Subcontractors enter 'unchartered territory' as construction sites start to reopen



Subcontractors are entering “the most challenging time” of the Covid-19 outbreak, declared Jim Davis, managing director for construction at Bibby Financial Services (BFS).

The comment follows The Bibby Financial Services Covid-19 Pulse Survey —a report which ran from 2nd-14th April 2020 polling 500 SMEs across the manufacturing, construction, wholesale, transport, and services sectors with an average annual turnover of just under £1.7m — that found that businesses in the construction sector were struggling most with the conditions imposed by the coronavirus pandemic.

Some 87% of the industry’s SMEs have had to adjust the way they operate, with over half (55%) temporarily shutting their operations. 

In addition, 79% had seen a decline in their order books.

It revealed that nearly a quarter (22%) of SMEs in the construction sector are facing a delay in receiving payment and are running out of working capital.

It highlighted that 36% of construction SMEs were having to write off an average of £43,000 since the end of January. 

Jim explained that, with cash reserves used up, the reopening of construction projects could pose a significant threat to the financial viability of many subcontractors.

“The next four to six weeks will be the most challenging time for subcontractors,” he claimed.

“Many businesses in the sector have already used up their working capital so, as contractors start to call their subcontractors back to work, the funds to pay for salaries and materials are simply not there.

“The temptation will be to go after as much work as possible as opportunities begin to open up, but subcontractors must plan prudently. 

“If the return to work isn’t managed carefully and gradually, we could see a wave of business failures.”

BFS expects payment delays to get substantially worse for some SMEs as subcontractors work out how to manage contracts written before Covid-19 changed the way sites are run.

“As subcontractors get back to work, they are entering unchartered territory,” added Jim.

“New health and safety policies will need to be agreed and lines of responsibility for PPE drawn. 

“Social distancing rules will significantly reduce productivity, making many contract timelines and deliverables unachievable.
 
“All of these issues will add to arguments and delays when it comes to paying invoices — delays that no subcontractor can afford right now.”

He stressed the importance of communication with main contractors and lenders during this new stage, and urged subcontractors to discuss with them how to adapt timelines to keep people safe, and agree who is paying for PPE equipment before it is bought.

“The construction SMEs who survive the next few weeks will be those which maintain the best communication with contractors,” Jim professed.

“There is cause for optimism as we return to site but, we, as a sector, together have to get this right.”


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