Suicide bidding: Connaught and Rok accused

As you may, or may not be aware the share prices of both Connaught and Rok have been decimated in recent months.  Negative news has seriously knocked the confidence of investors.

Connaught stood at £1.02 on July 23^rd 2010, falling to a low of £0.09 in August.  Although this has recovered to £0.18 now, news seems to be all negative.

Rok stood at £0.18 on August 10^th 2010, falling to as low as £0.145 on August 11^th 2010, but has recovered now to £0.18.

According to an article by construction enquirer, rival contractors believe both firms have run into trouble after bidding too low for work: suicide bidding.  Maybe they have been the companies that my colleague Claire Light referred to in her article in January 2010: Tender prices fall for 7th consecutive quarter.

What the Enquirer’s article states is that the rivals of Connaught and Rok say these companies have run into financial trouble because they have been “buying” work with low bids.

Connaught bosses are currently struggling to keep the firm out of the bank’s hands after it ran out of funds to pay suppliers as debts soared above £200m.

Rok issued another profit warning yesterday and suspended its Finance Director as problems intensified at its plumbing, heating and electrical division.

Connaught blamed a slowdown in spending on social housing maintenance for its troubles while Rok said it had suffered through “serious failings” in financial controls.

One contractor told the Enquirer: “This is a case of chickens coming home to roost for both of these firms.  It’s no real surprise to most people in the industry, because they have been winning work with suicidal low bids to impress the city with their order books for years.  The main problem for them is that clients have got a lot more savvy and the old days of putting in a low bid then working up the price once you have started are long gone.  There is hardly any wriggle room in these contracts, so the price you bid is the price you get.  I can see Connaught having to give up contracts, but replacement firms won’t work for the same rates they quoted at because the numbers just don’t stack-up.”

Personally I do not know if Connaught or Rok have put in tenders at break even or even to make a loss (yes this does happen), but for any company to do this is only damaging for the industry that they work.  I hope that both companies come through their difficult times, for the sake of their employees and their customers.  I am sure that their rivals will be taking advantage of this lack of confidence the market now has of these companies and good luck to them.

The recruitment industry

We have also seen stupid, unprofitable quotes, bids, tenders in the recruitment industry.  The recession has led many people leaving the industry, many companies going bankrupt, and some of the larger businesses have to amalgamate to make the books work.

Many of the poorly run recruitment companies have tried to get through difficult trading conditions by offering ridiculous fees to win work.  Employers cannot be blamed for accepting cheap offers, it is the recruitment companies that are damaging their own reputation and have then set their own bed, so they must lie in it.  I do not begrudge any company that is competitive, but employers need to know that rarely if you pay peanuts do you get gorillas, you get monkeys.

Many of the companies that we have spoken to, that have agreed very low margin supply contracts as one offs, or as short or medium-term supply contracts invariably inform us in the majority of cases that the low-cost model has a detrimental effect on the quality of agency performance.  Quality delivery at no or little cost rarely works.