Home News Margins come under pressure despite growth

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The latest Construction Products Association’s (CPA) Construction Trade Survey shows that firms across the construction industry reported growth in activity in the second quarter of 2015, marking the ninth consecutive quarter of growth. However, the near-term outlook is clouded by rising costs, slow payment and shrinking margins.

Firms across the whole construction supply chain, including building contractors, SMEs, specialist contractors, civil engineers and product manufacturers, all reported rises in output during Q2 according to the CPA.

Increased tender prices were reported by 35 per cent of specialist contractors during the second quarter of 2015 while 14 per cent of specialist contractors reported a decrease. In common with large contractors, profit margins for specialists remain squeezed. While increased margins were reported by 22 per cent of respondents, 27 per cent saw margins fall.

Only six per cent of specialists were paid in under 30 days, matching the five year average for this measure, but below the 16 per cent reported that they were paid within 30 days during the second quarter of 2014. On public sector contracts in Q2 only half of specialist contractors reported as being paid within 30 days.

Dr Noble Francis, economics director at the CPA, said: “Continuing the trend since recovery emerged in mid-2013, growth in output was led by the private housing sector, in which 43 per cent of firms, on balance, reported a rise in output.  Increased output was also reported in private commercial, the largest construction sector, where 18 per cent of firms, on balance, reported rising volumes of offices and retail work.  Contractors reported a decline in repair and maintenance work in Q2, reflecting a drop-off in measures installed under government schemes to boost energy efficiency in recent months.

“Of lingering concern,” Dr Francis concluded, “nine quarters of rising construction activity and expectations of higher workloads over the coming year raise the issue of whether the supply of skilled labour will meet demand.  Half of contractors have already reported difficulties recruiting on-site trades such as carpenters, bricklayers and plasterers.”

Suzannah Nichol, chief executive of Build UK (merger of UKCG & NSCC), said: “The impact of skills shortages continues to be felt, not least through increased labour costs. To overcome the difficulties the industry is facing in recruiting key trades, we need to focus on improving the image of construction and tackling apprenticeship reform.”