The latest Construction Trade Survey shows rises in activity across the whole supply chain and in every work sector in Q3 2014 – but also continued labour and materials cost increases, pressure on margins and back-sliding on the recent improvements on supply chain payment terms.
The survey, compiled by the Construction Products Association from surveys by the FMB, NFB, NSCC, UKCG and CECA, showed that the recovery in construction had spread well beyond the private housing sector which, boosted by Help to Buy, drove output growth in 2013.
In Q3 2014, the survey found that ouput picked up for contractors working in public sector construction, public housing repair and maintenance.
The highest upticks in activity were in the private sector and commercial projects: 43% of firms reported growth in private commercial, the largest construction sector, which covers offices and retail work. A further 41% of firms, on balance, reported work growing in the private industrial sector, which covers factories and warehouses construction.
The contractors surveyed were also optimistic about rising output in the near future, thanks to positive indications on orders and enquiries. A rise in Q3 order books in private housing was reported by 15% of contractors, on balance, while 13% and 12% of firms reported rises, on balance, in order books across private industrial and public non-housing respectively.
The contractors reported that they had been able to increase tender prices for the past five consecutive quarters. However, 76% of contractors in the survey reported that costs rose again over the last quarter, although this was slightly lower than the 80% reporting cost increases in Q2. Meanwhile, 11% reported a fall in the margins they had been able to achieve in Q3.
The report says: “The impact on margins highlights the difficulties for large and medium-sized building contractors, many of whom are working on contracts won at low prices when the industry was struggling two years earlier, but have also had to deal with rises in costs now that cannot be passed through to the client. Furthermore, these contractors will not experience the benefit of rises in tender prices in Q3 until 2015.”
Skills shortages at trade level are still a problem, although have eased marginally in recent months. The survey suggests that 41% of building contractors reported difficulties recruiting bricklayers in Q3 compared with 47% in Q2, while 39% of building contractors reported difficulties recruiting carpenters in Q3 compared with 47% in Q2.
In Q3 only 11% of specialist contractors said they were being paid in under 30 days, down from the 16% who enjoyed 30 day payment in Q2 2014. However, this represents an improvement on the 2% who reported prompt payment during the recession.
In addition, 24% of specialists reported waiting more than 60 days for payment, above the five-year average of 17% and the highest proportion since Q4 2008.
Looking only at specialist contractors’ work in the public sector, just 52% of these contracts experienced payment within 30 days, despite this being part of the Government Construction Strategy.
Richard Beresford, chief executive of the National Federation of Builders, added: “The industry is in recovery. The good news of across the board rises in reported output makes it tempting for us to take our eye off some of the industry’s structural issues. With more work around, we have a little breathing space, an opportunity to address access to finance, tender costs, skills and security of materials supply to ensure a more sustainable recovery.”
