Suicide bidding cuts contractors income by 20%

Grant Prior 13 years ago

A quarter of construction companies with a turnover of between £5m and £25m have seen a drop in income of more than 20% as suicide bidding spreads.

Research from Baker Tilly and Company Watch focused on latest filed accounts in the construction SME sector to unearth the falls.

The slashed turnovers are compounded by the fact that one in six firms have a current ratio of below one -suggesting potential difficulty in repayment of any short to medium-term debt liabilities.

But the research did show liquidity is stronger in the construction sector than for SMEs across all industries.

Mark Wilson, partner at Baker Tilly Restructuring and Recovery LLP said: “Although some in the sector may currently have the cash reserves to survive, we expect to see that for a number of players, cash will run out as sales, and more importantly, profits – continue to slide.

“The short term slashing of prices in order to win work does little to help the bottom line and is not sustainable in the long term.

“Rising costs globally in the sector, largely raw materials caused by rising energy prices, are also hitting the profits in construction much harder than in other sectors.

“In addition, there is concern that we are yet to see what the full impact of the public sector cuts will be – but the early ripples have already been too much for some.”

The figures also show that almost one in three construction companies have seen a 50% plus fall in their Profit Before Tax (PBT).

Denis Baker, CEO of Company Watch said: “The fall in revenues and profitability in the construction sector highlights not just the liquidity issues for the struggling companies themselves, but also the deteriorating risk profile for their stakeholders, such as suppliers and clients who need to be proactive in controlling and managing down their exposure to potential failures in the sector.”

Wilson added: “Seeking early financial advice is critical to survival in many cases.

“Anecdotally, this is not something many construction managers will have been used to doing, as they have always traded in relatively good times.”

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