Due to the nature of my profession, I tend to speak to all types of companies in the construction industry; at the moment, some are reasonably busy and have many tenders to price, others have little secured work. Early in the year the RICS today announced that the industry is likely to improve in the first quarter; so far everything points to stagnation at best or a decrease at worst.
So what are the challenges facing construction companies:
Undoubtedly there is less new construction work happening, both in the private sector (due to lack of available money, investors and certainty) and the public sector (due to government cut backs).
Until confidence and availability of money returns, this is unlikely to change. However, as far as public sector construction is concerned, the government does now seem to be investing in some major infrastructure projects in an attempt to kick start the economy. This will have a positive knock-on effect throughout the industry.
A direct result of fewer opportunities is that more companies are vying for fewer projects. Prices are driven down as companies bid lower in an attempt to secure the work. Often it is the company that has made an error in its tender that wins the work.
Cashflow is becoming more problematic as companies hold on to cash for as long as possible before making payment. In addition, payments are often lower than the sum expected by the payee. This should be made better by the changes to the ‘Construction’ Act (click here for an article on this topic), but it still remains a problem for many.
Added to that is the bank’s reluctance to extend credit facilities.
Without cash, a company is unable to expand and often unable to service its existing projects.
Shortage of resources
It seems that, over the last few years, many tradespeople have left the industry and retrained in other careers.
This means that companies who have secured work may now have problems in resourcing those new projects, resulting in them either paying a premium for labour or under-resourcing the project; both having a negative financial impact on the organisation.
It is made worse as these companies want to employ apprentices and train them to be fully skilled, but are unable to do so as tight margins and slow payments leaves no spare money to do so.