Paying the price

Ever since it shed its chief executive and finance director in June following news of ‘urgent’ discussions with lenders over additional funds to shore up its balance sheet, the writing has been on the wall. Did landlords take due notice?

The flurry of calls to lawyers and rival contractors this week will not fill tenants (or, in the case of housing associations, lenders) with confidence that the landlords affected were implementing carefully planned contingencies. In reality, however, it is hard to see what else landlords could do until it was officially confirmed that Connaught had collapsed and they could legally terminate their contracts - which they have now been doing in droves.

It is likely that the provisional arrangements made by landlords to ensure broken boilers are still repaired will hold. Although some interim appointments may be necessary, the bulk of Connaught’s 4,400 housing staff will remain to continue the work until landlords have made alternative plans.

It has been suggested that social landlords sought recklessly low tender prices and that this contributed to Connaught’s demise. While there may be some truth in a desire for keeping a lid on costs, social landlords, in common with any other public procurement process, weigh up both quality and cost to assess bidders. Like several other contractors caught out by how quickly the recession choked off private sector work, Connaught relied increasingly on social housing contracts and price competition was not rare.

The greater fear now is that when landlords come to negotiate replacement deals, they will have to pay substantially more than previously. Connaught’s rivals deny they sense a fast buck, but with work worth billions of pounds coming to market in a rush, firms such as Willmott Dixon, Mears and Morgan Sindall will definitely be in a strong position.

Landlords do, however, have the option of taking the service back in-house. This might not be simple and carries obvious efficiency risks, but it would take the sting from the rise in VAT due in January. A possible silver lining to the Connaught cloud?