Can you survive and thrive as a construction SME?

There are hundreds of thousands of construction companies in Great Britain – 342,456 to be exact. Of those, by far and away the largest proportion are companies with fewer than 250 employees – the common definition of an SME.

But life as an SME can be a challenge, particularly in construction, where long supply chains and complex contractual arrangements can leave a lot of power sitting with the big beasts, often at the expense of their smaller counterparts.

So what are the challenges facing construction SMEs, and what can they do to overcome them and thrive in a notoriously competitive sector?

“I’m not being unkind when I say this, but I think a lot of business owners in construction are not natural entrepreneurs,” says Maria Coulter, who runs SME consultancy Construction Coach. “They might start a business because they are good at a skill. But nobody really teaches you how to build a business. We should be looking at this from an education perspective.”

Coulter worries about construction SMEs making a decent profit margin. “Do margins have to be so low? If you are not making the level of profit that you need, how are you going to grow your business, invest in new technology and innovation?”

Other challenges Coulter recognises are juggling different responsibilities in small organisations – such as getting to grips with technology, not knowing where to get help and support and having ‘limiting beliefs’ – that hold business owners back from achieving.

She adds: “There is fear about the competition and the fact that we are seen as a commodity industry. It is hard to differentiate yourself. People in small businesses have got it fixed in their head that it should be about the lowest price. But they aren’t presenting clients with anything else to make a decision on. There is a lot of work needed to understand what value really means and why clients should pay more for it.”

According to Dr Nicola Thompson, group compliance and performance director at consultancy Pick Everard, there are five key practical challenges that SMEs face: staff retention, cash flow, late payment, rising costs and difficult jobs.

She says: “For SMEs, budgets often do not allow for extensive training programmes for staff and it is difficult to promise hardworking professionals that they will be working on multi-million-pound contracts. With skills shortages worsening and average wages increasing, SMEs will struggle to keep hold of staff.”

Dan Maher, managing director of Arc Partnership, a joint venture between procurement body Scape and Nottinghamshire County Council that works particularly closely with SMEs, also sees challenges in labour, supply chain resilience and inflation.

“These issues are often only discussed in the context of principal contractors,” says Maher. “For SMEs, they represent significant downward pressure in terms of pricing as well as retaining labour.”

Maher wants to see the wider industry working as one to engage clients and share the financial burden presented by current market conditions. “Ultimately, if SMEs fail, principal contractors and their clients fail. An effective socially conscious response involves principal contractors managing their SME supply chains fairly,” he says.

Ideas for small businesses from consultant Maria Coulter

Chris Bula MCIOB is a director at BPG Architects + Surveyors. He joined the business 33 years ago, just after it was founded. The (now) employee-owned business performs a range of services and has carved out a niche specialising in cladding remediation.

Surviving for 34 years is no mean feat. Riding the whole ridiculous boom and bust cycle can be tiresome. We were fortunate and received an appointment from Wandsworth Council to deal with combustible cladding on two residential towers. Everyone was finding their feet with this after Grenfell and we made it happen.

Since then, we have been involved in 16 different cladding remediation schemes both as designers and providing a full service for an aggregate construction value of circa £75m. It has been our bread and butter.

On another positive front, the company is much more diverse than it was. It used to be nearly all young men. Now we have a gender split of 50/50. It creates a whole different vibe to the place and we have our first female director.

We were an early adopter of Revit and BIM. It was a big investment, but we have developed our expertise and it has helped us with the cladding business.

Our cladding work is very specific. It’s difficult finding people in the architectural world who are prepared to sit and redesign what someone built in the last 20-odd years and make it work. They would prefer to be creating new buildings with sweeping curves, not working through what is going to satisfy fire engineers, building control officers and structural engineers.

Meanwhile, the cost of professional indemnity insurance has quadrupled for us in the last three years. Although, as our broker says, we are lucky to have it. We just have to grin and bear it and try to get it back through our fee levels, although there is always a general downward pressure on fees in the public sector.

UC Build was founded in 2015 and has grown to 51 employees and turnover of around £50m this year. Director Neil Hennessey FCIOB joined the business from a major tier 1 contractor to set up a northern office in 2020 based in Doncaster.

James Halksworth [another director] and I ran a retail construction delivery business for a tier 1 contractor for 10 years. That operating model is vastly different from what we have now. You have all the support functions you need, like estimating, planning, project support, document controllers. In an SME you don’t have all that. Price is absolutely everything – right down to office equipment.

The positive piece is you have a touchpoint on all of it. You are not delegating that role to your team. You also have a lot more red tape in bigger organisations. We can make sure our processes are relevant and cut to the point where we are not overloading our team.

Recruitment is very different in a tier 1 environment compared to an SME. Talented young people are blindsided by a bigger badge. We can’t always offer the benefit package or what is perceived to be a traditional career path. However, we maintain that if we can get hold of that bright young thing, they are going to be exposed to more responsibility at a much quicker pace.

Another challenge is that, while we have a few years under our belts, new companies can struggle to obtain a credit rating or confidence in the market. Unless you have a strong relationship with a client that is willing to grow with you, that mindset is more or less impossible to change.

We have to first of all break a client – find a lead and convert that lead into an opportunity. But actually seeing something go from cradle to grave does give you a massive sense of achievement. We’re excited for the future. The SME can be quite a niche role and if a contractor can find the right markets, I believe clients get best value from SMEs.

Martin Sandall, managing director of Kent-based contractor and Chartered Building Company Jenner, on why he finds running a construction SME rewarding.

We pride ourselves on the strong team of talented, experienced people we have developed. This is backed by a focus on nurturing homegrown talent which is so imperative for progression and business longevity. 

In my 14 years as MD, I have navigated the business through the financial crash of 2008 and the subsequent recession, and Brexit. We are hopefully at the end of a global pandemic, but we now have political unrest and the conflict in Ukraine.

We are now immersed in the aftermath and know the effect of these challenges in the form of spiralling materials costs, a shortage of skilled labour and diminishing confidence in an unpredictable market.

But I am a firm believer that out of adversity comes greater resilience. For a privately owned business like ours, it is all about careful, hands-on and accessible management, understanding the marketplace and our client needs, and nurturing relationships throughout our entire supply chain.