The Perfect Storm (and no not the movie!)

I do like to be positive wherever I can so stay with me on this way as it starts pretty low.

Following a number of years of construction businesses surviving by any means the perfect storm has been created in the construction sector. During the recession a number of contracts were taken on at low margins – mainly to keep people busy and pay the bills. The problem now is costs are rising and until the better margin contracts come through the businesses are being squeezed. The evidence of this is in the market place with a number of contractors issuing profit warnings.

Another sad factor is that with a steep upturn in growth there is becoming an ever increasing shortage of resource across the board. These pressures on the supply chain are then resulting in increased prices – yet another whammy to the industry.

But why is there a shortage? Well if you take labour, this simply reflects that there was little investment during the recession in the skill. The old hands ticked over while new graduates sought employment anywhere they could. The increase in work now means that there is a lack of the skill base needed; however there is hope – people are doing the training, the degrees, the apprenticeships so be patient and look for the right people. A combination of good advertising and marketing and willing to invest in your employees will benefit you in the long run.

So where to next;

• Legacy contracts are what they are and they just need managing out. Businesses should seek variations though I completely accept this will be difficult.
• Increasing costs of a business are a short term threat until the improved margin contracts come through. The more I speak to bankers the more I realise they don’t like surprises. Be upfront with them, can’t guarantee it will count but if you don’t ask you don’t get and it may help you survive those tough months.
• Invest in people. This is a global message not just industry specific. We are a nation of dying trades yet construction is one we will always need.

The media message is of course taken to the extreme but the more businesses I chat to, the more you see the problems. Shortages and rising costs are here, we have to accept that but as the market settles and income hopefully takes a positive turn things should start to smooth out in late 2015.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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