More pain for small businesses as material prices soar

More than half of small building firms say that rising material prices are squeezing their margins, according to research from the Federation of Master Builders

A survey of small and medium-sized firms from Federation of Master Builders (FMB) said 49% have had to pass these price increases onto consumers.

This has gone up from less than one quarter (22%) reporting the need to pass on costs in July 2017.

Brian Berry, chief executive of the FMB, said: “Material prices have rocketed over the past year. The reason for this could include the impact of the depreciation of sterling following the EU referendum still feeding through. High demand due to buoyant international markets could also be contributing to price increases.

“What’s particularly worrying is that when prices have increased mid-project, almost one fifth of builders have absorbed the increase and therefore made a loss.”

Respondents said the price of insulation had increased by 16% in the past year, while bricks (9%) and timber (8%) have also spiked in the past 12 months.

In all, 30% of firms have recommended that clients use alternative materials or products to those originally specified, a rise from one in 10 reporting this last July.

Meanwhile, 17% of builders reported making a loss on the back of material price increases, up from 10%.

Berry said: “Also, if material price increases weren’t enough of a headache for building firms, they are also experiencing material shortages with wait times ticking up across a range of materials and products. Worst case scenarios include firms waiting for more than one year for a new order of bricks.”

Bricks were reported to be in the shortest supply, with the longest reported wait time being more than a year. Roof tiles and insulation were also in short supply.

Berry said: “We are calling on builders merchants to give their customers as much advance warning of forthcoming material price increases or wait times as possible so that firms can warn their customers and plan ahead. We are also advising builders to price jobs and draft contracts with these material price rises in mind.

“The FMB’s latest State of Trade Survey shows that almost ninety per cent of building firms are expecting further rises over the next sixth months. This makes quoting for jobs difficult but if builders flag the issue to their client from the outset, and include a note in the contract that prices may be subject to increases, they shouldn’t be left short.

“What we don’t want is for the number of building firms making losses on projects to increase as this could result in firms going to the wall. A large number of collapsing construction companies will have a terrible knock-on effect in the wider economy.”