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25% of contractors report profit drop

One in four contractors reported falling profit margins in the second quarter of this year, according to the latest Construction Trade Survey.

The Construction Products Association’s latest trade survey found that a balance of 7% of contractors reported higher tender prices in Q2 2015, a decrease from 50% in Q1.

Tender prices were higher than the same time a year ago for 71% of firms for new construction work and improvements, and 65% for repair and maintenance work.

Specialists did not feel the same growth, however, with 35% reporting an increase in tender prices and 14% reporting a decrease.

Profit margins for specialists fell overall, with 22% of respondents indicating an increase in margins relative to the previous quarter and 27% recording a decrease.

One in four building contractors, on balance, reported falling profit margins in Q2.

Overall, the construction industry recorded a ninth consecutive quarter of growth – but skills shortages are threatening to hamper recovery, according to the survey.

It revealed that 17% of building contractors reported that ouput rose in Q2 compared with a year ago.

This was led by the private housing sector with a 43% rise, with both housing and non-housing repair and maintenance recording a 9% drop.

Offsetting rising demand in private housing and private commercial the effects of rising costs were evident, with one in four contractors, on balance, reporting falling profit margins in the quarter – the lowest balance since Q1 2013.

Construction Products Association economics director Dr Noble Francis said: “Firms across the whole construction supply chain – including building contractors, small and medium-sized enterprises, specialist contractors, civil engineers and product manufacturers – all reported rises in output during Q2.

“Contractors reported a decline in repair and maintenance work in the quarter, reflecting a drop-off in measures installed under government schemes to boost energy efficiency in recent months.

“The £23bn R&M sector will undoubtedly be affected by this and the government’s decision to close the Green Deal last month.”

He said that there was a “lingering concern” that rising construction activity and expectations of higher workloads would prompt further shortages of skilled labour, with “half of contractors having already reported difficulties recruiting on-site trades such as carpenters, bricklayers and plasterers”.

National Federation of Builders chief executive Richard Beresford added that the severity of the skills shortage is such that “the industry will see unsustainable rising labour costs or an increasing inability to deliver work”. 

“The industry’s efforts to address skills shortages cannot take effect soon enough,” he added.