And more than half are yet to feel the benefits of any economic upturn in the industry.
A major survey by Constructionline revealed the rising cost of doing business coupled with an escalating pricing war is threatening the future of SME contractors.
The vast majority – 94% – said that cost is the most important factor to clients when tendering.
Competition from larger firms eyeing smaller deals was cited as another major challenge during the tender process by 60%.
A massive 88% stated they had noticed an increase in material costs over the past 12 months.
Neil Thompson, director, Constructionline, said: “On the face of it, inflated order books and an influx in recruitment activity would suggest that the construction industry is once again on the road to recovery.
“But beyond these stats, there is a very different picture. Higher outgoings and lower returns means that conditions still remain incredibly challenging for construction’s SMEs.
“While workloads are indeed improving, the sector’s recovery is starting from a very low base after years of decline.
“Fierce price competition, a legacy of the recession, lingers over the sector’s smaller firms while larger firms are finding they still need to hunt at the tail end of the market.
“While the recovery continues to build, it’s important that clients remember the risks posed by ‘lowest price wins’, to place more emphasis on skills, competencies and developing the workforce.”