Specialists sound alarm over margin squeeze

Aaron Morby 12 years ago
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Specialist subcontractors face a brutal margin squeeze as they come under intense pressure from main contractors to quote rock-bottom prices.

According to the latest trade survey from the National Specialist Contractors Council the damaging spiral of cut-throat pricing among tier one contractors is being driven down the supply chain.

The year started with specialists complaining of main contractors forcing through a raft of measures designed to drive down prices, just as suppliers costs rose steeply.

Interior fit-out firms are feeling the pinch most. But all sectors of the specialist contracting world paint a picture of worsening contract terms and conditions from main contractors.

The Association of Interior Specialists blamed main contractors buying work at negative margins for the sudden deterioration in business and contract terms.

“Tier 2 and below are struggling to manage their business workload and operations when projects are being continually re-tendered,” said a spokesman for the trade body.

The Specialist Access Engineering and Maintenance Association warned: “Uncertainty of material prices and fluctuation in exchange rates had become key issues.

“More and more we are being asked to quote fixed prices for periods greater than 12 months.”

The number of specialist contractors reporting an increase in supplier prices in the first three months of 2011 has rocketed to 89% compared to 62% in the same period last year.

While tender prices have improved slightly, with 17% of respondents reporting an increase compared to 13% in the previous quarter, the sharp rise in the cost of materials means that specialist margins are under ever increasing pressure.

Now just one in 10 firms anticipates an increase in margins in the next quarter.

On the contract flooring side, contractors warned that they were being told to submit tenders with only costs and main contractors discount added.

Members of the Single Ply Roofing Association complain that main contractors will not pay unless firms sign up to un-amended terms.

Poor payment practices have worsened the situation with 83% of respondents having monies withheld against them in retention.

More than one third of all retention monies were overdue for release at an average of over £50,000 per specialist contractor, 17% of which is ultimately written off as bad debt.

NSCC Chief Executive Suzannah Nichol MBE said: “The continued rise in supplier prices is putting the squeeze on specialist contractors.

“Whilst more respondents are saying that they expect an increase in workload, this could be due to the desperately low levels of work available at the moment with businesses anticipating that it can only get better.”

Difficulties in converting enquiries into orders means that less than half of specialist contractors are operating at over 75% capacity, down from 62% in the previous quarter, and just one in five are working at 90% capacity or more.

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