As we head toward the end of 2021 and hopefully through the tail end of the COVID-19 pandemic, the focus has shifted, rightly, onto some significant macro-industry challenges. These include: regaining public confidence in the safety of our buildings; reviewing our national planning strategy; and improving the energy-efficiency of new homes through emerging technology and guidance, including the new Future Homes Standards. However, there remain significant issues facing SME contractors that should not fall off the radar. So, what are the key challenges for SMEs and how are we at Helix rising to these?
Access to labour and materials
First, the good news: there remains a welcome upward trend through 2021 in new enquiries and workload. Yet, reports from both the Federation of Master Builders (FMB) and the Construction Leadership Council (CLC) have set out the challenges SMEs face when it comes to increasing material prices and labour shortages. This impacts not only bricklayers and carpenters but also labourers, plasterers and roofers. The FM report shows 82% of respondents highlighting delays to projects due to lack of materials, and 60% reporting delayed projects due to lack of skilled tradespeople.
Forecast price inflation
Rising prices remain a major concern for SMEs. Most SMEs expect the current trend to continue, with the FMB reporting that 93% expect material prices to increase in Q4 2021 and 60% expect an increase in wages and salaries. As a result, the majority of SMEs expect the prices they charge to increase.
As set out in a recent article in Construction Enquirer, pricing pressures are manifesting in increased reports of poor commercial practice. For instance, contractor QSs are sometimes chasing lowest supply chain bids without carrying out the basic credit checks and storing up “potential supply chain failures”.
It is important that clients are pragmatic in their approach to procurement, providing an appropriate share of inflationary risk within the contract, to avoid contractors falling into a pricing trap that leads only to failures in quality and delays to completions.
Before the COVID-19 pandemic, the construction industry was already facing a skills shortage. The Office for National Statistics revealed that redundancies during the pandemic resulted in the lowest number of people employed within the construction sector since 2013. With rising demand and fewer trained people ready to enter the industry, the situation has clearly significantly worsened.
To help counter this, there have been several government support measures and grants announced aimed at encouraging the employment of new workers, including apprentices. This has had some positive impact. At Helix, for instance, we have taken advantage of the Kickstart scheme to support a trade apprentice scheme. However, much more could be done by business and government alike to promote the industry to young people leaving school and college.
The challenge of adopting sustainable practices has been facing the industry for years and with this month’s COP26 climate conference in Glasgow, it is right at the top of the agenda. For SMEs, there are potential cost savings in implementing sustainable methods such as reducing waste and increasing energy efficiency. However, the real pace of change will be dictated by strong government and industry leadership, with clear direction on emerging technologies. Helix is already working toward our first zero-carbon project and we look forward to making further announcements soon.
So, what does this all mean for Helix? Our 2021 picture continues to be dominated by strong growth, investment in training and recruitment of the very best people. Back in early 2021, when the signs of resource inflation and availability started to emerge, we carried out a detailed review of all current projects and identified those contracts exposed to procurement risk.
Through early and honest communication with our clients we were able to able to agree sensible risk contingency around possible project delays. By proposing alternative design solutions we avoided, where possible, materials sensitive to current market stress and through a panbusiness procurement strategy we capitalised on increased volume buying, assisted by off and on-site storage.
In addition to this agility, our success and growth is also underpinned by an unswerving focus on cashflow and availability of working capital. As part of this, we keep an open dialogue with clients to ensure payments are made on time and that a pragmatic approach is taken to contracts. In the public sector in particular, , it is important to do this not just through flexible payment terms, but also through a more tailored approach to the requirement for performance bonds. These bonds have become more expensive and now often require personal guarantees – this is a significant challenge for SMEs.
In addition, tender documents, both for projects and frameworks, frequently contain minimum financial requirements that are disproportionate to the job in hand. This ultimately means well-performing SMEs with strong corporate governance are in effect blocked from participating in delivery of housing projects, and also from fulfilling the broader ambition for SMEs to play a significant part in housing delivery.
Despite these areas for improvement, there is so much to be positive about the future of this fantastic industry. I have seen first-hand the lifeline that construction has provided to the economy over the last 18 months. It continues to be a crucial time, with upcoming decisions about sustainable technology, skills, diversity and supporting small business, set to influence our wider economy for decades to come.
At Helix we are currently working on our plans for the next five years and, with the majority of our budgeted £20m turnover for 2022 almost secure, we have a fantastic platform to build from. We will have some exciting news to report soon, not just on the performance of our incredible team and new projects won by our contracting business, but with the scaling up of our development business, Helix Partnership Homes.
Homes England recently announced the forthcoming Greener Homes Alliance, which will see £175m provided as loan finance to SME house builders in the hope that this will allow SMEs to build more high-quality, energy-efficient homes across England. This is a perfect fit for Helix and another reason to continue confronting and solving current industry challenges and remain optimistic about the future.
Please get in touch if you would like to discuss our approach to creating brilliant buildings and how we may be able to help you deliver your goals.
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