With predictions of a global recession triggered by the coronavirus pandemic and an economic fallout more devastating than the Great Depression, architects are acting to ensure the survival of their practices
In the fortnight since lockdown, Mark Kemp, director of PLACE architects in Cornwall, has delivered a seven-point business plan at breakneck speed. This has involved securing a bank loan; assessing all clients for their ability to pay; establishing clients’ commitment to continue projects; modelling the number of billable hours’ work available; creating a cashflow forecast; reviewing and chasing down doubtful debt; furloughing staff and putting remaining staff on 80% part-time. This was all executed alongside the transition to remote working.
Like almost every other business sector in the UK, the design and construction industry is under threat. Financing of new and existing projects by clients has been severely diminished with the physical shutdown of the leisure and entertainment, retail, commercial and educational sectors. The operational delivery of projects has also been put on hold by construction site closures and uncertainty around the planning system. Regardless of the success of remote working, it is apparent that practices are unable to operate at the same level that they did before social distancing measures were introduced on 16 March.
To protect their businesses, practices are adopting emergency measures for the duration of the lockdown. A sense of camaraderie within the profession means architects are being unprecedentedly open and frank about their business practices. Here four of them talk candidly about their financial plans for weathering the pandemic storm.
Mark Kemp, PLACE Architects
Before the Covid-19 outbreak, PLACE Architects was burgeoning. It had rebranded its website, launched social media and was ready to recruit two new members of staff. A six-person practice, largely specialising in conservation projects and residential new builds in the West Country, it supplemented its income through its collaborations with a large practice in London, providing additional capacity on educational and high-density housing projects.
Though the practice is based in one of the UK’s most remote counties, Kemp, who is sole shareholder of PLACE, is well-connected in the architecture community: a member of the finance operations committee at RIBA and chair of the RIBAJ editorial panel, he has also been a board member at NBS. He gained his initial knowledge of business from the practice’s previous director, who was ‘fastidious’ in financial management. Since then he has learnt through his exchanges with other RIBA architects. He also has an extended network of professional services contacts – accountants, insurance brokers and marketing consultants. He regularly talks to his bank manager and accountant and is supported in the practice by a part-time financial controller and programme coordinator.
Kemp’s strategy throughout the crisis has been to be both proactive and systematic in assessing his financial position. He has taken the initiative in all his communications with the bank, clients and staff. An established relationship with his bank manager helped him to secure a loan capital holiday with accepted trading losses over six months at the outset. In order to fully assess his pipeline of work,cashflow and the staff resources required, he needed to have the status of projects firmed up. In the week of 16 March, he did a RAG (red amber green) traffic light test of existing clients to establish who was likely to have the funds available to pay for commissions. A client paying for a residential project from the sale of a central London house, for instance, would be more likely to have the finance than a small-scale developer looking to borrow funds for a speculative development. This enabled Kemp to write to all clients during the week of 23 March and ask them to commit to their projects. This was an effective way to create clarity for business planning purposes and ‘get rid of lingering projects’. Clients confirmed their position within days, while he reviewed all doubtful debt. This enabled him to create an informed cashflow analysis. The exercise revealed that he had funding for six to eight weeks of work, possibly 12, which could run to 14 weeks if he, the Part 3 assistant architect and financial controller were put on 80% part-time. This would also create parity with the remaining staff who were to be furloughed.
Among the losses, there have been ‘some small victories’. On 17 March, chancellor Rishi Sunak increased the small business rate relief grant from £3,000 to £10,000; Kemp had done his cashflow analysis with the lower sum. Avoiding ‘sticky pricing’ at this time, he also offered a 10% reduced fee to a new client if he paid as a lump sum. The client was supportive and agreed 50% upfront.
While navigating the potholes in the road immediately in front of him, Kemp is also looking ahead. His plan is to ‘get the paperwork done and hit the ground running after the lockdown’. He is optimistic that months of confinement will result in owners having a renewed interest in their homes – and a baby boom. A member of his team has developed a way of using video calls that allows clients to view the model of their project and choose finishes and specifications. Kemp intends to capitalise on the domestic market through the use of this type of technology. One of his part-time administrative staff, who will be flipping with another furloughed staff member, will continue to develop the practice’s social media in such a way as to appeal to residential clients.
Sarah Castle, IF_DO
Founded in 2014 by partners Sarah Castle, Al Scott and Thomas Bryans, IF_DO leapt to public attention in 2017 when it won the inaugural competition for the Dulwich Pavilion. With a team of nine, based in Southwark, IF_DO’s work focuses on community, educational and cultural projects.
The fallout of projects on site has been limited. Though the practice has work at all stages, relatively few are at delivery stage. One immediate casualty, though, was a collaboration with London music venue Spiritland for a performance space for the Kingdom Festival at Belvoir Castle in July, which has been deferred until summer 2021.
Like Mark Kemp of PLACE, IF_DO is mindful of the impact of the Covid-19 crisis on cashflow. The partners have been carefully assessing their projects through video calls with clients. They have categorised the status of each project by speed: ‘pause, slow and same speed’. Castle emphasises that while it is an important exercise for ascertaining IF_DO’s financial situation, it is also a matter of ‘helping clients to make the right decision and make recommendations in the best interest of the project’.
With such a small team, the state of play on each project is apparent to staff. Partners are as transparent with team members as possible. By sharing information with them, it makes them fully aware of the potential impact of a project being deferred for a prolonged period or cancelled. If cashflow dries up, furloughing remains a possibility. While absent from their studio space, IF_DO is seeking a rent holiday from its landlord, but has not, as yet, sought other forms of financing.
