Construction Industry

Turns & Townsend Warns Construction Insolvencies

The UK construction industry should beware insolvencies as demand weakens and margins are squeezed, warns UK consultant Turner & Townsend. Its latest market analysis points to falling demand, rising input costs and lower margins, and notes that the number of construction insolvencies far outstrips those in retail. The confusion over

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EU Migrants’ Impact in the Construction Industry

The UK construction industry employs approximately 3 million people in the UK, making up 10% of UK employment. Significant skills shortages are restricting construction economic growth in the industry that employs 8% of EU workers, however in London this amounts to a staggering 28%. According to research by TowerEight, 35% of

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Latest Issue
Issue 325 : Feb 2025

Construction Industry

Turns & Townsend Warns Construction Insolvencies

The UK construction industry should beware insolvencies as demand weakens and margins are squeezed, warns UK consultant Turner & Townsend. Its latest market analysis points to falling demand, rising input costs and lower margins, and notes that the number of construction insolvencies far outstrips those in retail. The confusion over Brexit keeps persisting and contractors expect tender prices to increase 2.9% in 2019, outstripped by increasing materials costs of 5.3% and labour costs rising 4.5%. Only 28.4% of contractors expect the market to improve, against 42.1% prior to the Brexit vote in June 2016. According to official data, construction witnessed the highest insolvency rate of any UK economic sector, with 2,924 insolvencies recorded in the 12 months to the end of September 2018. This figure is 28.8% higher than the UK’s struggling retail sector. Turner & Townsend thinks that the underlying cause is weakening demand in construction. Despite a small 3.4% rise on the previous quarter, new orders in Q3 2018 were down almost a third (30.8%) on the high levels seen in 2017. As a result, Turner & Townsend’s latest UK market intelligence report finds that half of contractors (50.5%) surveyed were experiencing lukewarm tendering conditions, reporting increased competition and moderate price growth. The trends are hurting profit margins. The analysis shows median margins for tier one contractors standing at 3% and 5% for tier two contractors. Since the start of 2016, median tier one margins have shrunk by a quarter and tier two margins by half, leading Turner & Townsend to warn of a heightened risk of insolvency. “So much rests on the Brexit withdrawal agreement and there remain risks of further decreases in demand, coupled with increases in the costs of materials and labour from the continent and elsewhere.  Contractors’ already-thin margins could clearly come under further pressure, ” said Paul Connolly, UK managing director of cost management. “It’s essential for clients to be proactive about these risks – monitoring for warning signs, undertaking wide-ranging due diligence during procurement, and using project controls to pre-empt and correct problems at an early stage.  It’s about checking and challenging the supply chain, but also collaborating – understand suppliers’ pressures and concerns, as well as holding them to account,” he added. Turner & Townsend’s report outlines the steps clients should take in terms of watching for warning signs, due diligence, pre-emption of problems, and creating a resilient client-supplier dynamic.

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EU Migrants’ Impact in the Construction Industry

The UK construction industry employs approximately 3 million people in the UK, making up 10% of UK employment. Significant skills shortages are restricting construction economic growth in the industry that employs 8% of EU workers, however in London this amounts to a staggering 28%. According to research by TowerEight, 35% of construction workers stated Brexit has created a shortage of EU migrant labour in the UK construction industry that has already increased project costs. Non-UK workers in the UK construction industry are mainly employed as general labourers (22%) and architects (15%). However, a high percentage of professional roles such as quantity surveyors (11%), project managers (11%), engineers (7%), have been placed within the last year by agencies as EU workers. Labour shortages appear to have increased rapidly since 2013 and a majority of surveyors have stated this is a significant hinderance on output. Skills’ shortages created more pressure on the delivery of projects with the triple constraints of time, cost and quality. A survey by Inside Housing revealed that the biggest skills shortages were for construction project managers (32%) and quantity surveyors (31%), followed by electricians (29%), plumbers (24%), carpenters/joiners (24%) and bricklayers (20%). However, only a fifth of those surveyed saw Brexit as the biggest problem, suggesting that skills shortages have been in existence for numerous years. This finding is supported by The MacFarlane who reports that 68% of construction SME’s are struggling to hire bricklayers and 63% are struggling to hire carpenters and joiners which have increased more than 10% in Q4 2017. The skills’ problem is an issue the sector has been facing for some time. RICS warns that “30% of construction professionals surveyed believe that hiring non-UK workers was critical to the success of their businesses”. The Construction Industry Training Board (CITB), estimates that to meet current demand more than 36,000 new workers a year will be required. Both skilled and non-skilled in labour will decline rapidly in the coming years in the UK construction industry. Data by Build UK found that 43% of contractors reporting rising labour costs in the first quarter of 2016, with a lack of suitably qualified staff a key factor. This impending threat of reduced labour movement, coupled with already existent shortage of labour would appear to pose a major risk to the future performance of the UK construction industry. The ONS data suggests that on the date the UK voted to leave the EU, migration fell from 336,000 to 246,000.  A survey by Helm supports this as they had found 55% of skilled workers were either planning to leave or considering leaving the UK. However, could departing from the EU be beneficial? It could create a wider range of job opportunities within the UK that would become available and allow a growth of UK suppliers. Knight Frank reports that Brexit has done little to deter investors from London as purchases of assets increased from the previous year. The value of the pound is likely to go down which could create an upsurge of overseas investment in UK real estate. Brexit will reduce EU competition when tendering for work.  But there is also the likelihood that wage rises are likely to occur and restrictions on free movement could pose a problem for the UK construction industry which already faces a labour skills crisis. Under a soft Brexit the UK GDP would decline by 3.5% and a hard Brexit, the construction industry’s contribution would fall by 8.2%. Brexit will affect urban areas more than rural communities and if access to skilled EU workers is cut, projects such as HS2 and Crossrail will be undeliverable. In conclusion, James Morris, Director at Tower Eight explains why there is a real importance of immigration to the labour market, “It is critical that we have flexible access to labour from overseas as without this we would fail to deliver against the commitments for construction, such as housebuilding and infrastructure. The pound’s value has descended as a result of the UK voting to leave the EU. Costs are expected to climb for contractors and UK developers due to their heavy reliance on importing and exporting with a less favorable exchange rate. Once the UK has left the EU, the UK Government could potentially only allow UK-based firms to tender for government work, consequently meaning that the UK’s construction Industry would no longer have to compete with foreign firms. But until the exit plans are revealed we are left hoping that the Government recognises the dual challenges of an ageing workforce and a lack of skilled labour; both of Britain needs to meet housing targets and deliver the infrastructure required for growth.”

