Construction is a UK economic growth sector – or is it?

There has been some evidence over recent months that the UK construction industry has not been growing as might be expected after a recession. Closer analysis reveals that this is not a uniform picture.

The larger companies involved in big commercial, infrastructure and house building were doing well but seem to have come off the boil recently. Many of the smaller, more local builders have been facing a number of ongoing challenges.

For building contractors the lead time between pitching for and pricing a contract can be lengthy, anything up to two years before a project gets under way. This means that prices quoted are likely to have changed significantly especially when they rely on sub contractors. In many cases this is leading to profit margins being eroded to such an extent that the tendered price is no longer viable.

For the smaller builders, who generally do private work such as extensions and building refurbishment, the issue is the high cost of VAT rates. While there are some aspects of such building work that are VAT exempt, this is a very complex area and usually it applies to development. Much of this is down to home owners who are still finding it difficult to borrow for extensions and refurbishment and their concern about justifying the investment unless it is an alternative to moving to accommodate a larger family.

Another issue for contractors is the availability of specialist sub contractors. The larger single-trade firms working for developers and larger construction companies seem to have more work than they can handle where their problem is finding skilled staff such that dependency on agency labour is eroding profits.

This lack of skills is the result of many skilled people having left the industry which in turn is driving up the cost of labour.

As a result the beneficiaries in the industry are the skilled sub contractors and specialist trades who are able to charge a premium due to the lack of competition.

Certainly anyone providing fixed price tenders needs to limit the time for acceptance so they have the right to reprice the work if there is any delay.

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