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Contractors earn more but profits fall in Q3

Building contractors are being paid more for the first time in over four years, a new survey has found.

The Construction Trade Survey found a net balance of 4 per cent of contractors said tender prices rose between the second and third quarters of 2013.

Just over a quarter of civil engineers saw prices rise for new build work, on balance, and 22 per cent said the same for repairs projects. But a net balance of 11 per cent of specialists reported price falls.

Tender prices rises were exceeded by increases in labour and materials costs meaning that profit margins still continued to fall. Overall a net balance of 11 per cent of firms said their profit margins dropped in the third quarter.

Costs rises were particularly driven by recent increases in labour prices on top of longer term growth in the cost of energy and materials. While 7 per cent of firms said they had difficulty recruiting trades, within this over a third of firms had difficulty hiring bricklayers and plasterers, which is the highest figure since 2008.

Nearly half of firms on balance said costs were up and 23 per cent on balance said labour costs had risen up from 7 per cent in the previous quarter.

But while there were recruitment difficulties in some trades and rises in workloads, only a third of builders were working at 90 per cent capacity or more.

Late payment was the biggest problem for specialists with just 6 per cent being paid within 30 days in the third quarter of 2013 and only 67 per cent of specialists on public contracts were paid in that one month window.

Private housing led growth in the quarter although all major construction sectors expanded too. Overall a balance of 43 per cent of contractors experienced a rise in activity in the third quarter compared with a year earlier, to give two consecutive quarters of growth for the first time since the final quarter of 2007. Nearly a quarter of SME contractors reported growth in the year to the third quarter –  the highest figure since the third quarter of 2004 –as did 44 per cent of civil engineers.

A net balance of contractors’ reported a fall in their order books in all sectors bar public non housing, which covers education and health, compared to the previous quarter. But the Association said this was the “least negative” reading since 2007.

Noble Francis, economics director at the Construction Products Association, said: “It was encouraging to see that the recovery, which started in Q2, has continued into Q3. A balance of 43 per cent of contractors reported rises in activity, the second highest level since pre-recession 2007. Although private housing is clearly driving industry growth, all construction sectors enjoyed increases in output. With rises in new orders and enquiries, the industry clearly expects that the recovery in output will continue over the next 12 months.”

Stephen Ratcliffe, director of the UK Contractors Group, said: “These results are more encouraging signs of a turn round in the construction. Housing, as the leading indicator, is still the main growth driver and general construction still has some catching up to do. Nevertheless, the mood music amongst UKCG members is more positive than it has been for some time.”

Julia Evans, chief executive of the National Federation of Builders, said: “Confidence is returning to the industry and we are seeing measurable signs of growth and a healthy number of orders. However, the cost of doing business continues to rise as materials and labour cost increases far outpace revenues.

“Repair and maintenance continues to fall behind all other areas in construction and this could be taken as further evidence that the Green Deal is not yet taking hold. Furthermore, cutting the Energy Companies Obligation would further depress retrofit activity as it is the only scheme currently generating any significant output in this sector. We need greater promotion of all the options for retrofit and not get tied up in the red tape of the Green Deal.”

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