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Should we be concerned about the cash-flow of the big six construction companies?

Five years of recession has hit the UK construction industry hard. Despite the fact that this industry has just seen its fourth quarter of continuous growth there are issues which may see it struggling yet. Maxim Recruitment have continued to develop and keep a premium portfolio of senior positions within UK construction and has recently seen an increase as more projects become live. But we ask how will the main companies withstand the pressures being enforced in this economic growth period?

Headaches for UK Quantity Surveyors
There are two main areas of concern:

1.rising costs of materials and labour.
While private sector housing is the main reason for growth in the construction sector, the infrastructure sector is set for good growth over the next five years. This was confirmed by David Cameron and George Osborne last month when they announced that infrastructure projects are booming. Two hundred projects are due to be completed this year and next and a further two hundred projects started in the same time scale. Good news for UK construction jobs.

However, over the period of recession raw materials and manufactured goods have increased in price so that UK construction jobs costed two or more years ago are likely to be under great duress to come in any where near original budgets. UK infrastructure could bear the brunt of these rising costs as year on year increases are predicted to be as high as 9% over the current and next twelve months.  UK quantity surveyors will have their jobs cut out bringing everything in on agreed budgets!

2. New payment policies: The new payment charter imposed by the Construction Leadership Council, an industry-government group supported by all political parties.

The charter has been drawn up to attempt some transparency within payment of ‘subbies’, many of whom have traditionally had to wait up to and beyond 70 days for payment. The charter expects contractors to abide by the 30 day rule by 2018.

One of the problems is that by committing to this, many contractors will see a net loss in available working capital for investment in new projects.

The UK’s big six construction companies
Building.co.uk reports that the country’s big six construction companies could find themselves in dangerous positions where they ‘need more working capital to grow’ but will also need to borrow more.

Meeting the 30 day payment target could have a negative impact on these companies who generate many of the UK’s senior and prestigious roles too:

•The biggest, Balfour Beatty, could see their working capital cut by more than £110 million as it moves to 30 days

•Carillion by cuts of £68 million

•Kier by £36 million

•Interserve cuts of £33 million

•Costain £22 million

•Morgan Sindall just £18 million

As we come out of recession, contracts won some time ago will become much harder to deliver amid rising prices. Of course those who have a history of paying their subbies faster will not be hit so hard.

How does this affect UK Quantity Surveyors and UK Project Managers?
As most infrastructure projects come under government authorities, contractors will be forced to use PBAs (Project Bank Accounts). The deadline for putting these in place is 2015 and thought to be on course. This should make the UK Quantity Surveyors job easier to keep track of costs and timings on contractual payments.

UK construction roles
So the future is apparently bright in the UK infrastructure industry despite what we hear about the big six. Let’s hope they can weather the storm without too much compromise on future projects and subbies’ remunerations.

Meanwhile if you are looking for a more senior role within infrastructure or building construction, please check out our UK job portfolio and talk to one of our consultants so that we can match you perfectly with a position to suit your experience and preferences. Contact us by phone on 0870 243 0446 or email at information@maximrecruitment.com.

Adam Cadwaladr
Maxim Recruitment

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