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Construction News Barometer results show majority of contractors continue to see suppliers going bust

Nearly 82 per cent of contractors have had a supplier go bust on at least one project over the past year, the latest Construction News Barometer has shown.

The survey’s results for Q3 showed that 68.4 per cent of contractors had seen a supplier stop trading on more than one job in the last 12 months, while more than 13 per cent of companies had seen this happen on just one job, giving a combined total of just under 82 per cent.

This was an increase on Q2, when 71 per cent of firms had seen it happen on more than one scheme, with just over 5 per cent reporting it on a single project – a total of just over 76 per cent.

The latest Barometer results tie in with a number of high-profile administrations that have rocked the industry during 2016 – the most notable of which was Hewden last month.

As Construction News went to press it was understood that administrators EY were hopeful of completing a handful of Hewden depot sales in the next few days as going concerns.

This would mean the businesses would remain operational as part of the purchase, with some employees transferring over rather than losing their jobs.

More than 340 workers have been made redundant from Hewden to date, with an additional 133 jobs transferred over to A-Plant after the rival bought three of Hewden’s divisions for £29m. Hewden employed a total of 745 staff.

At the other end of the development chain, contractors responding to the Q3 2016 Barometer said they were concerned about client confidence in the years ahead.

One participant remarked: “London and the South-east commercial and residential market is hardening.

“Major developers [such as] Land Securities and Great Portland Estates are calling the market in 2019 [and] consultants are trying to work as much as they can before the [expected] downturn.”

Nearly 37 per cent of contractors reported clients showing “a little less interest” in developing schemes compared with a year ago. This contrasted with just 2.6 per cent of firms seeing clients showing “much more interest”.

More than 71 per cent of respondents had experienced a client changing the scope of their jobs due to viability concerns.

Many contractors have been responding positively to this change, with 72.4 per cent of those that had experienced a client changing scope saying they were working with the clients to save money.

This compared with just over 17 per cent of those firms deciding to walk away from jobs after the scope had changed because they had other schemes to pursue.

Just over half of contractors – 54.1 per cent – said they had seen projects scrapped or paused following the EU referendum.

Contractors were wary of attributing this solely to June’s vote, with some respondents highlighting the shifting high-end/commercial market as the cause behind clients’ caution.

Nevertheless, the fall in the value of the pound following the referendum had a clear effect among the firms questioned.

Nearly 50 per cent of contractors said it had forced them to increase the price of jobs, with material price increases causing particular pain for both clients and contractors.

This echoed recent comments made by Lipton Rogers co-founder Peter Rogers, who last month told Construction News that it was becoming increasingly difficult for clients to develop a business case in the current climate.

He said: “Everything is price-driven and if you look at the London market at the moment, you have still got lots of different prices and everything is going up.

“Developers are getting a double-whammy because contractors are not cutting their margins and [that is then] mixed with inflation from the stuff that comes from overseas.”

A fifth of contractors in the Q3 barometer said they were now turning to UK suppliers, rather than overseas suppliers, as a reaction to the fall in sterling.

And only 15.8 per cent of contractors said they had been replaced on a scheme due to rising costs, with one adding that “the new contractor has not been able to agree price either”.

The general mood among respondents, however, seemed upbeat, with more than 37 per cent of contractors expecting profit margins to increase in the second half of 2017.

The Construction News Barometer is an anonymous quarterly survey sent to director-level managers in the CN top 100 contractors.

The Q3 2016 Barometer was open from 16 November to 30 November and was completed by 38 respondents.

Readers' comments (1)

  • Why are the suppliers going bust? Is it cash flow related?

    Can we, as an industry do more to help following on from the Farmer Review?

    Unsuitable or offensive? Report this comment

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