Will Construction Overcome Challenges & Take Their Opportunities?
have a big say in the fortunes of the UK economy. The construction industry accounts for around 6% of the nation’s GDP. According to the ONS, in 2017 the construction sector employed around 1.3 million people. It’s a dynamic sector, in which new orders grew by 7.4% in 2017. However, in much the same way as other companies operating in the construction sector around the globe, construction companies in the UK face many challenges. Here are the top nine.
1. Skilled Labour Shortage
Despite new technologies, the construction industry is weighted heavily to manual labour. However, there are several factors that are putting pressure on construction companies seeking to attract skilled labour. Most commonly these are:
- The ageing workforce is depleting current skills in the sector as workers retire
- The construction industry isn’t seen as attractive by the younger generation
- Brexit is hampering the ability of construction companies to hire employees from the EU
In 2018, according to Open Access Government, City & Guilds revealed that 87% of employers in the UK construction sector were finding it difficult to recruit skilled workers for jobs in construction
2. Under Capitalisation
It costs a lot of money to fund the most profitable projects, and many of the UK’s small- to medium-sized construction companies (which make up most of the companies in the construction sector) are not sufficiently capitalised to fund these projects. Undercapitalisation is a major reason for smaller construction companies entering administration.
3. Poor Cash Flow
Slow payment of invoices and the resulting issues with cash flow are exacerbated by inadequate invoicing systems. Employing staff with suitable expertise and experience in accounting roles (link) can help to alleviate cash flow issues by providing better monitoring and analysis of the financial position of the company. However, it may also require new policy from central government, either forcing more prompt payment or enabling greater access to financing.
4. Cost Of Land + Construction Materials
The cost of land and raw materials can alter dramatically and rapidly. Costs can vary greatly during the period between project commencement and completion, and smaller contractors can be adversely affected by rising costs of materials, as are developers undertaking speculative projects.
5. Poor Planning at Local Authorities
Project success rests on the ability of local authority planning teams to process applications across infrastructure, residential, commercial, and retail consents. Expertise is required to allocate planning applications, undertake pre-application meetings, and implement improvement initiatives and strategies, among other disciplines. However, planning capabilities at local authorities have been depleted in recent years, and the effects of this are now being felt.
6. Poor Record Attracting Young People
Attracting young people into the construction industry is a major issue affecting the sector. In addition, existing employees are having to be reskilled as new technologies and innovation are introduced.
The industry will need to develop ways to attract younger people into construction and construction manager roles. Again, Government has a part to play in this process. Unless students are encouraged to consider construction as being the equal of other ‘sexier’ professions, numbers entering construction are likely to remain low. However, the industry is responding to this challenge, with 21,000 new apprentices registered in the 2016/17 academic year. Whether greater numbers can be encouraged into the sector without more decisive action by Government remains to be seen.
7. Health And Safety Records
One of the reasons that may deter younger people from entering the construction industry may be the poor health and safety record from which it suffers. There are more workplace accidents in the UK construction industry than any other sector. Putting in place effective strategies to improve health and safety could improve reputation among potential employees, reduce staff turnover, reduce absences and compensation claims, and reduce costs.
8. Inadequate Growth Strategies
Especially in the current market environment in which so much uncertainty surrounds Brexit, getting your growth strategy right is difficult. Failing to achieve the right pace of growth, either by undershooting or overshooting, can threaten a business.
Businesses that grow too slowly miss opportunities and can fall behind competition, leading to difficulties in winning new contracts and attracting the best people. On the other hand, businesses that grow too fast can outgrow their capital, suffer self-inflicted cash flow issues and need to let staff go: the resulting see-saw recruitment policy does little for staff morale and reduces profitability.
Business planning expertise and an analytical approach to finances are strategies that could help construction companies avoid damage caused by inadequate growth strategies.
9. Late Adopters of Technology
Technology take-up in the construction industry is lagging that in other sectors of the economy. Spending on IT within construction is low around the world. For example, a 2016 study by McKinsey Global Institute found that construction companies in the United States spend just 1% of their budget on technology.
Cloud-based software, IoT, mobile and other technologies have real potential to transform traditional construction practices in a similar way to how modular housing construction promises to revolutionise house building.