While new sources of funding may be scarce, Castle recognises that IF_DO has an even more important role to play, supporting community projects during this period, ‘reaching out to people currently isolated by social distancing. Loneliness is such a significant issue.,’ she says. ‘Some community projects have been brought forward to bring people together, doing it differently – not in close contact.’ This week, for instance, IF_DO are delivering a community consultation via Facebook Live for a scheme in Hastings.
The practice takes the opportunity for new business seriously and is carrying on developing its website and social media. Castle is very excited about the recently announced digital format for the London Festival of Architecture, which she is contributing to through Part W. She is optimistic that the forced change in the event’s format will provide greater accessibility to wider audiences and, like the shift in delivery of community consultations online, will reveal new modes of interaction.
Peter Buchan, Ryder Architecture
For Peter Buchan, senior partner at Ryder Architecture, based in Newcastle, communication is paramount for any practice successfully steering through the Covid-19 crisis. With four UK offices and three overseas – in Amsterdam, Vancouver and Hong Kong – the 200-strong firm has the technology in place for remote working. When the coronavirus hit in March, the emphasis was on maintaining interaction within teams. Team leaders already had weekly meetings across locations on Skype, but this shifted to daily meetings within project teams. The leadership group, which previously met once a week, moved to twice weekly video calls to discuss planning and resources.
At the moment, both public and private projects are holding up. There is, Buchan says, ‘a realisation with clients that we are all in it together’.
‘The public sector is directive, keen to keep facilitating projects that are coming through planning prepped up for delivery on site. The question mark, however, remains over whether projects will proceed to construction with a shortage of building supplies, as well as issues around health and safety,’ he says. ‘Commercial clients in the office and residential sector are in good shape and keen to keep teams moving, as are the major contractors who are lobbying to keep design and construction teams engaged.’
Buchan is pleasantly surprised by clients who want to keep the show on the road. ‘New commissions are continuing to come through. Major funders are maybe questioning the situation, but I haven’t yet seen it happen.’
Ryder is not, however, taking anything for granted. Day by day, its leadership team is reviewing its financial situation. It has a robust plan in place. It has also moved quickly to take advantage of the government’s job retention scheme, furloughing all staff who are not frontline – less than 10% of its total.
Ryder’s contingency plan is based around a 25% reduction in fee income. The aim is to keep the organisation together and key staff in jobs even with a significant loss of revenue. The first phase is furloughing; the next requires a deferral in payment of staff pension top-ups, over and above state contributions; lastly, they are looking at deferring a proportion of salaries with staff at partner and director level taking the biggest hit. In line with Ryder’s ethos on communication and transparency, the plan has been presented to all the staff.
Michael Olliff, Scott Brownrigg
RIBA practice role model Scott Brownrigg is a global practice. It gained vital insights into the effects of the coronavirus pandemic back in January through the operations of its Singapore studio. This head start allowed it to take what managing director Michael Olliff describes as a ‘gradual approach’. At the start of 2020, an internal task force was set up, meeting weekly with a communications plan to keep staff informed and reassured.
Ranked 10th in the AJ100 in 2019, Scott Brownrigg employs 119 fully qualified architects and 212 staff across its UK studios in London's Covent Garden, Chiswick, Guildford, Cardiff and Edinburgh and studios in New York, Amsterdam and Singapore. In anticipation of social distancing, home working was introduced for all staff using public transport from 16 March. The two London studios were closed completely on Friday 20 March, Cardiff followed on Monday 23 March and then remaining studios closed on Tuesday 24 March.
Luckily, with few large scale projects on site, concerns for the safety of staff undertaking site visits has not been as significant as it might have been. Olliff is more troubled by the overall economic outlook in the UK. ‘The crisis has hit on top of two years of poor trading with the uncertainty following the Brexit vote.’ He adds: ‘It is still too early to get a full view of how the situation will pan out. It will only become more apparent in a few weeks’ time.’ The firm’s accounting system allows him to pull down live feeds of grade A income and run reports on fluctuating income in each sector while also providing a view of the forward pipeline. He meets weekly with the firm’s board to review income and cashflow. He says that he is not seeing a lot of consistency, with the practice simultaneously winning work and projects being put on hold.
The greatest risks Olliff anticipates for practices are ‘eight to nine months out, before large investment funds start to recover’. This could be compounded by capital projects being derailed by the burden of the coronavirus on the public purse.
Continued diversification across sectors and geography is critical to Scott Brownrigg. It has significant international income from work in New York, Singapore and Russia. It recently won further projects in Moscow. It has large projects in residential, rail and advanced technology. Project teams are becoming more agile and the aviation team in particular has been focusing its efforts on feasibility work internationally rather than live domestic projects. Teams are also concentrating on retaining relationships with current clients and driving business development to ensure a good pipeline of opportunities is coming through.
Investing in R&D is essential to Scott Brownrigg continuing to make a difference within the industry. ‘It is vital that clients see the important contribution architects make and support them going forward,’ Olliff says. Current projects include looking at how architecture can reduce the spread of contagion and infection through the use of smart materials; building on existing innovative work on student mental health in the design of university accommodation to take in lessons from Covid-19; changing housing to accommodate home working; and looking at new means to revive the high street that has taken a further hit with the pandemic.
Eyes on the horizon
Attending to the present financial crisis has never been so urgent for the survival of individual practices and the profession. What is fortifying is that all the practices featured here, while taking the current situation extremely seriously, are also looking beyond it. For a beleaguered profession already beset by the ramifications of the Grenfell tragedy and the accompanying challenges of the professional indemnity insurance market, Covid-19 represents an almighty threat. In such times, Michael Olliff urges architects to ensure they have ‘the right mindset, ensuring they are relevant to society’s needs with a strong voice. It is a matter of not only going out there, but making sure we having something to say and offer.’
Helen Castle is publishing director at RIBA.
For more on coronavirus and architecture go to ribaj.com/covid-19