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Are squeezed budgets draining the life out of UK construction?

Sixty-two per cent of the best of UK construction contractors that are making less than 3% or incurring losses

According to a report, 62% of the top UK contractors are making less than 3% profit or incurring losses – this is unsustainable according to the National Federation of Builders (NFB).
In August 2017, the largest 50 contractors in the UK reported a combined revenue of £57.2 billion, according to The Construction Index 100, with 11 (22%) incurring losses and 20 (40%) making pre-tax profits of 3% or less.

Richard Beresford, chief executive of the NFB, said: “It’s no surprise that large organisations accept contracts with low profit margins. When it comes down to a bidding war, with clients determined to drive down costs, only the biggest competitors remain at the table because regional contractors and SMEs will have already walked away.

“You would only consider working for miniscule margins if they were countered by the prospect of repeat business at a far greater value. Given the ongoing construction skills crisis, you have to be a very large corporation to take this approach and imagine that it will be worth your while.”

Neil Walters, incoming national chair of the NFB, added: “When budgets are squeezed to this extent at the top of the chain, you can imagine the impact along the supply chain where further negotiations to protect that 3% are commonplace. As an industry, we cannot sustain growth and innovation and take on the massive training agenda required when we continue to perform in this fashion. The industry and its clients need to accept that contractors need to be able to make a reasonable and sustained profit of at least 5%.”