Time for an overhaul in the construction industry - Rashmi Dube

Staying alive is the only thought most businesses have right now and the SME sector, in particular, is finding it hard. There are also the issues of social distancing, lost revenue from the lockdown in spring, insurance companies not paying out on claims and the supply chain not paying or delaying in paying invoices.

supply chain: ‘The construction industry has required an overhaul on how it approaches its supply chain for a very long time,’ says Rashmi Dube.

It makes it worse if that SME is a construction company. When such a company does not get paid, it’s not as simple as an outstanding invoice. What often has to be considered is a question of adjudication. Should the SME take on the larger company or companies in a litigation process? Should this still be considered given the predicament we are all in?

From a social and economic outlook, we are desperately trying to find the solution; and what if there is one for our economic recovery and another to control of the virus? It all depends on the question you are asking and from which angle.

Sign up to our Business newsletter

Sign up to our Business newsletter

There are several factors to consider in today’s economic climate. From a health stance, it is about controlling the ever-increasing spread of the virus by enacting local measures to help make an impact. Yet if you sit in the Treasury or are a business, you want to see the economy moving forward.

The current information suggests we are approaching a strong possibility of a second wave and there are talks of a second lockdown.

The question is – will a second lockdown help socially but suffocate the economy and the SME sector? The UK’s economy contracted 2.2 per cent relative to the previous quarter, with a 6.9 per cent month-on-month contraction in March and continuing contraction in April, but it was followed by a recovery, which started in May and accelerated in June.

According to the International Monetary Fund “the global economy is now predicted to shrink by 3 per cent this year”. If businesses are forced to slow our recovery a second time, many may not survive, but some still will have the resources and liquidity or access to cash to help them weather a second storm. So can an SME even consider spending valuable liquidity on a dispute? The answer must be yes.

The longer a construction SME manages to survive and takes the easy road of accepting the money being presented to them and not fighting for their rightful amount, the stronger the likelihood of long-term issues and possible administration or insolvency.

There has been a significant rebound in July and the anticipated forecast for construction is a positive one.

According to Construction Manager’s July survey, “construction companies took another stride along the path to recovery in July”, particularly with the help of the housing market.

What is a concern is the new work. The survey at the time showed anxiety expressed about new projects; the pipeline is thin and that in turn will place even more intense pressure on already tight profit margins.

However, The Federation of Master Builders has a starker view for the SME and supply chain within construction. According to its recent survey, the smaller businesses are still struggling financially and have had a number of issues accessing business loans.

The construction industry has required an overhaul on how it approaches its supply chain for a very long time. But maybe the time is now, among the 101 other things that need doing. The point about change is that it is practically easier when you are in the storm because everything is up in the air and to add one thing, changing the components, can make the difference between long term success and failure.

Firms in the supply chain are working tirelessly to get ahead in terms of their project and cash and for most, they are not succeeding at either. So, what is the solution? If I could wave a magic wand, it would have to start with how the supply chain gets paid – or more importantly, not paid. The argument has always been it’s too complex and we need to approach it cautiously, but take a look around. If we want the SME supply chain in construction to survive, we need to act quickly and immediately.

Support The Yorkshire Post and become a subscriber today.

Your subscription will help us to continue to bring quality news to the people of Yorkshire. In return, you'll see fewer ads on site, get free access to our app and receive exclusive members-only offers.

So, please - if you can - pay for our work. Just £5 per month is the starting point. If you think that which we are trying to achieve is worth more, you can pay us what you think we are worth. By doing so, you will be investing in something that is becoming increasingly rare. Independent journalism that cares less about right and left and more about right and wrong. Journalism you can trust.

Thank you

James Mitchinson