So this is sharing the pain?

I was encouraged to read in Building on 24 September that the top 10 contractors are doing better than last year. Of course subcontractors are well down the food chain when it comes to major new-build projects and refurbishment contracts, but that doesn’t mean that we’re not experiencing the same cost cuts and payment pressures that the major contractors are reeling from.

There is little or no room for further efficiencies. I worry that, in desperation, many small subcontractors are going to look for cost savings in the very places they shouldn’t

The leader in the same issue made some interesting points, too. It acknowledged that the days of “Latham and Egan-style debates assessing the merits of partnering and integrated project teams” are gone and opined that how much damage you suffer, really depends on “where you are in the chain”.

Most small specialist subcontractors are hanging at the bottom of this chain. We are suffering, but we are still here because we focus on finding solutions. Diversifying into new products and markets has helped, but we are still facing short-term problems. The toughest is that we operate in a client-driven market and because the client is suffering too, it squeezes the main contractor to get the lowest price possible on jobs. In turn, the main contractor squeezes us.

It has now become the norm for us to take a 10% reduction on our projects. This immediately erodes our profit margin and puts our survival in danger. If everyone continues down this road and pays no attention to others in the supply chain, we will all suffer, not just the small subcontractors. This isn’t sustainable.

Measures to reduce overheads and increase efficiency are already in place - there is little or no room for further efficiencies. We are faced with rising material prices, right through from stone to fuel, but everyone still wants a discount. I worry that, in desperation, many small subcontractors are going to begin looking for cost savings in the very places they shouldn’t. If health and safety, onsite management and due diligence on materials fall victim to cost-cutting programmes, it will compromise projects and, again, we shall all suffer.

I insist on not skimping on health and safety, onsite management and due diligence. For example, if we cut our key skilled people we will be cutting our main asset, our knowledge base, built up over 20 years. I don’t want to cut our skill base because when the market comes back, as it will, we will no longer have the capability to deliver
to the standard that sets us apart from other companies.

Strong relationships must become an integral part of the supply chain once again. Relationships cannot be built in a supply chain where everyone is undercutting each other and choosing whoever will take on work for the lowest price. My own business believes in relationships. I want our clients to rely on us and to trust us to deliver whatever they require. However, we must be able to rely on them for a steady stream of work. It’s called building a relationship. Once we have one, we can begin to talk about discounts. But quality work comes at a fair price. We cannot go on discounting forever.

What’s the alternative?

Kirk Fletcher, managing director of Experian’s business information team, was quoted in The Sunday Times recently as saying: “What we don’t want is to use late payment as a stick to beat the large businesses and drive them to consolidate 100 small suppliers into three large contracts with bigger suppliers, where they don’t have the same challenges of dealing with small suppliers. It is vital that they continue to be willing and able to trade with SMEs.”

Clients and main contractors must be able to assess what they’ll get from specialist subcontractors before they begin working with them, and then they can be sure of getting knowledge and performance in an established relationship with the subcontractor geared to deliver a quality piece of work from the outset.

Greg Verhoef is director of Szerelmey