The bigger picture

Construction slump amid growing signs of a slowdown.” So said the headline of one national newspaper after official figures reported that construction output fell 3.9% between July and August - and was 0.3% down on the same month the previous year.

Private housing seems to have been the main culprit with new work dropping by 5.5% and repair and maintenance also experiencing a drop - although all areas seem to have dipped. The reason everyone seems to have got so excited is that this is first time a year-on-year drop has been recorded since May 2013. 

Well, we are now approaching November and the August figures are ancient history. Let’s face it, there is no news value in the fact that construction output can go up as well as down, so it will be ignored by most of us working at the sharp end. We are a volatile industry. While we’ve been on a meteoric trajectory over the past 18 months, those of us that have some experience of recessionary cycles understand that there needs to be at least another month or two of figures of decline before we start to worry that a downward trend is emerging.

What is more pertinent is the view from the ground, and this tells me that construction output is most likely to be negatively affected by the lack of contractors available to build or the number of subcontractors that are still disappearing due to cash-flow issues because of late payment problems.

It is not new to highlight the lack of skilled craftspeople in the industry or the fact that wages are rising on an almost monthly basis as a result. However, a survey by streetwisesubbie.com, a lobby group that works on behalf of subcontractors, did surprise me. The survey, apparently based on responses from 216 specialist contractors representing a broad spectrum of the industry, claimed that in spite of government legislation, over 90% of specialist contractors are still being paid in excess of 30 days on publicly funded projects. Further, 4.7% had to wait longer than 90 days on taxpayer-funded projects. 

This is no longer the 1970s, when hoarding cash and starving suppliers was regarded as common business practice and the term “supply chain” was used to describe the piece of cord attached to the cistern on your site toilet.

Of those surveyed, 84% said that government initiatives like the Prompt Payment Code, the Construction Act and the Construction Supply Chain Charter had made no difference. The highest number of company liquidations, according to the ONS, is still in the construction sector. In the 12 months ending Q3 2013 the number going out of business was 2,819, adding to the 5,000 firms who have already disappeared between 2010 and 2012, according to PricewaterhouseCoopers.

We all know that in the overheated London market the shortage of tier one contractors is affecting pricing and with just under 20 tier one contractors now available to fill a pool of around £60bn-worth of properties due to be developed over the next decade, it is surely not good business practice to starve your suppliers of cash.

The contractors cannot operate without the subbies working beneath them. This is no longer the 1970s, when hoarding cash and starving suppliers was regarded as common business practice and the term “supply chain” was used to describe the piece of cord attached to the cistern on your site toilet. We are now supposed to live in a more enlightened working environment where you partner with suppliers and build a team working towards a common goal. If you do not pay them, they cannot work; if they cannot work, they walk and if they walk, their suppliers put them on stop. Everyone suffers.

If we want to attract young men and women into construction, then the foolish national headlines based on limited ONS data that imply we are still the roller-coaster industry are not helping. But then neither are the local headlines chronicling yet another subcontractor that had to disappear through cash flow starvation.

I am not sure much can be done about the reporting of ONS figures, but maybe some in the industry should take a long, hard, look at how they deal with subcontractors in 2015.

Richard Steer is chairman of Gleeds Worldwide