How will small construction businesses fare in 2017?

• Strong growth in the first quarter for SME construction businesses
• Surveys show over half of SMEs are confident these workloads will continue to increase
• Concerns remain over rising material costs and the ever present construction skills shortage
• Impact of Brexit less severe than anticipated
• Questions over the impact on engineering remain

It’s fair to say that 2017 was predicted to be, shall we say, a “bumpy ride” for the construction industry. The impact of Brexit as well as the ongoing key skills shortage were seen as major disruptions. However, the first few months of the year haven’t exactly stuck to the script with SMEs reporting a rising workload and only 5% predicting a decrease in activity.

New financial legislation introduced by the government is also a major talking point within construction. The newly introduced CSCS skills cards were subject to a full audit in February ensuring cards were valid and up to date.

The Department for Business Energy & Industrial Strategy introduction of payment practices legislation has also had a direct impact on SME construction companies protecting subcontractors and others from those late payments that affect cashflow.

Construction survey of SMEs based on Q1 of 2017

Brexit

Perhaps unsurprisingly the issue of Brexit has dominated the thinking in SME construction firms in 2017. Although the initial, borderline apocalyptic forecasts for the industry have lightened somewhat there remains concern for businesses in the wake of a perceived “Hard Brexit”.

There is an element of “getting on with things” until the final terms of the UK’s exit from the European Union are defined. Small construction firms have the advantage of “Keeping Calm and Carrying on” while adjusting and planning ahead now. Investing in a smart Financial and Project Management system could become essential for ensuring small construction businesses stay in line with any new legislation.

The two major concerns for construction after Brexit are Labour and Materials. The ever-present construction skills shortage in the UK is considered unlikely to be helped if harsh restrictions on external labour come into force. In the first months of 2017 over half SME construction businesses reported difficulties in hiring carpenters.

London mayor Sadiq Khan has argued that the loss of London’s 95,000 European construction workers would have “a seriously detrimental effect” on projects across the capital, with both housebuilding and infrastructure projects at risk. It remains to be seen if leaving the EU freedom of movement zone has this impact. It is however, more essential than ever for small construction firms to maintain excellent standards of subcontractor management.

With discussion of a “Barista Visa” to avoid a shortfall in the service industry, perhaps something similar for construction workers could be considered!

Another concern for post-Brexit UK is the cost of importing materials. Procurement giant Scape recently reported that seven in ten small building firms had experienced increased costs as a result of the weakened pound since the Brexit vote. The same data reported construction firms could face an extra half a billion pounds’ materials bill in 2017 due to the impact of the referendum.

UNITE/UCATT

2017 also sees the merger of UCATT and UNITE following financial troubles and declining membership of the former. With major infrastructure projects such as HS2 featuring prominently this year and their ongoing disputes with Crossrail means UNITE will have plenty of projects to target.

HS2

The high-speed rail link between Birmingham and London is the most prominent in a series of large infrastructure projects scheduled to begin in 2017. HS2 chairman Sir David Higgins has recently revealed there will be more disclosure surrounding firms bidding for business with HS2 in light of the development partner contract fiasco. HS2 will rewrite bid documents to ensure contractors and consultants name all people involved in the bidding process.
HS2 has also recently released the details of station work for Birmingham Curzon Street, Birmingham Interchange and London’s Old Oak Common, as well as a major expansion of London Euston. Architects, designers and developers will be able to bid on contracts worth up to £220m.

Conclusion

In summary, there appears to be plenty of work available in the sector, but rising labour and material costs mean that contractors must be as focused as ever if they are to be profitable. Project and sub-contractor management, budgeting and procurement are important areas to concentrate on, and digitally transforming smaller contractor businesses can drastically help efficiency in these areas.’

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Gareth Charles

Gareth has been Digital Marketing Executive at Metaphorix for two years, during this time he has relaunched the company website and helped create a library of Dynamics NAV based videos, whitepapers, infographics and blogs.