Lack of growth squeezing the UK construction market

The latest total volume of construction output figures from the Office of National Statistics covering November 2012 were estimated to have been 9.8 percent lower than in November 2011. The Construction Products Association predicts dark times remain ahead, forecasting that construction output will fall by more than two percent in 2013.

Philip Duffy, Partner at Duff & Phelps, says the pressures in the current market have been somewhat absorbed by the larger players, but their survival comes at a cost to those that supply to them:

“The lack of work available has seen instances where larger contractors have put pressure on their supply chain by delaying payment to the very cusp of agreed terms.”

A recent survey from more than 140 specialist subcontracting firms revealed an array of bad practices by main contractors, including late payment for public sector work. Industry best practice is to pay subcontractors on public sector contracts within 30 days, which is supported by the UK central government.

However, the survey’s findings revealed that only 55 percent who took part were aware of this payment rule, and only 4.8 percent of those who had worked on public sector contracts were being paid within 30 days.

“This in turn puts pressure on already tight margins, and leads to the suppliers attempting to pass on the pain down the line or continue to tread water, which could have disastrous consequences,”

Furthermore, research by R3 estimated in November 2012 that 10 percent of construction businesses are only able to pay the interest on their debts but not reduce the debt itself – which by their calculations equates to some 24,000 businesses.

“The Government’s indication of reinvesting in the housing market to tackle the shortage of homes seems a welcome boost. But it might be too little too late to tackle the problems at hand within the sector. The main concern with mounting pressure on the supply chain is that somewhere down the line there will be a collapse that could lead to a domino effect throughout the supply chain.”