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CN100: Labour supply constraints to increase selective bidding

The UK’s biggest contractors boosted their turnover by a combined 4 per cent in the last year but profits fell by more than 10 per cent, according to exclusive Construction News analysis.

This year’s CN100 has shown that despite turnover being boosted across the UK’s biggest contractors, their profit margins are just a quarter of those recorded by the biggest housebuilders.

The average pre-tax profit margin among top 20 contractors was 2.5 per cent, compared with a 9.4 per cent margin among the top 20 housebuilders, while total profits for the top 100 contractors fell by more than 10 per cent.

Henry Boot had the strongest operating profit margin (12 per cent) of the CN100.

The table showed average margins among the top 50 contractors dipped, but those ranked between 51 and 75 boosted margins to an average of 2.5 per cent and those ranked 76 to 100 saw margins rise to 2.8 per cent.

In numbers


Michael J Lonsdale’s increase in turnover

34 places

Bullock Construction drop in CN100 table


New entries into the CN100


Re-entries into the CN100

Firms told Construction News they would be increasingly selective about bids in the coming year as labour constraints bite.

Speaking about the challenges in the year ahead, business leaders said they expected firms to be more selective about bidding work and for skills constraints to provide the main challenges.

Skanska chief executive Mike Putnam said: “There are capacity concerns throughout the supply chain.

“With the upturn in work, more are required, but they need to be people familiar with the way we work and of the right calibre.”

Labour supply constraints are set to contribute to more selective bidding over the next year. Alasdair Thompson, development director for the project and cost management unit at Mott MacDonald, said increasingly complicated procurement processes were another risk.

“I think companies will have to be more selective about what they bid for,” he said. “I am increasingly challenging why we are going for certain jobs: Do we have a relationship with the client? Do we know what it wants?

“We have a finite amount of money to spend chasing projects,” he added.

Mr Putnam said higher margins would allow those companies that had chased whatever work they could find during the recession to focus on their specialisms again.

“As the market improves and confidence grows, margins will increase,” he said.

“People will return to being selective in their bidding. The higher margins are then an opportunity for the industry to get back to smarter engagement and collaborative working.

“Inevitably, people focus on cost during a recession. We are seeing a return to looking for value.”

In numbers


Top 20 housebuilders turnover growth


Turnover of the top 10 FM firms


Drop in turnover for M&E firms


Average operating profit margin for top-20 contractors

The CITB estimates more than 40,000 people per year are required over the next five years to fill the skills gap. Mr Thompson said there were not enough people with construction backgrounds.

“We have 100 vacancies and it is a challenge to fill them,” he said. “We are bringing people in with other degrees and converting them into the industry through training.

“You have to be lateral in the type of people you recruit, and you also need the right benefits and type of work to retain people.”

Mouchel director of public services Matthew Lugg said the government’s focus on supporting growth through infrastructure was positive for the industry.

“There are lots of opportunities coming up. I spent most of the summer bidding for contracts,”
he said.

“The key challenge is the ability to resource that growth. Everybody downsized in the recession and now suddenly they do not always have the people they need.”

The biggest climbers in this year’s CN100 were Lakehouse (up 23 places) and Clugston (22 places), while Bullock Construction was the biggest faller (down 34 places).

There were 10 new entries, including Mouchel (Infrastructure Services) which was 32nd, Hill Partnerships (53) and Lagan Construction Group (69).

The top 20 clients awarded £16.9bn-worth of work in the year to July 2014, which represented an 11.3 per cent rise on the previous year, as more work came to the market.

Willmott Dixon chief executive Rick Willmott said clients would seek to counter shortening bid lists in the year ahead.

“The price of construction has increased materially over the past 12 months and clients will want to increase competition,” he said.

Balfour Beatty Construction Services UK chief executive Nick Pollard warned further price shocks could be ahead over the next year.

“The M&E market is still quite cold,” he said. “A lot of suppliers have been working at unreasonable prices to keep themselves alive, and I think a price rise is coming, which is something for main contractors and suppliers to be alert to.”

Politics will play a big part in shaping construction investment over the next year. The referendum on Scottish independence takes place on 18 September, while the general election takes place on 7 May 2015.

Mr Putnam said a yes vote to independence in Scotland this month could lead to “uncertainty for a number of months, which could be significant for construction”.

Home Builders Federation executive chairman Stewart Baseley said a new government following next year’s general election could “change
the policy environment” that was finally allowing housebuilders to plan ahead.

Mr Pollard added: “There is a lot of waiting and seeing at the moment, which can be a bit of a dampner to growth.”

But Mr Willmott said he looked forward to all the major parties moving to increase building of houses, schools and care homes, particularly in the South-east.

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