The construction sector has long struggled with issues around insolvency. This could, in part, be due to the fact that there are so many sole traders and small firms out there sub-contracting that have struggled financially with the Covid-19 situation and then with the supply chain price increases. But the industry has been sitting at a rate of between 750 and 1000 insolvencies per quarter since 2013 with the post Covid era seeing a sharp rise in insolvencies – likely due to the withdrawal of the government support after the pandemic ended.
There are two long-standing issues that are contributing significantly to these insolvencies: price and productivity.
The sector is inextricably linked to the practice of ‘lowest price wins’ – a race to the bottom for value versus cost. For many years tenders have been won and lost on the bottom line cost in the quote. However, like in any industry, cost is a demonstration of quality- the lower the cost the lower quality. To be more industry specific, the lower the build value of a project the higher the likelihood that corners will be cut, lower quality materials used and profit margins squeezed to within an inch of their lives. The industry needs to recognise that profit is king and not turnover and cash, and collectively start pricing jobs accordingly.
Productivity is a harder nut to crack in many ways. Construction companies need to be run like a well-oiled machine with a focus on getting the job done on time and within budget. But let’s be brutally honest, how many times have we read about major projects going over time and over budget? You need only think of the HS2 project and the £366M cost in delays. And it’s not just the major projects either, small domestic projects can suffer from the same fate. For every day that a contractor has not completed job number one ready to move to job number two, they are impacting their profitability.
If we could find a magic bullet to both pricing and productivity then the industry would be in a far healthier position when it comes to insolvencies.
Want to find out more about Skout but don’t have the time to scroll through the website?
Here’s a two minute video that tells you all you need to know.
If you are reading this as a marketing manager of a construction firm that wants to get the most from your marketing budget, then why not come and talk to us about how we can help. We have extensive experience in the built environment from building products through to building services and everything in between. Our programmes are designed to blend with your business strategy to help you stay one step ahead of the competition and make the most of the opportunities for growth in the industry.
Contact us here or head over to our sector page to learn more about our experience in the industry.
Claire James is deputy managing director at Skout PR and has over 30 years of experience in the built environment working with clients such as British Gypsum, Pilkington, Seddon Homes, Dulux and Assent.
