SMEs squeezed by rising material prices and lower margins

More than half of SMEs believe the UK’s economic recovery hasn’t reached them yet as they continue to be squeezed by rising material prices and lower margins, according to a survey of 700 suppliers by Constructiononline.

Three quarters (75%) said they had had to lower their rates to win work, while the vast majority (94%) claimed cost was the most important factor to clients when tendering.

Over three quarters (88%) of firms had noticed an increase in material costs over the past 12 months, with 44% of respondents saying this was the main threat to the industry’s recovery.

Competition from larger firms competing at the smaller end of the market, was cited as another major challenge during the tender process by 60% of respondents.

However, Constructionline’s survey also found just over half of firms (54%) are optimistic of seeing an improved pipeline of activity over the next three months.

Neil Thompson, director, Constructionline, said: “On the face of it, inflated order books and an influx in recruitment activity would suggest that the construction industry is once again on the road to recovery.

“But beyond these stats, there is a very different picture. Higher outgoings and lower returns means that conditions still remain incredibly challenging for construction’s SMEs.

“While workloads are indeed improving, the sector’s recovery is starting from a very low base after years of decline. Fierce price competition, a legacy of the recession, lingers over the sector’s smaller firms while larger firms are finding they still need to hunt at the tail end of the market.

“While the recovery continues to build, it’s important that clients remember the risks posed by ‘lowest price wins’, to place more emphasis on skills, competencies and developing the workforce.”