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Rick Willmott is not one to sugar the pill. 鈥淭he industry is at a pivotal point at the moment,鈥� says the 47-year-old chief executive of contractor Willmott Dixon in this, his first-ever profile interview. 鈥淭here is no question that any of the large contractors have actually been in a recession yet. But it鈥檚 coming and I see it lasting for as long as five years. I think most contractors are expecting this. I don鈥檛 think as many are prepared.鈥�

Willmott Dixon is one firm that is. The group has been adapting over the past two years - all part of its strategy to weather the storm that Willmott predicts is just around the corner. A restructure at the start of 2010 was followed by a decision to become a hybrid contractor and housebuilder and, last December, the group announced plans to branch out into private residential development. It certainly looks to be paying off so far: the firm posted a 69% rise in turnover to 拢1.1bn last year, by far the fastest and steepest rise of any of Europe鈥檚 top 200 contractors, and while Willmott predicts a flat turnover this year and next, he has no doubt the contractor is in a strong enough position to survive tough times ahead.

After 29 years in the industry, you can expect Willmott to know his stuff. Which makes his messages all the more bleak: 鈥淧rices are at rock bottom,鈥� he says. 鈥淭here is only one way for them to go next - skywards. And quickly. We have seen a 15-20% reduction in materials prices over the last three years and that鈥檚 all about to climb back upwards. This will push contractors into their recession for, realistically, the next five years or so.鈥�

He thinks supply chain members, especially main contractors, are playing a dangerous game: 鈥淔irms are pricing below cost because they are talking themselves into believing the market price for materials and supply chain will continue to fall so then they can recover the difference. That is essentially gambling on where the market price is going to go. And I just don鈥檛 see it going down any further.鈥�

If he is right and prices soar, swaths of firms will feel the pain: 鈥淭here will be many major contractors prepared to price aggressively knowing their cash reserves and the strength of their balance sheet will see them through,鈥� says Willmott. 鈥淏ut some will take the chance but won鈥檛 have the financial clout to make it through the next two to three years so we鈥檒l see more consolidation. It鈥檚 short-term lunacy.鈥� His message to firms set on pricing below cost? 鈥淵ou need to work out the cost of running your business and price it in or it鈥檚 a slippery slope.鈥�

The company strategy

Despite tough competition to win work and disappointing success rates on non-framework schemes, Willmott Dixon is doing pretty well. Willmott says 2010 was a good year and he expects to post a flat turnover of about 拢1bn when the company鈥檚 results are out in May. About 70% of turnover for 2011 - expected to come in again at about 拢1bn - has been secured already with more focus on the private sector market: 鈥淥ur 75/25 split will be shaping more towards private sector but there have remained opportunities to work with public sector clients too on frameworks through 2010 - and 2011, too. The academies framework seems to have some body left in it yet. And the other frameworks are holding out pretty well. We have work in the pipeline for local authorities and on education, leisure and civic schemes this year.鈥�

And it comes as no surprise, now that the group is a hybrid contractor/housebuilder, that Willmott thinks the housing market is one worth focusing on: 鈥淚f you contemplate the starts through the year in housing it has been desperate,鈥� he says. 鈥淎ll that is doing is creating pent-up demand. Housing, both new build and repair and maintenance is a medium-term good option.鈥�

And that鈥檚 where Willmott Dixon鈥檚 most recent announcement comes in: 鈥淲e鈥檙e trying to create some of our own volume through private residential and mixed-use regeneration development,鈥� explains Willmott. 鈥淲e are working up investment opportunities that will feed the beast. We鈥檙e talking millions and millions.
鈥淲e鈥檙e developing a pretty strong residential pipeline that will be coming on stream in two years鈥� time that will give us a constant flow over the next five to 10 years - something along the lines of 800-1,000 units in the pipeline for that period per annum. And that鈥檚 alongside our housebuilding and contractor business.鈥�

Another major focus area will be the retrofit market, something Willmott says will be driven by scrutiny. Scrutiny and embarrassment: 鈥淭o be known as a portfolio holder of the most environmentally damaging buildings in the UK is not the best place to be for any private or public sector organisation,鈥� he smiles. 鈥淪o as soon as the scrutiny starts, things will change. It鈥檚 a very powerful driver, embarrassment. Anyway, the retrofit market is going to create massive volume for the future and we鈥檝e assembled a team of specialists to assist us in our strategy there.鈥�

A client鈥檚 world?

With his concern about lowest cost tendering and his bleak predictions for contractors, does Willmott agree that the construction industry has become a client鈥檚 world? 鈥淚n a way, yes,鈥� he says. 鈥淭hey need to try to avoid the Roks and the Connaughts because they will cost them more if they don鈥檛 make it through the process. But there is a great opportunity if you are a client to exploit the market because you are essentially buying what you could buy three years ago for 15-20% less and the only fools out there are contractors who are driving the price down.鈥�

It鈥檚 not a game Willmott is prepared to play. 鈥淲e refuse to win projects by just slashing the bottom line figure on day one. So if you look at the tender market, we鈥檙e probably winning one in 10 single-stage bids, which is a pretty horrendous strike rate as we鈥檙e often missing the market price by some way. It鈥檚 a huge problem for the industry - but we just will not go down to that level.鈥