Construction Firms Upbeat about Future Prospects but Fears Grow over Rising Labour Costs

Almost 70 percent of UK construction firms are more optimistic about their future prospects than they were 12 months ago, says a survey of over 600 companies.

The report by national law firm Irwin Mitchell did however highlight growing concerns amongst senior decision makers about the cost of labour - with 61 percent of construction firms expecting wages to rise during the rest of 2014.

According to Irwin Mitchell, this is being partly caused by a shortage of skills in the sector. The law firm also highlights the growing issue faced by main contractors who are seeing tender return prices increasing due to subcontractor price inflation following a long period of flat prices.  

The survey also revealed some significant differences in optimism in different parts of the UK with the lowest level of confidence recorded in Wales at 62 percent. The figure for Northern Ireland stood at 75 percent whilst in Scotland the figure stood at 64 percent.

Within England, levels of business confidence were highest in the East Midlands (84.6 percent) and lowest in the North West (64.7 percent).

David Parton, Construction Partner at Irwin Mitchell, said: “On the whole, these results reflect an improving construction sector. Not only are we seeing the impact of strong demand for house building, in the London market, for example, the sector is being buoyed by mid to high end residential developments, offices, commercial space and logistics. 

“The key now is to ensure that this positivity is sustained into the longer term. The opportunities exist but there are threats and it is vital that companies deal with them effectively. The availability of materials is a concern, but with the majority of firms expecting wages to increase during the rest of the year, it’s clear that the lack of skilled workers could also hamper future growth.”

Steven Bate, Partner at Irwin Mitchell and specialist in construction litigation, added: “It is vital that UK businesses take full advantage of this market optimism whilst ensuring that they are fully protected. There is a tendency for businesses to get on with the work immediately after a contract has been awarded, but it is important to ensure that they are protected via their contract.

“As work opportunities increase for construction companies, we expect that businesses will see extra pressure on their cash flow due to a lag in getting paid under most standard forms and bespoke construction contracts, whilst still needing to pay one’s supply chain. This can however be protected via robust contract drafting and negotiation and debt recovery services.”