Building sector 'faces subcontract Carillion risk'
The Irish construction sector faces many of the same challenges that led to the collapse of UK construction giant Carillion, according to a leading industry expert.
In 2016, the British government commissioned a major report entitled Modernise or Die from Mark Farmer, CEO of Cast Consultancy, which predicted serious decline in the sector.
Farmer's key concern is the huge prevalence of subcontracting, both here and in the UK, he told this newspaper.
"The model can work when you have a very well-run business, pricing in the right margin. But, done poorly and used to create cash flow through large turnover as a smokescreen for a fundamentally unprofitable business, it is like a Ponzi scheme."
Farmer said he believes the Irish construction cycle currently lags the UK by two to three years: "You are coming out of a deep downturn into growth. You have to build more homes, more infrastructure, more commercial and it's really important for Ireland and the Irish construction sector that lessons are learned from what we have seen in the UK."
A report from global consultants Aecom last week said that the Irish sector's output value grew by 18pc in 2017, with a further 14pc growth to €19.5bn expected in 2018.
But Orla Hegarty, of UCD's School of Architecture, Planning and Environmental Policy, said that this growth has led to concerns around public sector contracts in the industry. "The rising market is putting pressure on construction contracts because projects that are on site now were priced when labour and skills were more readily available," she said.
"This is starting to bite and it's a test of a Department of Finance strategy introduced 10 years ago," she said.
Analysis by this newspaper showed average wages and short-term debt rising in the industry.
Sunday Indo Business