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Supply chain asked to cut prices as more projects put on hold

Exclusive: More than three-quarters of suppliers are being asked to cut prices by clients, a survey shared exclusively with CN has found.

A survey of more than 600 suppliers, of whom more than 500 were contractors, for pre-qualification register Constructionline found that 76 per cent had been asked by clients to cut their prices in the past six months.

Just under 60 per cent of respondents had projects either onsite or in development that have been put on hold in the past six months.

And payment terms continue to lengthen, with more than three-quarters responding that they have seen payment terms extended.

A total of 46 per cent of suppliers have also been asked to retender for construction projects in the past six months, while 28.4 per cent reported an increase in cost benchmarking when tendering for projects.

CN reported in June that Carillion had failed to pay a number of subcontractors within agreed time periods, while in September it was revealed that housebuilder Keepmoat had extended its payment terms for suppliers.

A Carillion spokeswoman said at the time that the contractor’s policy was to negotiate terms with its suppliers and to make payments in accordance with those terms, subject to performance.

Keepmoat said in September that it will continue its “ethos of being a partnering organisation which works closely with our supply chain and which develops excellent working relationships, particularly in these challenging financial times for our industry”.

One subcontractor told CN last week that he was waiting for payment of almost £40,000 for completed work from a main contractor, which had been due at the start of the month.

The subcontractor, who asked not be named, said he was due to be paid 65 days after the end of the month in which the work had been concluded but that payment was already more than a week late.

Constructionline sales and marketing director Philip Prince said the survey reflected the challenges being faced by the construction industry, which saw output in Q3 2012 dip to its lowest level of activity since 1999.

Survey Questions:

Constructionline represents more than 22,000 building suppliers and 8,500 buyers in the construction industry.

What category best describes your organisation:

  • Contractor: 504 (82.2%)
  • Consultant: 88 (14.4%)
  • Material supplier: 21 (3.4%)

On average, what percentage of the contracts you apply for do you win?

0-10% – 236 (39.1%)

11-25% – 147 (24.4%)

26-50% – 117 (19.4%)

51-75% – 68 (11.3%)

76-100% – 35 (5.8%)

In which sectors has work been more readily available?

Public housing/housing association – 155 (25.8%)

Private housing – 95 (15.8%)

Local authority – 207 (34.4%)

Health authority or trust – 104 (17.3%)

Central government – 37 (6.2%)

Education – 160 (26.6%)

Private sector – 284 (47.3%)

Which sectors are best at procurement practices?

Public housing/housing association – 117 (20.3%)

Private housing – 55 (9.5%)

Local authority – 183 (31.7%)

Health authority or trust – 74 (12.8%)

Central government – 28 (4.9%)

Education – 87 (15.1%)

Private sector – 239 (41.4%)

Meanwhile in a letter to chancellor George Osborne ahead of the autumn statement on 5 December, the Civil Engineering Contractors Association has called for extra measures to help boost local infrastructure.

The letter says immediate short-term funding is needed to boost shovel-ready repair and maintenance activity and to rebalance infrastructure investment across the UK.

CECA director of external affairs Alasdair Reisner said: “There are thousands of smaller-scale local projects that have the potential to provide a boost to the economy if they are allowed to proceed.

“If these projects are to fulfil their potential, local authorities must identify the infrastructure priorities in their areas, and be provided with the tools to work with the private sector to unlock each project, moving them swiftly towards implementation.”

CECA’s workload trends survey found workloads for UK construction firms declined for a second consecutive quarter, with a net balance of 17 per cent more firms reporting a fall in the third quarter of 2012 compared with a year earlier.

Roads contractors suffered some of the biggest reductions with net balances of 37 and 50 per cent of firms working on motorways and local roads reporting falls in workloads in that time and nearly half of both groups on balance reporting falls in orders.

The largest increases in work came in rail, water and sewerage schemes but the report said expansion in rail is set to slow, with a net balance of 7 per cent of companies reporting a rise in orders in the year to quarter 3 of 2012, compared with 49 per cent the previous quarter.


Philip Prince, sales and marketing director at Constructionline

“With workloads dropping, suppliers and in particular SMEs need more support to survive.

“One key area is cashflow worries, as three in four suppliers report that payment terms are lengthening, nearly 60 per cent say projects have been put on hold and more than 75 per cent are being hit by clients asking them to cut prices.

“Sadly some of this is likely to be a reflection that many buyers are under their own pressures to deliver savings to their construction work.

“It is therefore not surprising that a separate survey of Constructionline buyers earlier this year found that cost is the most important factor for buyers when choosing a contractor.

“We also understand that buyers are having to look at the make-up of their construction work. For around one in five buyers, this means carrying out more maintenance work, rather than starting new-build projects.

“The outlook for suppliers and buyers should not, however, be entirely gloomy. In our experience, private and public sector clients are continually looking for ways to improve their procurement processes.

“In doing so, buyers are saving themselves time and money – and there are similar savings for suppliers, as they no longer need to repeatedly fill out pre-qualification questionnaires.

“We know that construction companies are facing tough market conditions, which is why our top priority is to reduce the burden of pre-qualification by working with buyers and suppliers to promote good practice.

“It is during such austere times that change and innovation happens and this can set a positive agenda for the long-term.

“Many businesses are re-inventing themselves and their organisations and Constructionline is working with them to support the reduction of bureaucracy and barriers to change.”

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