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Small UK construction firms waiting nearly two months for repayment from property giants

The UK’s 20 largest property developers now take 56 days on average to pay sub-contractors, up from 54 days last year, resulting in severe cash flow problems for smaller construction companies, says Funding Options, the UK’s leading online alternative business finance matchmaker.

Construction sub-contractors are facing growing cash flow problems — average time taken by the 20 largest UK construction firms to pay their suppliers.

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Funding Options says that the failure of major developers to pay invoices in good time is damaging their sub-contractors’ growth prospects and in some cases threatening their viability. Without swift payment of their invoices, small companies such as bricklayers and carpenters cannot budget effectively and face severe funding issues.

These problems are being exacerbated by a slowdown in the construction industry since the second quarter of 2015.

The delays are jeopardising the ability of smaller construction companies to pay wages on time and bid for future work. The claim that big developers are sitting on the money owed to contractors is supported by the fact that large developers are paid by their own customers in 39 days. This is more than two weeks faster than they pay sub-contractors.

The study by Funding Options shows payment delays have been increasing since 2014, when it was taking developers 48 days to pay their suppliers such as electricians and plumbers.

It adds that with the Government setting a challenging target of one million new homes to be completed by 2020, it is more important than ever that payment delays in the construction sector are tackled as soon as possible.

Conrad Ford, CEO of Funding Options, says: “Smaller sub-contractors face the risk of bankruptcy if they are not paid within a reasonable amount of time.”

“Increasing numbers of small construction firms need help to cover those gaps in their cash flow.

“Major developers feel they have a lot to gain from delaying payments, knowing that their sub-contractors would be hesitant to raise their issues for fear of losing out on future work. There seems to be only two choices for the suppliers: accept these slow payments or lose the business going forward.

“These kinds of problems also won’t help the Government in hitting the very demanding targets it has set for new home completions.

Funding Options says that, technically, businesses are permitted to charge interest and other additional costs if their payment agreements are breached. However, smaller businesses rarely impose these charges as they need to avoid upsetting the companies they rely on for future business.

Conrad Ford says: “There are a few ways to allow firms to cover the gaps in their balance sheets. One of these options is bridging loans, which help them to accept new contracts, and be forward looking instead of dwelling on work they’ve already done.

“Funding Options puts smaller companies like sub-contractors in touch with suitable lenders, allowing them to plan ahead confidently and getting rid of doubts about whether they’ll have the costs to carry work out.”

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Only 15% think HS2 is worth the money

Following the news that the first major works contracts for High Speed 2 worth around £900m have been awarded to three consortia*, a survey conducted by the ITV Tonight programme into issues surrounding HS2 has found:

  • Only 15% feel that HS2 is worth £56bn
  • 58% don’t think it’s a price worth paying
  • 77% of people would prefer that the money was spent in other areas, like the NHS
  • Nearly three-quarters of people thought HS2 would lead to price rises for train tickets
  • 60% said they would not pay more to ride on HS2
  • 7% would be prepared to pay increased prices for the high speed line
  • 80% said they felt sympathy for people who may lose their homes to HS2, even though they may be compensated
  • 11% people thought the high speed rail link would benefit the majority of commuters
  • 23% are not aware that HS2 is being planned

Additionally, less than 20% of respondents thought they would use HS2 when built, and only a third of people feeling that HS2 will benefit the north.

Joe Rukin, Stop HS2 Campaign Manager responded “After six and a half years of trying to con people into thinking HS2 is a good idea, public support for this white elephant is at an all-time low. It’s clear the spin from Government isn’t working as not only do only 15% think it’ll be worth the money, they’ve also seen through the spin, with the vast majority thinking it won’t benefit commuters, it won’t benefit the north and it will lead to an increase in the cost of train tickets. Quite simply, no-one is buying the hype and it is time to cancel HS2 before it is too late.”

