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Construction contractors hit by falling profit margins

One in four contractors, on balance, reported falling profit margins in Q2, according to the latest Construction Trade Survey.

According to Construction News, The Construction Products Association’s latest trade survey found that a balance of 7 per cent of contractors reported higher tender prices in Q2, a decrease from a balance of 50 per cent in Q1.

Tender prices were higher, on balance, than the same time a year ago for 71 per cent of firms for new construction work and improvements, and 65 per cent for repair and maintenance work.

Specialists did not feel the same growth, however, with 35 per cent reporting an increase in tender prices and 14 per cent reporting a decrease.

Profit margins for specialists fell overall, with 22 per cent of respondents indicating an increase in margins relative to the previous quarter, but 27 per cent recording a decrease.

One in four building contractors, on balance, reported falling profit margins in Q2.

Overall, the construction industry recorded a ninth consecutive quarter of growth, but skills shortages are threatening to hamper recovery, according to the survey.

It revealed that 17 per cent of building contractors, on balance, reported that ouput rose in Q2, compared with a year ago.

Output growth was led by the private housing sector (a 43 per cent rise, on balance), with both housing and non-housing repair and maintenance recording a 9 per cent drop.

Offsetting rising demand in private housing and private commercial, the effects of rising costs were evident, with one in four contractors, on balance, reporting falling profit margins in Q2 – the lowest balance since Q1 2013.

Construction Products Association economics director Dr Noble Francis said: “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.”

He added: “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.

“The £23bn R&M sector will undoubtedly be affected by this and the government’s decision to close the Green Deal last month.”

He said that there was a “lingering concern” that rising construction activity and expectations of higher workloads would prompt further shortages of skilled labour, with “half of contractors having already reported difficulties recruiting on-site trades such as carpenters, bricklayers and plasterers”.

Construction Trade Survey

  • Private housing output rose in Q2, according to 43 per cent of building contractors*
  • 18 per cent reported that private commercial output rose in the second quarter of 2015 compared with a year ago
  • 9 per cent of building contractors reported a fall in non-housing repair and maintenance output in Q2
  • 9 per cent of contractors reported a fall in orders for housing R&M and 14 per cent for non-housing R&M in Q2
  • Public housing orders decreased in Q2, according to 44 per cent of building contractors
  • 43 per cent of specialist contractors and 28 per cent of SMEs reported an increase in enquiries in Q2

* The above percentages are all ‘on balance’

  • 50 per cent of building contractors reported difficulties recruiting carpenters, 49 per cent for bricklayers and 45 per cent for plasterers in Q2
  • 57 per cent of firms reported labour costs rose in Q2 compared with the previous quarter

Build UK (a merger of UKCG & NSCC) chief executive Suzannah Nichol said: “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.”

National Federation of Builders chief executive Richard Beresford added that the severity of the skills shortage is such that “the industry will see unsustainable rising labour costs or an increasing inability to deliver work”. 

“The industry’s efforts to address skills shortages cannot take effect soon enough,” he added.

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