Industry predicts increased financial pressure for main contractors

Main contractors expect to be under yet more financial pressure during the year ahead as supply chain costs rise more than tender prices, a new industry survey has found.

An inaugural industry report from quantity surveying and commercial management consultancy Soben Contract and Commercial examined issues facing the construction industry as well as attitudes to Brexit.

Industry predicts increased financial pressure for main contractors

Soben managing director Scott Smyth (left) and chairman Paul Moultrie

Based on results of Soben’s recent Market Survey, Constructing the Future examines market changes across 2017, 2018, and predictions for 2019, as well as looking at changes in tender volumes, margins, and pricing, addressing some of the key issues the construction industry faces today.

Founder and managing director, Scott Smyth, said: “Our clients often ask for our opinion on market trends, tender prices, and general industry sentiment.

“At the end of last year we launched our first Soben Market Survey, attracting responses from many senior construction professionals throughout the UK.  These responses are analysed within the report, shining a light on some of the key issues the construction industry is facing around tender volumes and pricing.”

Among the report’s headline statistics, 77% of construction professionals state that construction costs were higher in 2018 than a year earlier while 70% said tender volumes are the same or lower. Around 85% of respondents found the volume of single stage tenders to be the same or higher and more than 80% said margins had lowered or stayed the same.

Scott Smyth said: “We can see that 2018 has been a challenging time for many of our respondents, with contractors facing increased volumes of single-stage tenders and increased costs that cannot be fully passed onto their clients.”

Looking ahead to 2019, 79% of construction professionals predict that the volume of tenders will be lower or about the same as 2018, while 76% think that the volume of single-stage tenders will be higher or the same.

Almost three quarters of respondents predict that construction costs will rise, yet only 53% think that tender prices will increase, while 80% anticipate that margins will continue to lower or stay the same for 2019.

Scott Smyth added: “Essentially our respondents think that supply chain construction costs will rise more than main contractor tender prices, putting contractors under yet more financial pressure.”

Outlining Soben’s recommendations, Scott Smyth said: “It is clear that we are at a pivotal point in the construction industry. Those involved in construction need to work together in order to meet the UK’s ever-growing building needs whilst creating an efficient, sustainable, and profitable future for contractors.

“It is evident that the industry has been given a wake-up call, and it is up to all industry players, as well as the UK Government, to take a considered look at tendering processes, moving away from a ‘low price at any cost’ mind set, to one where quality and efficiency are given top priority.

“By collaborating at the very earliest stage in building design, contractors, clients, quantity surveyors, and architects can work together to ensure maximum efficiency by using the latest technology and construction methods available. The early appointment of Tier 1 contractors to act in a consultative role at this time is to be advised.”

Soben is headquartered in Glasgow, with offices in London and Manchester.

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