Scale of problems facing industry underlined by two new reports

The scale of the hit covid-19 is inflicting on the industry has been underlined today with a new report showing construction is losing more than £300m worth of business a day while a second warned the cash reserves of subcontractors are all but used up.

A report by law firm Irwin Mitchell and the Centre for Economics & Business Research shows construction is in the top three of most badly hit sectors with only accommodation and food and manufacturing performing worse.

It said construction was losing £301.5m a day and its gross value added has fallen from £462.1m per day before the 23 March lockdown to £160.6 m a day – a decline of 65%.

Table 1

The findings underline the problems facing contractors in the coming months with finance firm Bibby warning that the coming six weeks will be the most crucial for the survival chances of cash-strapped firms.

Its boss of construction finance Jim Davis said: “[This period] will be the most challenging time for subcontractors. Many businesses in the sector have already used up their working capital so, as contractors start to call their subcontractors back to work, the funds to pay for salaries and materials are simply not there.

“The temptation will be to go after as much work as possible as opportunities begin to open up but subcontractors must plan prudently. If the return to work isn’t managed carefully and gradually, we could see a wave of business failures.” 

Table 2

Source: ONS, Labour Force Survey, BRES, Cebr analysis

Research by the firm found 22% of SMEs in construction are facing a delay in receiving payment and are running out of working capital.

It said this had been exacerbated by a rise in bad debt, with 36% of construction SMEs having to write off an average of £43,000 since the end of January. This is compared to the national average of just 25% of SMEs writing off £35,000.

The survey of 500 SME owners also said 55% had temporarily shut their operations while a further 79% had seen order books decline.