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Large contractors protected by public sector work

Economic slow down or melt down? Collapse or correction? Only time will tell. But the market out there is more difficult to predict, says Chris Gilmour

The latest statistics from the Department of Business Enterprise and Regulatory Reform show a dip in orders - two per cent down in the three months to January 2008 compared to the year before. The latest survey by RICS showed that surveyors’ expectations of growth and profit margins have fallen for only the second time in the history of the survey.

Who is most at risk in the current climate? It’s a mixed picture.

As the latest round of financial results shows, the top contractors are pulling away from the rest with bigger workloads, involving larger projects and healthy order books for the next two to three years.

The bigger players are also marked out by their participation in public sector and private frameworks where the challenges lie in the nature of the procurement process itself.

Once selected for the work, it tends to proceed to the planned timescales and budgets. The larger contractors also have the flexibility to diversify. If the larger projects slow down they will bring all their resources to bear on competing for smaller ones.

The picture is more difficult for medium-sized and smaller contractors, particularly if they depend on housing and are doing business with smaller developers which feel the pinch more acutely from the tightening availability of credit. It is possible to envisage some going under.

We need to prepare ourselves for a much more competitive market with greater pressure on margins. Factors such as increases in materials and supply chain costs and less availability of skills as some of the immigrant labour supply returns home will also increase the pressures on everyone in the industry.

Contractors will have to raise the bar further in their core competencies. They will need to look after their supply chain and work with them in the face of hardening conditions rather than try to squeeze them. It is also more important than ever to focus on recruiting, developing and retaining the right people.

Whatever a contractor’s size or speciality, no-one can risk complacency.

Chris Gilmour is marketing director of HBG UK