Contracting is a miserable business. Once the accountants, lawyers and bankers sitting in offices for their risk-free fees, someone has to go out and build the damn’ thing. As the post-mortem of Carillion reveals the extent of the financial gangrene in the company, we might spare a little sympathy for those taking the risk on thin margins and actually doing the work.

As every homeowner knows, a builder’s estimate is a sum roughly equal to half the final cost. For big projects, the arithmetic is more complicated and often worse. The contractor must keep his workforce employed, so in harder times the pressure to bid low enough to be sure of winning the work is greater.

Early payments allow trouble to be put off until the later stages of the contract, and auditing each unique work in progress is more art than science. A robust, genuinely independent audit of Carillion’s true cash position would doubtless have exposed the rot sooner, but it would not have stopped the company from taking on loss-making contracts in the first place.

The excoriating report from the MPs’ committees skewered the greed and willful blindness of the company’s board, but is mostly a howl of pain on behalf of suppliers and taxpayers. The pressure to split audit from other accounting services may now be irresistible, but looks uncomfortably like: something must be done, this is something, therefore it must be done.

The real problem lies in the nature of the contracting industry in Britain. The best brains become lawyers, bankers, architects or designers. Actually doing the work is a miserable business to be done by somebody else.

 

Avast there!

You probably failed to buy shares in this month’s hot new £2.4bn issue, the strangely-named Avast. Ignorance has already saved investors a few million, since the flotation has not been an unalloyed success. The parent company of AVG, guardian of a zillion computers, Avast was priced at 250p, the bottom end of the indicated range, yet has already drifted to a 20p discount.

Valuing this anti-virus, Czech-based, business is not easy, since internet threats are so amorphous. The 332-page prospectus cheerfully asserts that “smart home devices are ripe for hacking”, while investors are treated to such gems as “deferred revenue haircut reversal” along with 28 pages of risk warnings.

Other warning signs are less obvious, but the founders Pavel Baudis and Eduard Kucera along with their private equity backers from CVC Capital and Summit Partners are cashing out £380m of shares. Then there is a legal spat with Gary Kovacs, who sold AVG to Avast.

In the circumstances, to raise £600m for fees of a mere £22m shared between Morgan Stanley, UBS and their little helpers, seems quite reasonable by today’s City standards. Meanwhile, investors who missed out should remember the rule not to buy a share within a year after flotation.

Oh Beattie, where are you?

It’s been a long way down to £2, the price BT shares were 30 years ago, and Maureen Lipman was telling us to pick up the phone. The dire performance is a grim verdict on the succession of CEOs at what should be the core of the internet revolution. Now it seems that Gavin Patterson, the current incumbent, has had a brilliant idea. Why not put BT and EE together?

Furthermore, this astonishing insight is to be called BT Plus! Never mind the Italian fraud, the hubristic foray into footie on telly, the failure to grapple with the pension deficit, the customer service, the snail-paced rollout of fibre, Mr Patterson sees a glad, confident new day, although not for the 13,000 staff he now says he can do without.

As Nic Fildes pointed out last week, many think he should head the list. The star analyst here is Saeed Baradar of brokers Louis Capital, whose somewhat over-excited prose style contained a devastating demolition of BT’s prospects two years ago when the price was twice today’s 203p. Had Mr Patterson listened, he might have faced reality rather earlier. The new strategy makes sense, but he is not the man to implement it.

This is my FT column from Saturday

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