Buckingham Group in Crisis: Trading Suspended as Search for Salvation Ends in Failure

Major contractor Buckingham Group stops trading

Background

Buckingham Group, a major UK contractor with a turnover of £665 million, has announced that it has ceased trading. This makes it the largest contractor to do so since the collapse of Carillion in January 2018. The company, which has ongoing projects such as Liverpool FC’s new Anfield Road Stand, filed a notice of intention to appoint administrators on August 16. In a statement, Buckingham Group cited deep losses on several stadium and arena contracts, as well as a substantial earthworks job in Coventry, as the main reasons behind its financial troubles. The company had been seeking substantial new investment to continue trading, but these efforts have been unsuccessful.

Financial issues and challenges

The financial issues facing Buckingham Group are said to be a result of a combination of factors. The losses incurred on the four contracts, along with the impact of inflation and other challenges in the sports and leisure division, have contributed to the company’s inability to continue trading. The statement from the company expressed regret at the situation and acknowledged the shock it would cause to stakeholders. The board of Buckingham Group is now focused on finding a solution that will protect jobs and preserve as much of the business as possible.

Previous losses and recent developments

In its last set of published accounts for the year that ended on December 31, 2021, Buckingham Group posted a pre-tax loss of £10.7 million. The loss was partly attributed to the work it was undertaking on redeveloping the Riverside Stand at Fulham FC’s Craven Cottage stadium, which incurred an anticipated hit of £14.2 million due to a subcontractor going under. The final loss was subject to further negotiation with the club. Last month, the company faced a winding-up order from plant firm Granada Material Handling, although this was later withdrawn. The recent decision to cease trading comes shortly after the collapse of Henry Construction Projects, resulting in the loss of over £1 billion of construction revenue in recent weeks.

Philosophical Discussion

The collapse of Buckingham Group raises important philosophical questions about the nature of contracting and risk management in the construction industry. Historically, stadium projects have been notorious for causing losses for contractors. The case of Buckingham Group adds to a list of contractors, including Multiplex, Ballast, and Laing Construction, who have faced financial difficulties after taking on stadium jobs. This raises the question of whether the rewards of stadium contracts are worth the inherent risks involved.

Add to this the fact that Buckingham Group had recently transitioned to an employee-owned trust (EOT), which is a unique business model in the construction industry. EOTs allow employees to share in the ownership of the company and receive tax-free bonuses out of surplus profits. While this model can have its benefits, such as employee engagement and motivation, it also presents challenges in terms of extracting money from future profits. If profits are not sufficient, it becomes difficult for an EOT to sustain itself, as seen in the case of Buckingham Group.

Furthermore, the collapse of Buckingham Group raises questions about the overall health and stability of the UK construction industry. The loss of such a major contractor, along with other recent collapses, indicates a fragile and volatile market. It raises concerns about the financial robustness of other construction companies and the potential impacts on ongoing and future projects. This calls for increased scrutiny and regulation to ensure the stability and sustainability of the industry.

Editorial and Advice

The collapse of Buckingham Group should serve as a wake-up call for both the construction industry and regulators. It highlights the need for a thorough assessment of project risks and financial viability before taking on large-scale contracts, particularly in the realm of stadium projects. Contractors and stakeholders should carefully consider the potential risks, financial constraints, and market volatility associated with such ventures. Project owners should also conduct due diligence when selecting contractors, ensuring they have the necessary financial stability and track record for successful project delivery.

Additionally, the case of Buckingham Group underscores the potential pitfalls of the employee-owned trust (EOT) model in the construction industry. While this model has its advantages, it requires careful financial planning and risk management to ensure long-term sustainability. Contractors considering transitioning to an EOT should conduct a thorough assessment of their financial capabilities and market conditions to determine if the model is suitable for their business.

Regulators should also take note of the recent collapses in the construction industry and consider implementing stricter financial and risk management requirements. This could include mandatory financial assessments, regular monitoring of contract performance, and enhanced transparency and reporting standards. These measures would help mitigate the risks associated with large-scale projects and provide a more stable operating environment for contractors.

Overall, the collapse of Buckingham Group should be seen as a cautionary tale of the potential consequences of inadequate risk management and financial planning in the construction industry. It underscores the need for greater diligence, financial stability, and regulatory oversight to ensure the long-term sustainability and success of construction projects.