CONSTRUCTION VIABILITY - WHAT IS THE TEST?

With the UK lockdown continuing and the widening disparity between devolved Government’s treatment of construction site closures, which indicates that 80% of all construction site are closed in Scotland and North Ireland compare to 39% in the UK as a whole, it is now time that the financial institutions have a clear, unified guideline on the viability test required to support the industry through this crisis.

As reported by the Construction Leadership Council in their recent Covid-19 Taskforce survey, it showed that only 12% of construction companies have been able to access Government backed loans. It is unthinkable to imagine that small and medium companies are simply wishing to burden themselves with debt to prop up their own bank accounts, so clearly the impact of failing to access liquidity support will lead to unimaginable long-term consequences for the construction industry and the wider social-economic impact in the UK.

Many micro and small construction companies are now holding their breath and hoping that the Bounce Back Loans announced by the Chancellor on 27th April, and which are due to open on 4th May 2020, will provide short term financial support.

However, the devil will be in the detail. With reports that “the scheme will be delivered through a network of accredited lenders”, it is imperative that the viability test reflect reality.

The simple message from the industry must be clear to the Government to avoid a catastrophic industry wide failure and that is that the viability test must reflect the trading conditions in the industry. Where cashflow is variable, business growth is driven out of work in progress so not all years are profitable, margins are low, and just because a business has not had prior debt does not mean that they cannot manage a repayment plan.

In an environment where small and medium construction companies have manged to build credible and viable businesses, without the support of financial institution, this should be seen as a “business plus” and not a black mark against a company’s viability to succeed.

Although I applaud the Government measures in the fight to keep us safe and well, I do have reservations that the opportunity to keep the construction industry safe and well will be lost if the Bounce Back Scheme is not extended and delivered to address the following critical points;

• A viability test that reflects the industry.
• Extension of the £50,000 limit to £250,000 or 10% of the total prior year annual turnover.
• Maximum turn around period of 14 days. 

In addition, I would suggest that research and development investment conducted in the last twelve months should be reviewed and additional financial support be given to run along-side the existing R&D tax credit scheme. By providing a loan facility equal to an organisation’s last R&D tax claim will not only protect research and development but also encourage UK companies to be at the forefront of innovation once the lockdown restrictions have been lifted.

Dr Alex Reid
Apsis Founder and CEO