Penny Gaines, chair of Stop HS2 added “We have yet another survey that shows the British people don’t think HS2 is worth the £56 billion pound price tag. This is the same message as from numerous other surveys. People can see the downsides, they won’t use HS2 and they are worried that HS2 will mean increased fare prices on the trains they do use. With the Government’s intention that whoever gets the West Coast Main Line franchise will also run HS2 for the first few years, it is even more likely that conventional speed fares will go up.”

*North: LM JV (Laing O’Rourke Construction, J Murphy & Sons)
South: CS JV (Costain, Skanska Construction UK )
Central: Fusion JV (Morgan Sindall, BAM Nuttall, Ferrovial Agroman (UK)

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Number of suspended projects on the rise

The number of projects being put on hold by clients is on the rise. At present, it appears to be smaller value schemes that are currently being suspended, with the value of underlying projects being placed on hold down on a year ago.

Glenigan has identified a 28% increase in number of projects being placed on hold during the third quarter of this year against the same period last year. In contrast the value of projects being suspended (excluding schemes of £100m or more) was 10% lower.

Whilst the number of projects being placed on hold remained subdued in July in the immediate aftermath of the Brexit vote, it has risen during August and September.

Looking across the sectors, the rise in the number of private residential, office and hotel & leisure projects being placed on hold suggests that clients may be reviewing the viability of some planned schemes post-referendum.

Oct25_On_Hold September_2016

However, the Brexit vote is not the only factor at work. The utilities sector has seen by far the sharpest rise in the number and value of projects being placed on hold. Indeed that sector has seen a sharp rise in suspended projects since the start of 2016 and, the number of projects put on hold in the third quarter was 92% up on a year ago. The sharp rise in suspended projects appears to be in response to the Government’s cuts in the feed in tariff rates for renewable projects; almost half of the projects are renewable energy schemes whilst a third are waste treatment projects often involving energy recovery.

Elsewhere there has been an encouraging decline in the number of projects being placed on hold, with fewer retail and social housing projects being suspended during the third quarter. Overall the latest on-hold project data highlights that volatile market conditions facing the industry and the need for firms to be able to identify and respond to new opportunities as they emerge.

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100,000 modular homes planned to alleviate housing crisis

According to a government white paper which will be published next month, the Government intends to utilise offsite technologies and build around 100,000 modular homes across Britain by 2020.

The report includes measures that will make lending to offsite home builders more attractive to banks.

The rapid delivery of recent offsite projects (sometimes as quickly as 48 hours for some modular homes) has made the construction method a very interesting and viable option for ministers in tackling the shortage of housing in the UK and meet targets.

In an article in The Telegraph, a government spokesperson said “The first and most obvious advantage is speeding up the building of housing. There is pretty good evidence that if you did it at scale it is cheaper.”

The Communities Department hope the measures will lead to 100,000 off-site manufactured home being built over this parliament.

Housing minister, Gavin Barwell commented: “Offsite construction could provide a huge opportunity to increase housing supply and we want to see more innovation like this emulated across the housebuilding sector.”

The Government have initially identified two key areas where support must be given, the first of which is to provide direct funding to construction firms in order to help them deliver new prefabs. Secondly, they want to encourage lenders to make more money available by showing them that the technology is low risk and lucrative.

Whilst compiling their research, Housing Minister Gavin Barwell and communities secretary Sajid Javid visited West Midlands based housing association ‘Accord Group’, who have stated that they can create a three-bedroom house at their factory in just 24 hours. They also visited London firm ‘Pocket’, who specialise in building affordable flats for first-time buyers.

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Shrinking construction workforce may be a problem for Heathrow’s third runway

A new runway at Heathrow will put even more pressure on a declining construction workforce, a leading construction advisor has warned.

Mark Farmer, chief executive of Cast, a consultancy and the author of a government review into construction, has said that without radical steps to address its skills shortage, Britain’s construction sector will struggle to redevelop Heathrow alongside the existing pressures of increased housing delivery and other demands likely to be placed on it such as HS2 and Hinkley Point.