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TONE Scaffolding Adapts to Challenges of Changing Construction Industry

The construction industry is constantly adapting and changing in order to find solutions to new problems and the development of new approaches in order to deal with older more long term issues within the industry. As a part of this, contractors in the construction industry find themselves having to work faster and faster across an ever expanding range of sites. With the increased volume and variety of demand in the construction industry, one issue that arises is how the weekly hours worked by the operatives are tracked and monitored.  Some operative may only be required on site one day at a time, and some may be required for longer periods, making it difficult to monitor the working schedules of operatives with a one-size-fits-all solution. TONE Scaffolding Services is an independant contractor and has found that a possible solution to the tis challenge. The Scaffolding supplier and contractor has opted to work smarter and use a MobileClocking in order to monitor time and attendance through a smartphone app. This mobile clocking device uses facial recognition software from the specialist Aurora. By using this app, TONE has a record of the precise location of operatives at certain times in order to remove the arguments about the number of hours worked. This will ensure that reports are written up properly and operative’s wages are paid correctly. TONE Scaffolding Services is the leading scaffolding contractor in the UK.The company is based in Croydon and is well known for delivering high quality scaffolding even on some of the most complex of projects. TONE works across five different divisions including Rail, Power, Town, Aviation and Industrial. TNOE also operate a Special Projects division that allows for larger one off projects. The previous clocking in system that was used by TONE was ideal for operations that were more long term, and the plan was for the company to be working on the site for a year or two. This old method was static and with the speed of construction project turnarounds increasing, TONE were in need of a solution that was better suited to the changing industry.  

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Yorkshire’s Construction Industry Showing ‘Signs of Improvement’ Following Brexit

The construction industry in Yorkshire is showing signs of a recovery in the three months since the EU referendum vote. According to data from business rescue and recovery specialist Begbies Traynor, 15,654 Yorkshire businesses showed ‘significant’ distress, a fall of 4% in Q3 compared with the previous quarter, however, the decrease was more marked across the UK with a national average fall of 6%. Levels of significant distress showed a rise, however, when compared with the same period the previous year, increasing by 2% across the UK and by 3% in Yorkshire. Some business sectors in the region have fared better than others, with construction showing an improvement both year on year and over the past three months. The quarterly Red Flag Alert data reveals falls in distress of 3% and 8% respectively, equating to 189 fewer financially distressed construction businesses in September than there were in June. Although still affecting 2,042 construction businesses in the region, making it the most severely distressed sector in Yorkshire, the figures reflect the bounce back in the sector reported by the UK Construction Purchasing Managers’ Index last month [September]. Other areas of the Yorkshire economy showing improvements include financial services which saw distress fall by 13% since June and by 7% over the last year to affect 279 firms. The automotive industry also saw a 14% improvement over the last quarter, and an 8% improvement annually, with distress now affecting 576 businesses. By comparison industrial transportation saw distress continue to climb, with levels up by 16% year on year and by 12% since the previous quarter and now affecting 384 businesses. Distress also rose in the travel and tourism sector, rising 9% year on year and 16% in the past three months to affect 134 businesses. Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “It’s good news – albeit something of a surprise – that the construction industry appears to be showing marked signs of improvement, in Yorkshire as elsewhere in the country.

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