yes, and this can be, as I said, from client level downwards. If clients and main contractors want to finish a job on time and defect free then there needs to be a payment structure which enables subcontractors to do their job properly. If the focus is purely on the bottom line then this inevitably leads to problems and disputes. I favour the NEC form of contract because I think it fosters better working relationships and a better culture. In addition, it gives subcontractors and main contractors who know how to operate the contract flexibility over payment as you are paid by milestones. The best project I worked on in my career which finished on budget, on time and without any significant defects was let on the NEC form of contract and a representative from the client met each subcontractor every month to ensure that they had been paid and to ask questions about any problems there were with the design etc. I think this form of client management is key but unfortunately we rarely see this level of client involvement, which means that unscrupulous main contractors are more able to exploit subcontractors.

What particular problems do cladding and curtain walling subcontractors encounter?

Buildability can be a real challenge and by that I mean delivering the architectural intent for the façade in a way that actually works. It can be problematic when main contractors take on complicated façade packages which they do not have the expertise to manage and co-ordinate with other subcontract packages, especially because the curtain walling package will always be key on the critical path and generally late(ish) in the programme. The quality of some pre-fabricated cladding systems can also be a problem.

What challenges do you think Far East Global might face in the UK market?

Many Asian economies have enjoyed prolonged periods of economic growth and have not had to learn how to survive in recession. The UK’s “boom and bust” construction industry may therefore be challenging. Non European subcontractors will also have to satisfy clients that there will not be quality issues, which in my opinion may be a perception issue. New players in the market will also be competing with companies which already have long standing relationships with developers, main contractors and design teams. However, there is potential in the UK market for foreign contractors.