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Construction must be built on commercial discipline

When thinking about the North East construction and property sector, one of the first words that springs to mind is ambition.

From housing and infrastructure to regeneration and specialist development, there is no shortage of appetite to move forward.

But here is the reality – ambition is brilliant, but it does not protect margin or guarantee profit.

Margins are already tight, and things like recruitment, retention and training are creating higher costs for the construction and property sector.

Increased National Insurance contributions have added to that pressure.

Businesses need the right people, with the right skills, but maintaining that team is becoming more expensive.

At the same time, the regulatory burden has grown, with the need to hold huge amounts of documentation and data.

Contractors and developers are expected to evidence more than ever before due to building regulations, safety requirements and a wider demand for traceability, which not only increases costs but puts pressure on people too.

In a tight market, it can be tempting to say yes if a project or opportunity looks good, but if the right people are not in place or the right skills are not available, that decision can become expensive very quickly.

There may have been times in the past when a business could stretch itself and still deliver without major consequences, but that is much harder now.

Late delivery, missed service levels or poor performance can lead to liquidated damages, disputes, arbitration and significant professional costs, which can quickly turn a profitable job into one that damages the company.

Winning work matters, but winning the wrong work, at the wrong price, with the wrong resource behind it, can be far more damaging than walking away.

It sounds obvious, but pricing is one of the most important things businesses should be reviewing now.

It needs to reflect the true cost base of the company, including people, tax, finance, regulatory compliance, project delivery risk and the cost of getting things wrong.

VAT and tax treatment also need to be understood from the start, particularly in property and construction because the rules can be very specific.

This is especially important on regeneration and infrastructure-linked projects, where public ambition, private investment and commercial delivery all have to work together.

Many businesses are missing opportunities to improve cashflow or reduce costs through reliefs and incentives that already exist.

Capital allowances, property incentives, research and development relief and VAT recovery can all be significant, but they are often not reviewed properly or considered too late.

Businesses also need to be prepared to be opportunistic.

That might mean looking at data centres, renewables, grid upgrades, specialist accommodation or new forms of development linked to changing regional demand.

However, diversification brings its own risk.

A construction company moving into asset ownership, leasing models or operational infrastructure may be stepping into a completely different financial model.

There is a lot happening in the region and demand exists across parts of the market, particularly where development connects to housing, infrastructure, energy and regional growth.

My advice is to stay close to the market, be active in the business community and keep talking to the people around you.

For contractors, developers and owner-managed businesses, now is the time to review pricing, project accounting, tax treatment, VAT exposure, reliefs, funding structures and delivery risk.

The opportunity is absolutely there, as long as you are commercially ready to take it.

Glen Small is head of construction and property at accountancy and business advisory firm Johnston Carmichael, which has offices across Scotland and further bases in London and Newcastle

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