By NEIL HARTNELL
Tribune Business Editor
Cavalier Construction is "the first casualty of a changing industry model" because it "didn't adapt with the times", an ex-Bahamian Contractors Association (BCA) president argued yesterday.
Leonard Sands told Tribune Business that the 64 year-old company, which confirmed it ceased trading last Wednesday and will appoint a liquidator to wind-up its affairs, had done "too little, too late" to adjust its business structure to the fact that large general contractors such as itself were increasingly being bypassed for work on multi-million dollar projects.
Cavalier, in its promised statement after this newspaper revealed its permanent closure and the termination of 54 staff, admitted it had effectively been "cut out of the market" by the growing tendency of developers/investors to rely on construction management firms to oversee their projects.
These firms, Cavalier explained, tended to divide the construction work into "smaller packages" and then share it among multiple contractors and sub-contractors who often performed specialised tasks. As a result, the Bahamian construction market had shifted away from relying on one general contractor to perform all the necessary work.
Cavalier's statement revealed that its business had been declining for several years as a result, leaving it unable to sustain its large workforce and high overhead costs. It cited a "significantly reduced turnover/workload" as the primary factor behind the decision to close its doors for good, and blamed its inability to restructure/downsize on the Employment Act's prohibitive redundancy costs (see other article on Page 1B).
"Cavalier Construction Company and its sister company, Bobcat Bahamas Ltd, have ceased trading as of January 15, 2020," the company confirmed in its statement to Tribune Business. "As such, all the companies’ employees and staff have been made redundant.
"The situation we find ourselves in now is primarily the result of the significantly reduced turnover/workload for the company, which we have been experiencing now for a number of years. There has been a change in the construction market in the country, whereby the bigger projects previously carried out by the larger local general contractors, such as ourselves, are now typically carried out under construction management contracts.
"Under these arrangements, developers and owners employ a construction management team who then sub-contract smaller packages of work to contractors/sub-contractors. This business model effectively cuts the traditional general contractor out of the market," Cavalier continued.
"Allied to this, as a company having a number of long-standing employees, we have simply not had the cash reserves needed to restructure our operations due to the significant financial cost/liability associated with this exercise as set out in the employment legislation."
Cavalier's explanation for its inability to downsize accordingly as business levels fell was also cited by Taylor Industries, the electrical contractor and appliances retailer, as one of they factors driving its closure almost exactly a year ago.
"Following the ceasing of trading, a liquidator will be appointed shortly who will work with the companies' secured creditor and other creditors in order to facilitate an orderly winding up the affairs of both businesses," Cavalier added in its statement.
"It is obviously a sad time for all involved. Cavalier Construction and Bobcat Bahamas have been a huge part of many peoples’ lives over the years. They are companies who throughout their long history have had loyal, hard-working, talented employees working for them, building throughout The Bahamas and beyond."
Tribune Business sources said the fall-out from Cavalier's closure was only just starting to ripple through the construction industry yesterday, particularly among sub-contractors, suppliers, skilled craftsmen and labourers still owed money by the one-time construction giant.
Several construction industry contacts suggested Cavalier owed sub-contractors at least $800,000, but this newspaper understands the figure is likely to be higher. Tribune Business was directly informed several years ago - by those affected - of sub-contractor complaints that the company had yet to pay them for work on the Princess Margaret Hospital's (PMH) Critical Care Block.
It is unknown whether those sums were settled, but other Cavalier sub-contractors speaking on condition of anonymity said they were still due six-figure sums for other jobs performed on its behalf. One said they had been battling for two years in the Supreme Court to obtain "in excess of $500,000" allegedly owed to them by the now-shuttered company, with the case yet to be settled.
"We'll have to see how this pans out because we've never had an experience of this nature before where we had to put a firm before the court, and in a matter of minutes it goes belly up," they said. "It's sad but unfortunate. These are some of the cycles of life."
Another sub-contractor, also speaking on condition of anonymity, said its hopes of being fully compensated for work done on Cavalier's behalf were in "serious jeopardy right now" given that it would likely have to stand in the queue with other creditors.