Best-case scenarios have put the third runway a decade away – by which time Britain could have lost 20 – 25% of the workforce through retirement and lack of new entrants. All of these factors are likely to be made worse by Brexit. Mark Farmer, who authored the government-backed review, believes serious reforms are needed in order to deliver large infrastructure projects.

The report, titled ‘Modernise or Die: time to decide the industry’s future’, highlights construction’s dysfunctional training model, its lack of innovation and collaboration as well as its non-existent research and development (R&D) culture. Low productivity continues to hamper the sector, while recent high levels of cost inflation, driven by a shortage of workers, has stalled numerous housing and infrastructure schemes as they have become too expensive to build.

With more people leaving the industry each year than joining, the construction workforce is shrinking, placing increasingly severe constraints on its capacity to build housing and infrastructure. Reliance on a fractured supply chain and self-employment also means there is little incentive for contractors to invest in long term training for the labour force.

Crucially, the sector hasn’t raised its productivity in decades so urgently needs to explore ways to make the work less labour intensive, such as through offsite construction. This, in turn, could make a career in the sector more attractive for young people by moving the work from building sites to digitally enabled working in factories.

Mark Farmer, report author and chief executive of Cast, said “Major infrastructure projects like the third runway are crucial for economic growth and this is great news for long term construction demand in what is a very cyclical industry. However, major government infrastructure commitments like this alongside their significant housebuilding ambitions mean more than ever that we need to take affirmative action in addressing the critical issues facing construction’s productivity, resource base and delivery models.”

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Will Theresa May encourage gender diversity in construction?

41% of young women aged 13–22 believe their gender will hold them back in the workplace; however, they claim that the rise of female leaders, such as Theresa May and Hilary Clinton, could help to change sexist attitudes and encourage workplace diversity, according to a new YouGov survey commissioned by the Royal Institution of Chartered Surveyors.

While almost half of young women believed that their gender would count against them in the workplace, young men seem to think differently, with 20% saying that they expect to earn more in their careers than their female counterparts.

But there may be hope on the horizon in the form of Theresa May and Nicola Sturgeon. 43% of young women believe that having a female Prime Minister or President will encourage gender diversity at work. Of those surveyed, 73% believe that the attitudes and behaviour of CEOs and senior leaders are important in encouraging equal numbers of men and women.

The property and construction industries were perceived by respondents to be among the least diverse with 29% of girls saying that the sector was purely for men. Among the industries perceived as most diverse are retail and health, with law and construction cited as the least.

Amanda Clack FRICS, RICS President said “Speaking as a woman in construction, I can say with confidence that this is not just a job for boys; however, the need for diversity at the very top is clear. When I first entered the profession there were no strong female role models. Yet, according to our survey, a quarter of young women believe they will do better under the leadership of a female CEO and they want to see visible female role models.

“Strong female roles models will help to attract greater diversity into the industry because the more we celebrate individual success, the more surmountable barriers become. With a female Prime Minister in the UK and a woman in the running for the US Presidency, we are seeing great female role models at the very highest levels.”

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London Mayor criticises decision to delay new runway construction

‎Mayor of London, Sadiq Khan has criticised ministers for delaying the final decision of where to build a new runway in the South-East for up to a year.

The Mayor accused the Government of ‘causing unnecessary uncertainty for British businesses already struggling with Brexit.’

His comments came after Downing Street postponed a final decision on expanding Heathrow or Gatwick until late 2017.

The decision means Article 50 – the formal move triggering Britain’s exit from the European Union – is set to be taken before any final decision on airport capacity in the South East.

Khan said “The Government’s decision to yet again delay deciding where to build a new runway will cause unnecessary uncertainty for British businesses already struggling with Brexit.

“Now more than ever, businesses need certainty and stability in order to make investment decisions and to keep jobs in Britain. Instead they are getting dither and delay.

“Now it’s time to get on with building a new runway at Gatwick, which can be built quicker, cheaper, and without the years of legal and political battles that Heathrow clearly faces.”

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Construction workloads still rising despite uncertainty

Building activity is still rising despite uncertainty in the economy, according to the latest RICS (Royal Institution of Chartered Surveyors) and Tughans Northern Ireland Construction Market Survey.

