Double Trouble for Construction Company Owners

Double Trouble for Construction Company Owners

11th December 2018

We’ve already reported on some of the rising costs of running a construction business here in the UK.  Last week we reported on the increasing costs of diesel and skip hire, both of which are lowering the margins on construction projects across the land.  This led us to investigate the costs of doing business in construction in today’s Britain.

The latest UK Market Intelligence report by Turner & Townsend, a multi-national consultancy, has revealed that the costs of construction materials are likely to rise by 5.3% over the coming twelve months, a major worry for smaller building companies who may not enjoy the sale lucrative wholesale rates as the larger construction players.

Currently, this rise in costs has not yet been seen in increased tender prices, with most contractors expecting to see tender prices rise by no more than 2% in house building activities and 3.7% in infrastructure projects.  This represents a decrease in income for construction company owners. 

Contractors in the construction sector are finding themselves in a risky position – stuck between a rock and a hard place as they struggle to cope with rising costs of doing business and lower profit margins on the jobs they undertake. 

Furthermore, these difficult challenges come at a time when the industry as a whole needs to be innovating and investing in the cool new technologies that enable us to build better and faster than ever before.  The twin problems of rising costs and lower margins are squeezing SME building businesses, strangling the supply chain and leading to decreased productivity.

This situation also increases the clients’ exposure to risk.  While it may seem to the client that a combination of low tender prices and high levels of competition mean that they can enjoy a “client’s market” right now, prospective building company clients should be aware of exactly what is happening and how this affects the supply chain.

Here’s a table that clearly shows the rising costs of a range of building materials over twelve months up to April of 2018:

MATERIAL

INCREASE IN COST %

Bricks

9%

Insulation

16%

Timber

8%

Slate

8%

Roof Tiles

8%

Windows

7%

Plasterboard

7%

Blocks

7%

Boilers

7%

Porcelain Products

6%

 

 

More than half (56%) of the SME construction companies surveyed claim that their margins are being squeezed by the rocketing prices of materials and most of these say they have been forced to pass on the increases to their clients, resulting in building projects becoming more expensive for homeowners.  A third of builders report that they often recommend that the clients use alternative materials or products to those originally specified in order to keep costs manageable.  This could mean that in some cases, there are safety implications to be considered.

Just staying in business is a challenge right now for nearly a fifth of builders – 17% have revealed that they are making losses on their building projects due to the price of materials.  This is an issue that the construction industry as a whole will need to consider if we want to meet the challenges of building 21st Century Britain.