Balfour Beatty has warned London property developers that they face the end of a golden era.
The UK’s biggest construction company said developers had made high-end projects in the capital a “no profit zone” for contractors.
Boss Leo Quinn said developers faced a “watershed” moment because of their use of fixed-price contracts. “The developers realise they’ve had a golden era,” said Quinn. “The risk transfer has been so far in their favour — it has almost been a risk-free gift.”
Under the contracts, construction groups working on large residential buildings receive a fixed price regardless of the time and materials a project ultimately requires.
The warning from Balfour came as the FTSE 250 company took a writedown on its central London apartment projects, driving the group’s UK construction business to a loss of £23m for H1, down from a profit of £17m in the same period two years earlier.
Reporting a pretax half-year profit of £55m from flat revenues of £4.1bn, the company said it would no longer work on private developments in the UK capital once it had completed its current set of projects.
“Performance issues at a small number of property projects in central London have been exacerbated by Covid-19 disruptions, leading to a lengthening of project schedules.
“This situation has necessitated a reassessment of those contract-end forecast positions, triggering writedowns. Balfour Beatty will no longer bid for fixed-price residential property projects in central London.”