Workloads were still rising in the third quarter of the year, according to Northern Ireland surveyors, with only a very modest slowdown in activity relative to Q2.

Housebuilding remained a key source of workload growth, with private housebuilding activity rising particularly strongly (a net balance of +48). Private Commercial activity was also rising relatively robustly (+23), according to the survey.

In contrast however, infrastructure workload growth remained weak (+5), and significantly below the UK average (+17).

Looking ahead, Northern Ireland surveyors are upbeat about the prospects for growth, with a net balance of +50% expecting workloads to be higher in a 12-month horizon.

The picture painted by the Q3 survey is one of growth, and expectations have improved following the immediate shock of the vote to leave the EU. However, Northern Ireland’s construction sector remains heavily dependent on work in GB, and the survey tells us, crucially, that infrastructure activity remains very subdued. There is also anecdotal evidence from respondents suggesting that uncertainty still remains on the outlook for the year ahead.

RICS Construction Spokesman for Northern Ireland, Jim Sammon said “Infrastructure investment from both the private and public sectors, is essential to delivering long term growth, particularly as we seek to continue to attract Foreign Direct Investment.

The latest survey chimes with much of the other data of late, which has pointed to a stronger economy than perhaps had been anticipated. Activity inside Northern Ireland itself may remain subdued, other than an uptick in residential development, but the local sector continues to find work outside of Northern Ireland, demonstrating the quality of the work our local professionals deliver. Clearly some uncertainty lies ahead, but on the positive side, the weakening of sterling could help increase the competitiveness of Northern Ireland companies working south of the border.” concluded Michael McCord, Construction Partner, Tughans Solicitors.

Read the full survey results here.
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“Modernise or die”, warns Government-commissioned review

Britain’s construction industry faces “inexorable decline” unless radical steps are taken to address its longstanding problems, according to an independent review commissioned by two Government departments.

The Farmer Review of the UK Construction Labour Model highlights construction’s dysfunctional training model, its lack of innovation and collaboration as well as it’s non-existent research and development (R&D) culture. Low productivity continues to hamper the sector, while recent high levels of cost inflation, driven by a shortage of workers, has stalled numerous housing schemes as they have become too expensive to build.

Led by Mark Farmer, chief executive of Cast, a real estate and construction consultancy, the hard-hitting report says we need to better align the needs of construction firms and the businesses who hire them.

“If you buy a new car, you expect it to have been built in a factory to exacting standards, to be delivered on time, to an agreed price and to a predetermined quality” said Farmer. “This needs to happen more in construction, so that the investors, developers or building owners hiring construction firms increasingly dictate the use of modern methods of delivery and invest appropriately in the skills agenda to grow this part of the industry. There are more similarities between manufacturing and construction than many people are led to believe and this perception needs to change, starting in the housing market.”

One recommendation set out for the medium term is a “carrier bag charge” style behavioural deterrent scheme. This would levy a tax on businesses who buy construction work in a way that doesn’t support industry innovation or skills development. Clients could face paying a suggested levy equal to 0.5 percent of a scheme’s construction cost but would have the ability to avoid paying this tax completely by commissioning construction in a more responsible way.

Farmer, a 25-year veteran of the industry, and former partner at EC Harris, said the industry needs to be far more joined-up with its clients in how it approaches R&D and skills. He also wants ministers to directly intervene in certain areas to ensure many of the issues identified are rectified.

Commissioned by the Department for Communities and Local Government and Department for Business, Energy and Industrial Strategy, Farmer has made 10 recommendations which include:

  • Using the residential development sector as a pilot programme to drive forward the large scale use of pre-manufactured construction, for example, through off-site built or modular housing.
  • A wholesale reform of the current Construction Industry Training Board (CITB) and its related levy system, including a new mandate to properly fund and drive forward both appropriate skills development and innovation to suit a modern progressive industry.
  • Government to use its education, fiscal, housing and planning policy measures to initiate change and create the right conditions that will support the construction sector’s modernisation.

