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Contractors maintain course despite Brexit jitters

Contractors are not changing their business plans more than 50 days after the EU referendum, despite just under half seeing projects put on hold, according to the latest CN Barometer.

The Construction News Barometer for Q2 2016 shows that 48 per cent of contractors have experienced clients putting projects on hold since the referendum on 23 June.

Of that 48 per cent, 85 per cent have seen up to three jobs affected and 15 per cent have had four or more projects delayed.

The vast majority, 95 per cent, have seen no negative impact when it comes to recruiting workers and four out of five are not changing their business plans as a result of the vote to leave the EU.

Last week both Morgan Sindall and Interserve reported Brexit was having no adverse effect on workloads, with Interserve CEO Adrian Ringrose reminding analysts that the terms of Britain’s exit had not been negotiated and that there could be positive ramifications from the vote.

The CN Barometer appears to confirm that stance with senior leaders from the CN Top 100 contractors indicating they were monitoring the situation and that there was no need for knee-jerk decisions.

One respondent said: “We have short-term business protection through measures to limit discretionary spend and speculative recruitment,” while another said it was “too early to tell, but we will be reviewing our strategy once the landscape becomes clearer”.

Projects on hold

We asked whether projects were being put on hold as a result of Brexit. Here are some of the responses:

  • “Yes – but this a relatively small number of private sector clients – possibly reflecting developments that were marginal viability in any case. The vast majority are going ahead.”
  • “Yes – mostly commercial and retail with some residential.”
  • “Yes – some projects had slowed down prior to the referendum, only one project has actually been stopped.”
  • “No – not so far, in our direct experience.”
  • “No – not yet, but there are rumours.”

Asked when they expect to see profit margins increase at their business, 46 per cent of respondents said 2017, while almost a third said profit margins would improve in 2016.

The survey indicated that problem contracts were being weeded out, with 37 per cent saying they now have no problem contracts in their business, up from 21 per cent in Q1.

Asked which political party best understands the needs of the construction industry, 78 per cent of respondents picked the Conservatives.

One respondent said the Conservatives “understand it best but are not taking the necessary actions”.

Half of the contractors said they would be targeting more work in the North of England due to the government’s interest in promoting the Northern Powerhouse, but one respondent said there was “nothing happening – it was George Osborne’s baby”.

Almost three-quarters (71 per cent) of those surveyed said a supplier had stopped trading on more than one of its projects in the last year.

Contractor views

The CN Barometer asks respondents to share their views on the upcoming 12 months. Here are some of the views expressed.

  • “There is a big opportunity to work with our public and private sector clients to drive real efficiencies and deliver against their needs, working in a collaborative way.”
  • “Investment sentiment in London commercial office development is diminishing as a consequence of Brexit uncertainty / loss of trading passports.”
  • “We believe there will be a reduction in workload of around 10-15 per cent; we do not believe single-stage tendering will return for large complex schemes and see no worsening of skills shortages. The private commercial and residential sectors will decline the most. It is unclear if Brexit will have an impact on higher education capital projects.”
  • “Clearly there has been some uncertainty post-Brexit, particularly in London, [but I] feel confident that this will subside. [There are] cost concerns in regards to foreign materials, given the sterling exchange rate.”
  • “Rising selectivity amongst contractors. Clients need to procure in a cost-effective way and be aware of risk transfer issues.”
  • “Increased pressure through commercial terms being pushed down to contractors whether risk share, level of guarantees, project bank accounts…”
  • “Things could get very sticky for some players as they have barely recovered from the last recession and we will enter the next very soon. Some consolidation of major contractors would help.”
  • “Generally solid with some short-term concern about London private sector – concern some contractors will start driving margins down too low. [This is] all assuming the country stays out of a real recession.”
  • “Need to know if and how the EU funding will be replaced and a priority list of the large infrastructure schemes [should be] drawn up rather than having a basket of wish lists with no certainty.”
  • “Devaluation of the pound will drive inflation in construction materials and components.”

The CN Barometer is an anonymous quarterly survey sent to senior managers at the CN top 100 contractors. It was open from 28 July to 10 August and was completed by 44 respondents.

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