It’s fair to say the construction sector hasn’t got off to the smoothest of starts in 2018. Figures recently released by the Office for National Statistics (ONS) reinforce the difficult operating conditions that the industry is facing, experiencing its ninth consecutive fall in quarterly output growth, while dropping 3.4 percent between December and January, and 3.9 percent year-on-year.
Echoing this gloomy picture, the findings of the Bank of England’s latest Agents’ summary of business conditions, reported a similar decline. The summary anecdotally warned of a lack of access to trade credit insurance and bank lending, as well as payment pressures within supply chains. Added to that, the collapse of construction giant Carillion in January had significant and far reaching ramifications, with an estimated 30,000 suppliers losing up to £1bn in unpaid costs. Meanwhile, come February the ‘Beast from the East’ froze both the nation and construction sites, putting significant strain on live projects, pausing activity and negatively impacting the construction industry’s first quarter of the year.
Despite these challenges, the industry remains confident in its future prospects. The CIPS UK Construction PMI rose to 51.4 in February, up from 50.2 in January, with firms citing a slight increase in new project opportunities due to greater industrial demand and changing consumer spending habits. Clearly, despite these recent setbacks, business is slowly but surely starting to bounce back in correlation with demand, giving hope that progress will continue in the months ahead. Just this week, Balfour Beatty reported a surge in profits, after almost collapsing in 2015.
On another positive note, both subcontractors and the Government are significantly investing to combat the skills shortage, an issue which continues to be a critical challenge for the industry. Our SME Confidence Tracker for Q4 2017 found that over half (52%) of sub-contractors planned to invest in training existing staff during the first three months of 2018 –15 percent higher than the national average.
In his Spring Statement 2018 speech, Philip Hammond also confirmed the Government’s commitment to tackling the skills challenge, stating that next month its £29 million construction skills fund will open for bids to fund up to 20 construction skills villages around the country. The lack of accessible skills and talent has threatened the Government’s current plans to build new houses, so it’s encouraging to see the issue rising to the top of the industry agenda.
Further good news is that businesses don’t have to go it alone. There are a variety of alternative options that can help ease the pressures on SMEs caused by lengthy payment terms and bad debt.
The Carillion collapse has shone a light on chronic problems in the construction sector. Our own research has shown that over half (55 percent) of UK subcontractors believe they must accept the terms of contracts with large construction firms, or face the risk of losing future business or gaining a reputation for being difficult.
Construction Finance is a solution for contractors and sub-contractors to overcome the uncertainty caused by late payment for customers. It’s ideal for contractors and sub-contractors that have customers on long payment terms, who often pay late or only make partial payments for work completed.
As a provider of funding for the construction sector, we understand and appreciate the current challenges that SMEs within the industry are faced with. This is because we have a specialist team that get to know our clients’ businesses so that we can tailor a funding and support package that works both now and in the future.
Furthermore, for those impacted by the collapse of Carillion, we have announced additional measures to support. Find out more on the UK Finance website here.
So, whether you’re a subcontractor that is looking for funding for existing or future contracts, or your business has been impacted by the recent news about Carillion, you can speak with our specialist Construction Finance team on 0808 1637079.
By Helen Wheeler, Managing Director for Construction Finance at Bibby Financial Services.