Construction profitability stutters in 2015

October 13, 2016 / Isla MacFarlane
Construction profitability stutters in 2015

Levels of client and contractor satisfaction rose in 2015 and project predictability improved, but profitability has taken a hit and productivity continues to drag, according to a CITB-commissioned report.

The 2016 UK Performance Report, carried out by Glenigan who surveyed over a 1,000 industry representatives on projects completed in 2015, paints a broadly positive picture for construction during a period of slowing but steady growth.

Both client and contractor satisfaction improved significantly with 85% of clients rating their ‘overall satisfaction with the finished product’ as eight out of 10 or higher – a four percentage point increase that reverses a declining trend of the last three surveys.

Contractor satisfaction with the performance of the client and consultancy teams also rose to 74% – up from 69% in the previous survey.

Accurate predictability of projects improved overall, but costing forecasts fared better than allocated time predictions. Sixty four per cent of projects came in on budget – a rise from the previous survey high of 59% in 2011. But only 41% of projects came in on time and the predictability of the design phase slipped to 48% from 53% from last year.

Increasing labour and material costs meant that industry profitability took a hit, dropping from 2.8% to 2.5%. And though productivity increased by 2.5% in real terms, it is still well below levels reported in 2011 when employers were making more efficient use of a slimmed down workforce.

Training levels increased from 1.2 to 1.5 training days and the take up of CSCS cards strengthened, with 75% of employees holding a card, up from 55% in 2014. Staff turnover slowed to 2.7% but more firms are reducing the size of their workforce. The average firm lost 7.0% of their direct employees – up from 6.3% in last year’s report.

“There are some really encouraging findings in this latest industry performance report,” Steve Radley, Director of Policy & Partnerships, CITB. “Improvements in client satisfaction, predictability and training levels are excellent news – especially where trends have been reversed.

“However, the findings hold stark warnings too. Increasing pressure on margins driven by tough market conditions has begun to impact the bottom line and employers are reducing their workforce to minimise risk.

“But operating on such tight margins is unsustainable. We need to find new ways to attract and develop the skilled workforce that will drive up performance and profitability. We are working with our industry to agree the best way to help it to do this.”

Allan Wilén, Economics Director, Glenigan added, “The latest survey results reveal a construction industry working hard to meet clients’ expectations and progressively improving its performance across a wide range of economic, social and environmental measures.

“The construction industry is potentially facing a period of volatile workloads and structural change as the UK economy adapts to life outside of the EU. This will require the industry to redouble its efforts to upskill the workforce, enhance productivity and contain costs.”

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