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Interview: Counting the days to building's return

Keeping construction sites closed will have an impact far beyond the building sector, Walls director Frank Kelly tells Fearghal O'Connor

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Frank Kelly. Photo: Tony Gavin
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Frank Kelly. Photo: Tony Gavin

When Ireland went into lockdown for the first time last March many in the building sector found themselves with time on their hands.

Not Frank Kelly. As construction director at Walls Construction he, like everyone else in the sector, watched in frustration as Covid shuttered the gates of all but the country's most essential building sites.

He has just started a two-year term as president of the Construction Industry Federation (CIF). But, back then, as chair of the CIF's safety committee, he suddenly found himself in the thick of things, trying to figure out the practicalities of getting builders back to work as quickly as possible.

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"There had been a lot of social media and negativity," said Kelly, who is also on the board of the Health and Safety Authority. "Unfortunately for construction, if guys leave the site and go to a shop to buy lunch together they become a very visible focus. We had to develop an ethos that is not just on site, but how you conduct yourself away from work and on the way to and from work."

By May the committee had produced a detailed document - revised seven times since - that outlined a new standard operating procedure for the industry in the time of Covid. It became the bible by which the entire sector could return to work safely with every worker taking an online induction course before returning to their site.

"It became the A to Z of how you can operate safely. The course was taken by 200,000 people," said Kelly. "It wasn't without its teething problems. Like everything else, some companies fully adapted, some companies didn't. It was a big ask, but we were pleasantly surprised how people in the workforce and the supply chain reacted."

With all of that in place, Kelly had been hopeful last week that the Government would allow it to return in full to work at the end of January. But, with case numbers and deaths still frighteningly high, neither political nor public opinion was on the industry's side. Sites deemed essential have been allowed to remain open but most will stay shut for now, including those operated by Walls.

"The industry in its totality should be in a position to go back to work because we've proven and demonstrated that we can operate safely and that we're not having outbreaks on sites," he said. "We recognised the necessity of the three-week shutdown to create that circuit break after Christmas. But there's a significant impact to the industry and a significant impact to the economy.

"The facts are the facts. At its highest level of infection last September there were just 56 cases in the sector and that was our cumulative peak. That was down to 26 in October."

Kelly believes the impact of not reopening now is significant. "The industry could take a three-week shutdown on the chin but beyond that it definitely has an impact. Not a lot of companies will be able to withstand that. There'll be a direct impact in terms of pay cuts because cost recovery has to come from somewhere. We'll certainly see, and we're probably already seeing, temporary layoffs. It's going to be challenging," he said.

For the industry as a whole, it will also open up a big can of worms in terms of contracts, with reviews, delays and the triggering of force majeure clauses, said Kelly. But perhaps the biggest long-term impact will be on the ongoing - but now lower profile - housing crisis. It is estimated that 36,000 new housing units are required every year just to keep pace. Just 19,000 were built last year, and Kelly says the industry is again struggling in this regard.

"The shutdown last year took about 5,000 units out of the equation. The longer the lockdown continues, the bigger the impact is going to be."

A survey carried out in recent days by the Irish Homebuilders Association of its members found that they expected to complete just over 11,000 houses in 2021 based on sites reopening on February 1. A further 3,200 housing starts that had been expected to happen over the next six months will also be hit. Essential groundworks that had to be in place before February 1 will not have happened so the houses will not proceed in Spring.

Work continues on 883 social housing units deemed essential, as well as on 460 private dwellings, the survey found, equating to just 7.6pc of houses under construction. More than 16,000 housing units on 273 sites have been stalled.

Of course, as a self-described 'lifer' with Walls, Kelly has seen many ups and downs in the sector.

In 2007, after 15 years with the-then family-owned firm, he was appointed construction director. The Celtic Tiger had peaked. Walls had been a relatively conservatively-run family-owned firm, but it was still not immune from the fallout.

"We were quite conservative but new opportunities had started to present themselves, primarily on land that the company already owned. It wasn't a case of buying sites for speculative development."

It had developed a bank of land around its head office on the Malahide Road, building a million square feet of mixed-use development, including a Hilton hotel and 600 residential units.

But, unlike others, Walls had not thrown its entire lot into the bottomless pit of speculative development. For example, it also won the contract for the biosciences building at Trinity College, which helped sustain it through the recession.

"That helped give us a little bit of a soft landing. and we didn't fall off a cliff overnight - and we didn't have to make anyone redundant. We took a view that the recession wouldn't be forever. So as long as we could pick up enough work to essentially pay the bills and stay standing, we weathered the storm."

Turnover had fallen from €190m to €82m. But because the company had remained intact it was in a position to benefit when the recovery began.

Nevertheless, cross guarantees on loans related to the development projects that had been passed to Nama had complicated things for the construction company and so change was on the cards. In 2015 Kelly was one of six directors who led a management buyout (MBO) of the company.

