does hastie have a competetive advantage?, page-7

I'm in contracting similar to industries to Hastie. In contracting competetive advantage is not nessisarily every really exists.

The largest cost in contracting is labour. It's normal broken down a bit like this 50% cost labour + 30%cost material + 20% overheads + profit.

With EBA's in contracting they are designed to lock up labour rates. Meaning a plumber or electrician should make the same $$$ regardless of who they work for. So this is generally a fixed cost for all companies.

The likes of the Hastie group would be able to get good prices via group buying however over a standard project they may only be able to get it 10%cheaper then another contractor which only makes a 3% difference on the total project. However if the other contractor they where tendering against it is likely they are getting the same prices if their spend is similar to hastie's

So the real difference in contracting is your quoting. or your risk management of the project. If you have a 250Mil dollar job and you under estimate costs by a marginal 3% . Thats a total of 7.5 mil in losses. Pretty quickly this can add up.

When times are good in the industry you can quote high and if all companies are busy you have a good chance of winning it. As often its hard enough to find the companies who can get the labour to get the job done. So most people are willing to accept prices slightly high.

However when times start to slow. Project managers start to worry they are not winning jobs and that they have a lot of labour on and start quoting jobs at lower margin or buying jobs in order to keep their staff. This is what has shot hastie in the foot.

The idea behind buying jobs is that when the industry is busy its hard to get labour so when things get slow the companies who want to keep their staff, will take on jobs at no profit. Hence when things pick up you have all the staff and are able to get the jobs done that no one else can and your margins can be healthy.

So a company like hastie long term it is better to be making almost 0 profit yet retaining their turnover as best they can. Which is what they are projecting for the next half. Rather then making a small profit with massively falling turnover.

I guess the competive advantage of the Hastie group is without their scale in the current market conditions a lot of their small companies would have gone to the wall.It's Hard to explain to people not in the industry. However in contracting when times are bad, survival is often success.

Have a look at some of the other contracting companies out their specifically Leightons and Transfield both have write downs due to problems in middle east and both have announced profit downgrades due to current markets.