In Focus Collections
Building on stress
Subcontractors are facing mounting pressures as sites begin to reopen amidst financial constraints and new legal requirements
Jim Davis Managing director for construction finance, Bibby Financial Services
Subcontractors are have entered the most challenging period of the COVID-19 outbreak. With cash reserves all but used up, the resumption of major construction projects will pose a significant threat to the financial viability of many sub-contractors. The next four to six weeks will be the
most challenging time for sub-contractors. 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.
Temptation The temptation will be to go after as much work as possible as opportunities begin to open up but sub-contractors must plan prudently. If the return to work is not managed carefully and gradually, we could see a wave of business failures. In a recent survey, we found that
businesses in the construction sector were struggling most with the conditions imposed by the coronavirus pandemic. In total, 87% of the industry’s SMEs
have had to adjust the way they operate, with over half (55%) temporarily shutting their operations. Additionally, 79% had seen a decline in their order books.
Payment delays Nearly a quarter (22%) of SMEs in the construction sector are facing a delay in receiving payment and are running out of working capital – this is exacerbated by a rise in bad debt, with 36% of construction SMEs having to write off an average of £43,000 since the end of January. This is
June 2020
compared to the national average of just 25% of SMEs writing off £35,000. However, we expect 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.
New rules As subcontractors get back to work, they are entering unchartered territory. 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.
Nearly a quarter (22%) of SMEs in the construction sector are facing a delay in receiving payment and are running out of working capital – this is exacerbated by a rise in bad debt, with 36% of construction SMEs having to write off an average of £43,000 since the end of January
www.CCRMagazine.com
Communications I cannot stress enough how important communication with main contractors and lenders is going to be as we enter this new stage.
Talk to your contractors, let them know
if there are going to be delays in receiving supplies or in completing projects, agree who is paying for PPE equipment before it is bought, discuss how to adapt timelines to keep your people safe. The construction SMEs who survive
the next few weeks will be those which maintain the best communication with contractors. There is cause for optimism as we return to site, but we, as a sector, together, have to get this right. CCR
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