Buckingham Group’s Trading Halt Raises Concerns Amid Failed Search for Rescuer

Buckingham Group Halts Trading, Raising Concerns of Another Industry Failure

Background

Major construction company Buckingham Group has announced that it has ceased trading. This news comes as a shock to the industry, as Buckingham Group is the largest contractor to collapse since the infamous collapse of Carillion in January 2018. The £665m-turnover firm, which has been involved in high-profile projects such as the construction of Liverpool FC’s new Anfield Road Stand, filed a notice of intention to appoint administrators on Wednesday (16 August). The company cited deep losses on three undisclosed stadium and arena contracts, as well as a substantial earthworks job in Coventry, as contributing factors to its financial troubles.

Attempts to Secure Investment

In its statement, Buckingham Group revealed that it had been working with specialist advisors for several months to secure substantial new investment that would have enabled the company to continue trading without interruption. However, these efforts ultimately proved unsuccessful. The hit on the four contracts, coupled with inflation and challenges in the sports and leisure division, created significant financial strain, leading to the company’s current inability to continue trading.

Effects on Jobs and the Business

Buckingham Group emphasized that it is not currently in administration and will be working closely with clients and interested parties to optimize any potential solution. Their main goal is to protect jobs and salvage as much of the business as possible. The company, which employs around 660 people, announced its intention to sell all or part of the business.

Financial Performance and Recent Challenges

In its most recent published accounts for the fiscal year ending 31 December 2021, Buckingham Group reported a pre-tax loss of £10.7m. The company attributed this loss, in part, to the anticipated financial impact of its work on redeveloping Fulham FC’s Craven Cottage stadium. However, the final loss was subject to further negotiation with the football club. It is worth noting that construction firms have a history of incurring losses on stadium projects, with examples such as Multiplex and former companies Ballast and Laing Construction.

The Impact on the Construction Industry

Buckingham Group’s collapse follows the recent failure of Henry Construction Projects, resulting in the loss of over £1bn in construction revenue in a matter of weeks. This trend raises concerns about the overall stability of the industry and its ability to weather economic challenges. It also highlights the risks contractors face when undertaking large-scale stadium projects.

The Employee-Owned Trust Model

Buckingham Group is notable for becoming an employee-owned trust (EOT) in 2021. This approach allows shareholders who sell their shares to an EOT to avoid capital gains tax on the proceeds. The trust then holds the shares on behalf of the employees, paying them tax-free bonuses from surplus profits. However, critics argue that this model may not be suitable for the construction industry, as it relies on extracting profits from future earnings. In cases where profits are not generated, taking money out of the business becomes more challenging.

Editorial and Advice

Lessons from Buckingham Group’s Collapse

The collapse of Buckingham Group serves as a reminder of the challenges and risks involved in the construction industry. Large-scale projects, such as stadium constructions, are notorious for their potential to cause financial losses for contractors. This latest failure highlights the need for careful planning, risk assessment, and financial management in such endeavors.

Reviewing Business Strategies

Construction companies must critically evaluate their business strategies and financial sustainability to ensure long-term success. Learning from the mistakes of companies like Carillion and Buckingham Group, it is crucial for contractors to diversify their project portfolios, implement effective risk management protocols, and maintain financial stability through prudent budgeting and cash flow management.

The Viability of Employee-Owned Trusts

This recent failure also raises questions about the suitability of the employee-owned trust model in the construction industry. While this approach offers certain benefits, such as tax advantages for shareholders and increased employee engagement, it is important to assess its compatibility with an industry that is prone to financial volatility. Construction firms should carefully consider the financial implications and risks associated with transitioning to an employee-owned structure.

Collaboration and Communication

In order to protect job security and preserve business operations, it is vital for contractors facing financial challenges to establish open lines of communication with clients, stakeholders, and interested parties. By proactively seeking solutions and prioritizing clear and transparent communication, contractors can maximize their chances of finding viable alternatives and minimizing the impact on employees and the wider industry.

Conclusion

Buckingham Group’s halt in trading, following the collapse of Carillion in 2018, raises concerns about the stability of the construction industry. Contractors must learn from these failures and adopt robust strategies to navigate the inherent risks of the industry. Additionally, the suitability of the employee-owned trust model in construction should be evaluated to ensure its compatibility with the unique financial challenges faced by contractors. By embracing careful planning, risk management, and effective communication, the industry can strive towards a more sustainable future.