They added that Cavalier had made "a good faith effort" to settle with it, and the two sides had agreed a payment plan that resulted in some instalments being made, but the sub-contractor was still owed a "substantial amount of money".
Martin Todd, Cavalier's managing director, declined to comment when Tribune Business posed questions to him about Cavalier's solvency, debts and sums owed to sub-contractors. He said the liquidator had yet to be appointed, and his only other statement was to complain about inaccuracies in a report from another media house.
"There's a little bit of misinformation out there on the numbers," Mr Todd added. "Fifty-four people being let- go from Bobcat is incorrect. It was 48 people from Cavalier and six from Bobcat. I don't want to say anything else at the moment. I've got a million things going on."
It appears likely that Cavalier's decision to cease trading was prompted by actual or pending insolvency, and that there may be insufficient cash and other assets to cover all the company's liabilities and sums due to creditors. If that is the case, whoever is appointed liquidator will likely apply to the Supreme Court for it to become a court-supervised winding-up.
In any such winding-up, Cavalier's "secured creditor" - likely to be one the three Canadian-owned banks - together with the Government and employees and the severance packages will be at the front of the queue. Unsecured creditors, such as unpaid sub-contractors, will have to stand in line and wait their turn, likely receiving only "cents on the dollar" of what is owed.
Mr Sands, meanwhile, warned that other contractors could potentially suffer Cavalier's fate unless they "quickly" adapted to the decentralised construction model cited by the failed contractor as a primary reason for its failure.
"I told my contractors to stop trying to be a general contractor a long time ago," he told Tribune Business of his time as BCA president. "I said: Go and find one or two areas of work that are in your scope and where you are very, very good. People are no longer going to one main contractor to do all the work.
"That's something we see now. Developers are not looking for general contractors. Right now in the market Wooslee Construction Services has carved out, and become the leader, in providing superstructures from the National Sports Authority to Albany.
"Developers are looking for contractors to do all the glazing for, say, $20m. The GoldWynn development, to construct all the doors, is over $10m," Mr Sands continued. "We have to be smart. The industry is changing, and contractors like Wooslee are enjoying the best years they ever had.
"The model has changed, and Cavalier didn't change in time. It's a case of too little, too late. It became the first casualty of the changing construction model. They're only the first casualty. There could be others, but they have a little more time because of cash flow."
Mr Sands also recalled a project at Albany where the development was seeking a single masonry contractor to to one million square feet of block work and masonry, but was unable to find one because all those who submitted bids were general contractors as opposed to specialists.
The former BCA said the only projects currently seeking to hire one main contractor are those originated by the Government, as he confirmed that the private sector had switched to the model identified by Cavalier itself - that of hiring project managers to subdivide the work into smaller packages that were split among specialist firms.
He added that even the residential housing market was starting to shift its construction model by also moving to project managers, with homeowners also seeking to perform an increasing share of work themselves.
"As we become close to our neighbours to the north, that model has been in place for 100 years," Mr Sands said. "It's taken us a long time to catch up, but catch up we will."
Cavalier Construction was founded in 1956 by the late Godfrey Lightbourn and Eugene Pyfrom, who were 50/50 partners. They sold the business in the early 2000s to a management-led buyout, which was headed by late managing director, Richard Wilson.
Mr Wilson, who joined Cavalier in 1973 as chief estimator, was promoted to vice-president in 1989 and served as its managing director from 1989 until May 2018, when he stepped down due to ailing health. His passing was announced almost a year ago in late January 2019.
It is unclear why Cavalier appears to have hit difficulties so quickly following his death, but other senior management figures have also departed the company within the past year. Stephen D’Alewyn, its former chief financial officer, left on August 23 last year according to his Facebook and LinkedIn pages.
Among Cavalier’s major jobs in The Bahamas have been Albany, Bayroc, the Atlantis Convention Centre, Caves Point and the Nassau Straw Market. Its offices were based on Crawford Street in Oakes Field.