With more people leaving the industry each year than joining, the construction workforce is shrinking, placing increasingly severe constraints on its capacity to build housing and infrastructure. Reliance on a fractured supply chain and self-employment also means there is little incentive for contractors to invest in long term training for the labour force.

The situation is exacerbated by the fact that many school leavers and graduates don’t view construction as an attractive career choice. A YouGov poll earlier this year found that two-thirds of Britons wouldn’t consider a career in construction. If Brexit results in reduced migrant labour, the situation could be made even worse.

Crucially, it hasn’t raised its productivity in decades so urgently needs to explore ways to make the work less labour intensive, such as through offsite construction. This, in turn, could make a career in the sector more attractive for young people by moving the work from building sites to digitally enabled working in factories.

Industry Minister Jesse Norman commented “This Government is determined to support more housebuilding, more quickly and in the places people want to live. Given the launch of the £3 billion Home Building Fund, Mark Farmer’s important review in this vital sector is very timely. It makes a strong case for change in the industry, identifies areas where it needs to improve, and sets out areas for action. We will now carefully consider his recommendations.”

Paul Stanworth, Managing Director of Legal & General Capital added “This review sets out a clear way for the construction sector to reinvent itself in order to meet the ever-growing demand for homes and infrastructure. With such a chronic shortage of homes in the UK, we see rapid evolution as a “must have” for the industry, not just a “nice to have”. Having identified such a requirement, Legal & General is helping to address this problem by investing in a modern factory to produce homes using manufacturing processes seen in the production of cars and other consumer goods. This construction method is safe, clean, and fast, providing a high level of consistency and durability. We sincerely hope that Farmer’s review galvanises the entire sector to invest in innovation and secure its future.”

Download the full report here.
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New landmark high-rise in South West London, supplied by Hueck UK

Another successful collaboration between aluminium building systems supplier, Hueck UK, and façade contractor McMullen Facades Ltd, a Lakesmere Group company, has recently seen the completion of one of south west London’s new landmark buildings, The Pinnacle.

Rising 170 feet high, the tower construction delivers 88 new luxury apartments, including a number of penthouses, with impressive views of the City. Developed by St. George PLC, this 15-storey building is the flagship high-rise within its award-winning riverside project, Battersea Reach.

The Pinnacle’s fully glazed curved façade has been manufactured using the high performance Trigon L aluminium system from Hueck. Highly versatile, this unitised façade system lends itself to a wide variety of curtain walling designs.

“We are using Hueck systems extensively across many of our current projects, and have successfully collaborated with Hueck UK on a series of iconic buildings over the past few years,” said Derek Price, operations director at McMullen Facades Ltd.

“The Pinnacle has a complex design, with no flat elevations, and we were looking for a range of high performance systems, not just curtain walling, but also window and door systems, to meet a series of demanding requirements. Hueck’s portfolio is very broad, allowing for great flexibility, and enabling us to deliver a complex design while ensuring the correct building tolerances were achieved.

“We worked closely with the architect, façade consultants, and our supplier – Hueck UK, through the design stage, ensuring a smooth delivery of the project, on time and on budget,” added Derek.

Approximately 1,300 unitised panels shape The Pinnacle’s striking curved envelope. Aside from Trigon L, the building also boasts nearly 180 Lambda 65 windows and doors. Featuring low thresholds, the doors comply with the Life Time Homes standards, and achieve an impressive 600Pa air permeability/water tightness.

Hueck’s popular Volato M lift/slide doors have also been specified for apartments and penthouses opening into private balconies or terraces.

Leon Friend, Project Development Director at Hueck, commented: “The Hueck Trigon L unitised façade system, combined with McMullen Facades’ engineering expertise, delivers The Pinnacle’s wavy appearance, a tribute to the river Thames, which it overlooks. Aside from looking the part, our systems have had a substantial contribution to meeting stringent energy performance requirements and practicality needs.”

For more information visit www.hueck.com or call 0044 121 7671344.
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