"It had been under discussion for a long number of years because the company had passed to a second generation, but there wasn't really a third generation coming through. It probably would have happened eventually, but the buyout became a necessity."

A group of private investors were brought in, and management, including Kelly, took a share. Some members of the Walls family also took a share. His role as construction director did not change hugely. Walls, like the rest of the industry, was busy recovering lost ground.

Winning the job to turn the half-built abandoned former Anglo Irish Bank HQ - an ugly tombstone to Celtic Tiger Ireland - into the glistening new Central Bank of Ireland was a turning point. "That was quite a large project, but it was also very symbolic for lots of reasons," he said. "We also won the contract for LinkedIn's EMEA head office. Those two projects were really important."

With the economy back in growth mode there was lots of opportunity. Within two years of the MBO, Walls was back at its pre-crash €190m turnover level, focused on apartments for the private rental sector, high-spec commercial projects and the new growth area of student accommodation. By the end of 2019, turnover at Walls was just shy of €300m. Then came Covid.

"We were projecting north of €350m for this year. But the current lockdown is going to have an impact on that. So depending how long this lasts we should probably be somewhere around €300m."

A priority since the MBO was to demonstrate to shareholders that "we weren't just chasing turnover to grow to a massive scale overnight".

"We had to ensure that everybody was comfortable with the projected growth of the company," he said. But not everyone in the industry had been thinking that way. Risk had become a hot topic in the industry with the introduction of new public works contracts that put the risk of projects back on to contractors.

"The contracts were brought in with good intent, but it unfortunately significantly tipped the balance of risk transfer back over to the contractor. So contractors were scrambling for work and were probably too willing to bid low and take the risk because they needed to secure work. And that led to a lot of failures."

The industry, said Kelly, is pushing for a standard form of contract that "can be fair to both sides".

Key to smoothing out the boom/bust cycle in the industry is the Government's Project Ireland 2040 strategy. "We know that the Government recognises construction as hugely important to the economic recovery. But the money to pay for Covid has to be generated somewhere. The plan is under review at the moment. Unfortunately, we've seen too many cases where budgets have been cut and we want to see the capital expenditure programme ring-fenced because you can't build housing or FDI or anything else without first building the infrastructure," said Kelly.

Talk of Ireland in 2040 will come as cold comfort to the many people stuck in overpriced rental accommodation, effectively frozen out of the residential property market due to an affordability crisis as average house prices rise beyond the reach of many ordinary buyers and housing supply has slowed to a trickle for more than a decade.

Kelly insists many shovel-ready projects have just not been able to get off the ground because they are not viable. He says there is little the industry can do about this and blames Government taxes and charges that add 45pc to the cost of building a house.

"There's nobody making huge profits. Construction has always been a very low margin industry - maybe 1pc or 2pc. Ultimately, if you can't make a modest profit, well, then it's not viable to deliver it."

Kelly can certainly dare to hope that Covid lockdowns will be a distant memory by the time his term as CIF president ends in two years. As for the housing crisis, well that's a different matter altogether.

 

CURRICULUM VITAE

Name

Frank Kelly

Age

51

Position

Construction director at Walls Construction and president of Construction Industry Federation

Lives

Trim, Co Meath

Education

St Michael's Diocesan College, Trim (now Boyne Community School)

Other postings

Employer-nominated director at the Health & Safety Authority and co-chair of CIF's construction safety committee

Family

Married to Sarah with two children, Jamie (7) and Cara (4)

Pastimes

"I love classic cars. My dream is to fully restore a classic car, but I don't know if that will ever happen. I recently bought a 1970 MGB, although that's not very old."

Currently reading

Red Notice by Bill Browder and On Tuesdays I'm a Buddhist by Michael Harding

Favourite album

After the Goldrush by Neil Young

Favourite movie

True Romance

 

BUSINESS LESSONS

Any advice for someone starting out in a career in the construction sector?

Someone once told me: “Be nice to people on the way up, because you’ll certainly meet them on the way back down”. I try to treat people fairly. I think that is important.

Is it still difficult to attract young people into the construction sector?

Construction would have had a stigma, a certain element of machoism about it. But it’s far from that now. It’s a sophisticated industry. Particularly in the last downturn, it unfortunately suffered badly from people not seeing it as a viable career.

So in terms of the number of entrants either to the trades, or on the third-level education side, the numbers dropped off dramatically. And that had a big impact. Because when you come out the far side, and you don’t have the throughput in terms of people coming through for the industry that is a massive problem for the sector.

What can be done?

One of the issues that the Construction Industry Federation has recognised is that we must generate interest in construction as early as possible. It’s too late when people go to college, they’ve already made a decision.

Sunday Indo Business

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