Algorithm predicts £3.5m loss in fixed-price housing contracts.

Algo Construction director, Murray Alexander, has issued a stark warning about the challenges facing building firms in taking on social housing projects. The company recently reported a pre-tax loss of £3.5 million, primarily attributed to two fixed-price contracts for social housing projects in Kirkcaldy and Dundee.

In 2019, Algo secured fixed-price contracts to deliver a regeneration project of 36 flats in Kirkcaldy and a housing development on Coldside Road in Dundee, working with Fife Council and Caledonia Housing Association respectively.

If not for these contracts, Algo would have seen a profit of over £722,000 by June 2023. However, due to a significant increase of 40% in building material costs, the company incurred a gross loss of £4.5 million. Despite the challenges, Algo honoured the contracts and completed the projects.

Mr Alexander highlighted the struggles faced in renegotiating the contracts with the authorities, given the unforeseen rise in material costs, inflation, and the overall cost-of-living crisis. He mentioned that the contracts, negotiated pre-pandemic, did not account for such drastic increases in costs.

While Fife Council provided some leeway in the negotiations, Caledonia Housing Association stood firm, leaving Algo to absorb most of the additional costs. Mr Alexander emphasized the pressing need for affordable social housing and the discrepancy between government rates and actual inflationary costs post-Covid.

Reflecting on the experience, Mr Alexander admitted that valuable lessons had been learned. He questioned the feasibility of taking on similar projects in the future, considering the financial risks involved. Moving forward, Algo is contemplating whether to pursue more social housing projects at an increased rate that allows for fair remuneration of subcontractors.

The challenges faced by Algo Construction shed light on the complexities of the construction industry amidst economic uncertainties. The story serves as a cautionary tale for other firms considering fixed-price contracts in the current volatile market conditions.