British house-building figures are at their lowest level in 14 years, excluding 2020.
With fewer builds on the books, businesses in the construction sector need to consider cost-effective ways to cut the costs of rising materials and labour to protect their assets and underpin growth.
Although more projects are being completed and supply chain backlogs are easing, demand across the construction sector is down. Meanwhile, construction companies are experiencing an influx in the number of infrastructure projects undertaken.
The sharp change in the number of construction projects completed on time is the most pronounced improvement since 2009 but it’s a direct result of there being fewer new housing developments being built. This is primarily down to the ever-increasing cost of borrowing and materials rising, so the overall picture could be a cause for concern.
To help mitigate the rising costs that are slowing down the sector, firms should look to buy in bulk when it is economical to do so.
Although not always easy shopping around for the best value supplier can also go a long way towards cutting costs, as companies across the supply chain are likely to be experiencing an increased level of competition - especially with demand down significantly.
Any savings achieved by increasing the quantities purchased will need to be weighed against the cost of financing these larger purchases and the strain this might put on the businesses working capital position.
Many companies tend to use the same supplier for a number of years, but while loyalty and consistency are certainly admirable traits, it doesn’t necessarily mean they are the most cost-effective option for your business.
However, if you would prefer to stick with your current supply chain to minimise disruption and lengthy tender processes, you can always try to capitalise on your relationship and negotiate a reduced rate for frequently ordered materials.
Unfortunately, we are seeing some failures in the construction sector which means some suppliers are restricting their credit terms. If your business has a good credit history and is able to make payments quicker than the normal trade terms, this can be used as a bargaining tool when agreeing prices.
Another way to cut costs for companies under strain as costs rack up could be to invest in automation to streamline especially labour-intensive processes. This could include use on site surveys or data collection - which in some cases can be drastically quickened by using aerial drones to map out sites.
Manual and specialist jobs that cannot be automated can still be radically improved by investing in quality technology to reduce overall expenditure.
As already mentioned, recent months have seen some failures of construction businesses. A common theme among these closures has been that the businesses were locked into longer-term contracts, some of which were agreed at a time before the large increases in material and labour costs experienced in the past three years.
We are starting to see more projects being agreed on a ‘cost plus’ basis to reduce the risk of contracts becoming unprofitable in the medium to longer term. Although this is often a difficult sell, it seems unfair that those in the construction industry should take all of the risk at a time of high inflation across the whole economy.
For more information on how construction companies can manage their finances and mitigate losses, watch our recent Construction Update Webinar or get in touch with our specialist team today.
