Construction buyers should share risk to get better deals

15 February 2013

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15 February 2013 | Helen Gilbert

Construction industry buyers are likely to secure better deals with smaller contractors in 2013 if they are prepared to take risks, an expert has claimed.

Dr Noble Francis, economics director of the Construction Products Association, was speaking following the publication of The Construction Trade Survey’s latest report. This warned the sector was bracing itself for another difficult year plagued by weak demand and high costs.

The survey found large firms, especially those working in the infrastructure sector, had reported improving conditions in 2012, but cautioned that the bulk of the industry would continue to face a difficult year – especially those further down the supply chain who are experiencing a contraction in workload exacerbated by late payment.

Declining output and orders, rising costs on the supply side and worsening late payment were among the factors that contributed to a difficult fourth quarter in 2012. The total volume of construction output fell by 9.3 per cent compared with the same period the previous year, the findings showed.

“The smaller contractors are experiencing the worst falls within the sector,” Francis told SM. “Furthermore, conditions are likely to deteriorate further over the course of 2013. Given the heightened risk of going out of business they [purchasers] should be focusing on work with the larger contractors but, equally, they could get better deals by working with smaller contractors (if they are willing to take some of the risk).”

He added that late payment was a continual problem within the construction industry. In Q4, late payment continued to be the single most important issue affecting specialist contractors’ business with only five per cent being paid within 30 days, compared with seven per cent in Q3.

“It is vital that, when working with contractors, buyers adhere to fair payment along the terms of the contract because cash flow is vital for contractors at the moment,” Francis said.

Julie Evans, chief executive of the National Federation of Builders, added: “The construction industry is braced for a year in which weak demand and higher costs will create a very challenging trading environment.”

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