Algo points to fixed-price social housing contracts for £3.5m pre-tax loss

Algo points to fixed-price social housing contracts for £3.5m pre-tax loss

Murray Alexander

A construction director has warned that building firms may be put off taking on social housing projects after he attributed his company’s £3.5 million pre-tax loss to two fixed-price contracts.

Perthshire-based Algo signed fixed-price deals to build social housing projects in Kirkcaldy and Dundee, with Fife Council and Caledonia Housing Association respectively.

A regeneration project of 36 flats in Kirkcaldy and a housing development on Coldside Road were awarded in 2019.

Director Murray Alexander said Algo would have recorded a profit of more than £722,000 to June 2023 with the contracts treated as exceptional items in the annual accounts.

According to Mr Alexander, Algo tried without success to renegotiate with Fife Council and Caledonia after building material costs rocketed by 40% – resulting in a gross loss of £4.5m.

The rapid rise in building material costs, inflation and the cost-of-living crisis resulted in a shortfall for the firm, which still honoured the contracts and completed the builds.

Mr Alexander told the Evening Telegraph: “The contracts were negotiated before the pandemic. The contracts are traditionally fixed price, allowing for 2-3% inflationary costs.

“But we were hit with at least a 40% increase in material costs over the course of the contracts.

“We tried to negotiate because of the severity of the increases – we got a little bit from Fife Council, but nothing from Caledonia. Algo was able to pull on resources from elsewhere to complete these contracts.

“There is a real need for affordable social housing to be built, but government rates have not caught up with post-Covid inflationary costs.”

He added: “We have learned a lot. We think now: ‘Do we go back and do more?’

“Perhaps, but it needs to be at a much more increased rate where we can actually afford to pay our subcontractors and come out the other end.”

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