POZO B1

7.4.1 From time to time the issue of the capacity of the heating and ventilating industry to meet demand is raised within the HVCA. For example at the end of March 1967, the HVCA saw heating and ventilating contractors operating at or near full capacity in a construction industry whose total output, (according to their report) had risen marginally for the third year in spite of an economy in crisis (HVCA, 1967 p.7). In the event, according to the Annual Report, in the following year new construction output was 5 per cent greater in 1967 than it had been a year earlier (HVCA, 1968, p.27).

7.4.2 Again in the late 1970s full capacity was approached. Many heating and ventilating contractors reported relatively full order books to the HVCA, and a bottleneck in the form of a technical constraint began to appear. This technical constraint was caused by limitations on the potential number of new gas connections that could be made, held up by the rate of exploitation of gas reserves in the North Sea (HVCA, 1980, p. 8).

7.4.3 During the recession of the early 1980s many contractors ceased trading while others reduced their capacity and workforces. While individual contractors may have reduced their capacity, the capacity of the industry remained relatively intact with redundant skilled workers able to set up and operate small firms (see Figure 7.3) or act as labour only

subcontractors. When demand increased (from 1983 on) the HVCA found that competition for work nevertheless remained intense (HVCA, 1985, p.8).

7.4.4 In spite of the stock market crash in October 1987, the economy continued to expand. The HVCA noted that the construction industry began to show signs of overheating in the South East and London, especially with the start of the Channel Tunnel project (HVCA, 1988, p. 8). The housing market was boosted by changes to Mortgage Interest Relief at Source (MIRAS) announced by the government, as many couples purchased properties

before the changes took effect, (HVCA, 1988, p. 29). By the end of the decade, 72 per cent of firms in the HVCA survey said they were working at full capacity compared to 67 per cent a year earlier (HVCA, 1990, p.22).

7.4.5 In contrast to the industry operating at or near full capacity, payment difficulties may be symptomatic of a buyers’ market in the construction industry, which in turn is a sign of industrial over-capacity. The issue of late payment has indeed been a recurring theme in the heating and ventilating industry. In 1966, for example, heating and ventilating contractors reported that they were encountering increasing difficulties in being paid on time. The problem was blamed on architects for not giving subcontractors notification of amounts owed to them in certificates issued to main contractors. Without notification the subcontractors did

not know when to press for payment (HVCA, 1966, p. 34). However, the main beneficiaries of payment delays were not the architects but the main contractors. Delays in payments to subcontractors improved the cash flows of main contractors when growth of construction output as a whole was decelerating causing the profit margins of main contractors to narrow.

Main contractors were able to do this because they knew they would be able to source heating and ventilating services from alternative heating and ventilating specialist firms keen to win new orders.

7.4.6 In fact these problems were arising in 1965 and 1966 when heating and ventilating output was increasing rapidly (Figure 5.8). Indeed, the industry was able to achieve increases in its output precisely because it had the capacity to do so. If actual capacity is measured by the highest output achieved, the upper turning point in 1972 as the year of the highest output in the period between 1945 and 1985 demonstrated the maximum output the industry was capable of producing. If capacity is measured in terms of potential output then if heating and ventilating engineers had the capacity to produce more they were not given the opportunity to do so until 1985, by which time productivity improvements would have raised potential full capacity still further.

7.4.7 By 1973 in response to excess industrial capacity caused by the recession some members of the HVCA diversified into thermal insulation. Though inflation was still seen as the major cause of the deterioration in profits, late payments allegedly caused this time by quantity surveyors slowing down interim payments were also causing concern because of the effect on cash flow and working capital (HVCA, 1975, p.44 and p.53). Again during 1990 high interest rates together with adverse trading conditions led main contractors to withhold or delay payments to subcontractors often leading to their insolvency (HVCA, 1991, p.6). The poor treatment of heating and ventilating contractors reflected their weak bargaining position caused by over capacity in the recession. During periods of growth the issue of payment delays did not appear as frequently in the Annual Reports.

7.4.8 Over-capacity was also reflected in the negotiations with public sector clients. Delays in payments to heating and ventilating contractors were not confined to their private sector clients or main contractors. The HVCA carried out a survey of payments owed to its members by public sector departments. The survey published in 1993 showed that the 129 respondents were owed an aggregate of £21,914,689 of which PSA Management owed £4,101,187 to members, taking on average 93 days to pay, while PSA Services owed

£3,329,310 and took 91 days to pay on average. Local authorities took 65 days on average to pay and owed £3,134,721. The Ministry of Defence and the Home Office owed £5,441,466 and £2,176,805 respectively and took on average 42 and 41 days to pay. Other government departments generally paid within a month (HVCA, 1993, p.8). Such delays to payment added greatly to the cash flow difficulties of firms especially at a time of recession and severe over-capacity.

7.4.9 Again in 1995 the HVCA still saw their industry in a state of crisis with commercial conditions facing members as ‘difficult’ at best and ‘downright impossible’ at worst (HVCA,

1996, p.3). In the following year the HVCA saw the introduction of the 1996 Housing

Grants, Construction and Regeneration Act as potentially helpful, with the hope of improving the cash flow position of subcontractors and inter-firm dispute handling (HVCA, 1997, p. 10).

In 1998 Part 2 of the Housing, Construction and Regeneration Act enacted legislation

concerning abuse of pay when paid clauses. The HVCA’s long campaign on the issue had at last borne legislative fruit for their members. However, neither the HVCA nor the industry itself confronted the issue of endemic over-capacity, perhaps for the simple reason that neither could do anything about it in any case, because of restrictive trade practices legislation preventing them from so doing. As has been noted barriers to entry into the heating and ventilating industry are low and when firms lay off workers many of these workers may remain in the heating and ventilating industry as labour only subcontractors even if some laid-off workers exit.