Update on the Construction Sector highlighting Subcontractors
To some of you the following may come as no surprise and to others we hope it will raise awareness of what’s going on sometimes literally under our noses.
In today’s world of mini bullet points a lot is left to the imagination on what is said and many times the complete opposite of what was intended to be read occur. Such are the vagaries of fake news
The information below is not to highlight commentary but facts as supplied in the most recent survey sponsored by Bibby Financial Services who are a top company for supplying Invoice Finance, Corporate Funding and Factoring and the facts are supplied by Gately Vinden
250 telephone interviews were carried out with 250 subcontractors, who have an average turnover of £1.95million
The covid virus has caused havoc to many industries and some companies have weathered the storm through receiving furlough payments which supplemented salary costs but don’t forget each payment made to companies will be taxed as earned income to the company, taking out Government underwritten loans, or temporarily closing operations
Construction covers a huge area of the workforce, and many major companies are totally – whilst not saying openly- reliant on subcontractors to deliver the works taken on.
Companies of all sizes have had to re-assess their operations and particularly supply lines given the present shortage of raw materials. Some are staying loyal but when something impacts so massively as Covid has, loyalty on many occasions is not rewarded and it’s unfortunately left for each to look after their own
As Bibby Financial Services say: “the true impact of Brexit-related skills and raw materials shortages and the winding down of government support measures, is yet to be realised”
But that isn’t a cop out, it’s a fair statement and here are some facts we hope will be of interest
58% are experiencing challenges with the cost and lack of availability of raw materials
44% saw a skills shortage as the greatest threat to their business
Subcontractors are waiting 23 days to be paid which is down from 30 in 2019
52% want the Government to ensure tariffs on goods to and from the EU are avoided
35% are reporting fuller order books than before the pandemic
Firms are reporting on average 20.3 weeks work in the pipeline
41% of firms are still not leveraging external funding which means they are taking the hit on increased costs
58% saw increases of raw materials and delays in receiving raw materials as a significant threat
46% were prepared to pay more to existing suppliers to get what they needed
40% have looked for new suppliers
25% have signed contracts with new suppliers
44% listed shortages of skilled labour as a threat with 36% listing labour costs as a big threat
Since 2019 there has been a changing power dynamic between Subcontractors and Contractors previously 55% had been prepared to accept Contractors terms or risk losing business, now it is 31%
45% of Subcontractors are now concerned about the financial stability of their Contractors in the light of the Carillion collapse as well as many others to date
The rigidity of working contracts is now leading to more disputes where the subcontractor is shouldering the increased costs whilst the contractor is insulated from them
37% felt the subcontractors would benefit most from the unlocking of local authority contracts
78% didn’t believe that national infrastructure projects would benefit them at all as well as many widely publicised projects like HS2, Northern Powerhouse, Hinkley Point and South East Airport expansion
So you may agree or not with the percentages above and the report is showing the latest thinking which will change clearly over time.
But exactly as we operate as your Broker for insurance, we are obliged to check a lot more about the quality and security of who we deal with. We have no ties so are truly Independent
Some Insurers offer cheaper prices but that usually goes hand in hand with poor cover and useless administration along with dire claims handling
One thing is for sure, whether we want it or not, we are not returning to the normal that was
We all need to be aware of new market practises and bargaining positions changing, as highlighted above and the New Normal.
The principle that ‘big is beautiful’ only holds true if all the supporting areas like subcontractors can operate in an environment that has irrefutably changed, and make a profit.
The ‘just in time’ approach to production has for the moment been slung in the garbage and may well stay there for longer than some are trying to suggest. Cost inflation may not be the short-term aberration as suggested by the Bank of England
As your Broker we can’t rely on any supply company as we don’t know sufficiently what is driving their operations. Insurers will change their positions monthly sometimes instantly, with the Business Insurance fiasco being a massive case in point. It took the Financial Conduct Authority to have to take Insurers to the High Court to let them know they were out of line and pay up
At Trident we keep our ears to the ground to get the best possible deals we can for you, that offer good value and top cover
The New Normal is undeniably tougher than what was before, but we hope it will be rewarding once things settle down and please know Trident Insurance will always look after your best interests
Hoping the above as interesting to you
Regards
Robert D Marshall CEO
07-09-2021
