Chief executive Graham Sturge explains the strategy behind his firm’s steady success
The Covid pandemic has left indelible scars on construction. For many companies, it was a fight for survival – and some lost. But for Red Construction the pandemic was not just a challenge, it proved a turning point that took the business to the next level.
As lockdowns swept the UK in April 2020, the construction industry faced an uncertain future. The government’s ambiguous guidelines left contractors in a dilemma: should they halt operations entirely, or find a way to continue within the confines of new safety regulations? For Red Construction, the decision was clear.
Under the leadership of chief executive Graham Sturge, the company made a bold move to keep all its staff on full pay, even as sites temporarily shut down. Sturge tells Construction News that the decision was made possible by the financial backing from group chairman and funder Simon Lousada – an entrepreneur involved in more than 30 companies.
Sturge says: “I went straight to the staff in April 2020 and said ‘Don’t worry about taking mortgage holidays; don’t worry about the fact you’ll sit at home and you’re not allowed to go anywhere else. We’re going to carry on paying you as long as we’ve got shareholder funds.’”
This commitment wasn’t only about the financial security of the workforce. It was a strategic decision to ensure that when the industry picked up again, Red Construction would be able to hit the ground running.
An emphasis on daily communication through Zoom helped navigate the early, chaotic period of the pandemic. And within two weeks, Red Construction had successfully reopened two of its sites, marking the beginning of a significant growth spurt.
The firm’s decision to retain all of its staff paid off. As other companies hesitated, Red Construction’s team continued tendering, winning five projects on a single Friday in June 2020, “because we were probably one of the only kids in town”, Sturge says.
While two of these jobs fell by the wayside, three went ahead – posing the next headache for the firm. Where would they find the staff to fulfil the jobs? “By August 2020, we needed another 20 or 30 people on board,” Sturge says. “Project leads, site managers, surveyors, design managers, accounts, everything. We were going to double in size as a business.”
By Christmas 2020, Red Construction had burgeoned from 20 to 60 staff, many of whom were Sturges’s ex-colleagues from spells at McLaren and Sisk. “Most of them had either been furloughed, taken a pay cut, had their money cut or been made redundant. And they weren’t happy.”
The strategy adopted during Covid was a gamechanger for Red. The firm’s turnover leapt from £24.6m in the year to 31 March 2021 to £64.7m the next year. “My old MD at Sisk always said there’s no such thing as luck,” Sturge says. “It’s decisions you make through your life that determine the outcome. And this is one of the moments you can say was luck, but actually was generated from past history.”
Risk and reward
The construction industry has always been a complex web of relationships, risks and rewards, but recent years have intensified these by three consecutive blows – Brexit, the pandemic and the Ukraine war. Sturge speaks openly about the pressures contractors face, particularly the challenge of balancing risk with profitability.
“Contracting is all about risk,” he says. “I’ve had discussions with many people who ask ‘why on earth do something for 2 pre cent pre-tax return?’ The reality is that it’s a great return on investment as a contractor, you’re dealing with other people’s money through the life of the contract – funding by the developer into the supply chain. The issue for contractors is risk, not return on investment. The risk is totally out of kilter to the return.
“If you went to an investor and said, I’ll give you 50 per cent back on top of your money in a year’s time, they would snap your hand off. But if you then turned to them and said and by the way, the risk is 2,000 times your investment, you’d get a very different answer.”
While materials inflation has stabilised, productivity on construction sites remains a thorny problem. Sturge cites a study he has read recently showing that up to 16 per cent of cost on projects is down to a lack of productivity. This inefficiency, according to Sturge, starts at the very beginning of a project’s lifecycle. He argues that projects often begin too early, before designs are fully fleshed out, leading to costly changes and delays down the line.
“A lot of developers and investors will look for that 20 per cent profit mark on projects,” Sturge says. “The way that yields have softened and interest rates have increased, they are currently often looking at 5 or 10 per cent. So they’re just not getting the funding. If the industry finds a way of saving that 16 per cent, we’ve just facilitated every investor and developer in this country to do their projects.”
The two-stage tendering process, which should ideally help mitigate these risks by allowing contractors to work closely with clients and supply chains to iron out design issues before construction begins, has been abused in recent years, Sturge claims. Sturge laments that instead of adding value, some contractors have used this process to de-risk their projects while increasing margins, a practice that has contributed to an erosion in trust between contractors and clients. “It got to the point where contractors were doing two-stage projects and de-risking the project to the point the contingency was barely needed. But the contingency was still there,” he says.
A new inflationary spectre looms over the industry, Sturge believes – but this time from labour rather than material shortages. “If in 2025 or 2026 the industry stabilises, and it will at some point because it all goes round in cycles, we’re going to see a problem with labour resource tradespeople – potentially management resource as well,” Sturge says. “Without the investment into training and people coming through into the industry, how on earth is it going to cope with a sudden increase in demand? Because the labour will not be coming from Europe like it used to?”
Despite these challenges, Sturge remains optimistic about Red Construction’s future, not least because of the backing from Lousada. This financial stability, he says, allows Red Construction to make decisions not always available to other contractors, such as releasing subcontractor payments early, even if it impacts the company’s cashflow.
Sturge cites a drylining subcontractor that recently asked for retentions to be released after completing work, even though Red had not had its retentions released from the client. “Ideally I wouldn’t want to do that because it reduces our cashflow. However, I know that particular subcontractor personally. And I know it’s a lot of money for them as a business to carry on trading. And it would be unfair of me morally to hold that money.”
Cautious ambition
Looking ahead, Sturge outlines a cautious yet ambitious growth strategy. The company is not driven by a desire to become the biggest player in the market. Instead it is focused on sustainable growth that aligns with its core values. The firm’s turnover was £62.1m in its latest set of accounts for the year to 31 March 2023 – down slightly from £64.7m the previous year. “We probably see that as a stabilised position that was planned. We took a big jump the previous year.”
Sturge is confident that this year will see another big step up in turnover. “We will go from £62m to just over £100m. The next financial year we are likely to be north of £125m. At that point we are looking, again, to try and take that stabilised position for a year or two, and then look to go again.”
This involves careful selection of projects and a deliberate approach to expanding the firm’s geographic footprint. The recent expansion into the South West, for example, was driven by an opportunity rather than a pre-planned strategy.
However, Sturge has no desire to increase the size of jobs the firm is taking on. Red’s biggest contracts are worth around £45m. “We try and aim to have a maximum of two jobs that we regard as big jobs. If something goes wrong on a £40m job rather than a £20m job it’s twice the problem. On the margin recovery, it’s a small percentage. So the risk versus the return isn’t quite there to go big and bigger.”
The majority of Red’s work (“our bread-and-butter”, says Sturge) is carried out via a special projects team focusing on contracts under £10m that take around six months. This strategy enables a smaller team to work on a higher turnover of projects, keeping overheads down. “If you get a £45m project, you will have 15 or 20 staff. If we started the next £45m pound project, I don’t need 15 or 20 staff because we’re starting in the ground or starting demolition, I probably need five to 10 and I’ve got another 10 people that I’ve got to do something with.”
Of course, smaller jobs mean smaller profits, which were £575,000, £1.46m and £1.09m in 2021, 2022 and 2023 respectively. But this doesn’t bother Sturge. “It might not be the height of profit but we are profitable and shareholders are happy. And more importantly, we have a business where people enjoy and look forward to coming into work. In a short space of time I’m over the moon with what everyone’s done to get us where we are.”
