The order books of specialist contractors in the construction sector are continuing to shrink according to the latest National Specialist Contractors’ Council State of Trade Survey.

The National Specialist Contractors’ Council (NSCC) represents 32 specialist trade organisations within the construction industry and 7,000 specialist contractors in the UK.

46% of respondents in the survey reported a decrease in orders in the fourth quarter of 2011, another significant rise on the 37% that saw the number of orders decline throughout quarter three. With only 57% of specialist contractors now working on public sector projects, down from 67% last quarter, the reduction in capital expenditure is being felt across the supply chain, sparking fears of further downturn in the industry.

Contractors expecting to downize

The Council said the cutbacks in investment and uncertainty about where future work is going to come from is leading almost a third of specialist contractors to predict further reductions in workloads over the next year and a quarter expect to downsize their businesses during this period. The majority (55%) are planning less than 3 months ahead and there are already concerns about the capacity to deliver as the economy returns to growth.

78% of specialist contractors have monies withheld against them in retentions at an average of £151,022 per respondent with 32% of all retentions overdue for release and 21% ultimately written off as bad debt.

A member of the CONSTRUCT Concrete Structures Group explained that “main contractors are holding on to our money for longer producing spurious claims to counteract our requests for payment”.

Subcontractors face a desperate situation

NSCC Chief Executive Suzannah Nichol MBE commented on the outlook for specialist contractors:

“In order to overcome the desperate situation faced by Specialist Contractors, it is essential that the supply chain works together to increase efficiency and ensure prompt payment. Those Specialist Contractors that continue to invest in their workforce and manage their cash flow will be the ones that are best placed to deliver when the economy returns to growth.”

On procurement, the survey shows that 72% of contracts are obtained by tender with 14% by appointment, 6% specified and 8% by nomination. The Council commented that this continues to challenge the notion of integrated working within the sector.

22% of contractors did not actually receive their contract documentation until after they have started the work. However, late payment continues to be the most important factor affecting Specialist Contractors’ businesses.

Main contractors win work on negative margins and want discounts from subcontractors

The Confederation of Construction Specialists said that main contractors were winning work on negative margins and demanding discounts from subcontractors, with clients across the board remaining over optimistic regarding price. The Conderation commented:

“Too many projects are secured upstream at sub-economic levels resulting in aggressive buying strategies downstream. Inevitably this causes delays in appointment and erodes project lead times to the point where we have no realistic opportunity to deal with pre-construction activities effectively. The net result is a decline in quality which further compounds the impossible starting margin. “

The Specialist Access Engineering and Maintenance Association said that companies were bidding at low margins to secure work and consequently reducing margins across the industry.

Falling tender prices among key highlights 

Key highlights from the survey include:

•  37% report a decrease in enquiries, down from 39% last quarter. 46% report a decrease in orders, up from 37% last quarter. 32% report an increase in enquiries and 30% report an increase in orders.
• 15% report more difficulty in recruiting skilled labour, up from 11% last quarter. 18% found it less difficult to recruit. 6% were unable to bid for work due to skills shortages.
• 62% report working at over 75% capacity, down from 67% last quarter. 30% report working at over 90% capacity, down from 34% last quarter.
• 29% expect an increase in workload, up from 22% last quarter. 29% anticipate a decrease in workload, down from 32% last quarter. 55% have a business planning horizon of less than 3 months.
• 22% expect to contract their businesses, the same as last quarter. 15% expect to expand their businesses compared to 12% last quarter.
• 51% report falling tender prices compared to 50% last quarter. 18% report increasing tender prices compared to 13% last quarter.
• 84% report increased suppliers’ prices compared to 71% last quarter. 4% report lower prices compared to 6% last quarter.
• 71% of respondents reported falling margins. 8% reported increasing margins.
• 6% are being paid within 30 days, up from 2% last quarter. 75% received payment between 30 and 60 days and 16% were paid between 60 and 90 days. 3% wait over 90 days to get paid.
• 57% reported that they had carried out public sector work in the last quarter and, of those, 35% said that they had been paid within 30 days on all these contracts.
• 78% have retention monies withheld from them and 32% of these retention monies are overdue for release. On average, 21% of outstanding retentions.