The media have reported that home builders have asked their subcontractors to cut their rates by 5% from August. The reasons given include the slowdown in the build-rate on site due to social distancing measures and ‘economic uncertainty’. This is despite the fact that estate agents are reporting huge increases in activity in the housing market, and prices for houses, as a result of the Chancellor’s recently announced Stamp Duty Land Tax (SDLT) holiday which runs until 31 March 2021.
The construction industry is facing huge pressures and the number of construction companies starting the administration process has increased significantly. In June, 179 construction firms went into administration or started the process – despite the Government Coronavirus Loan Schemes and the new Corporate Insolvency and Governance Bill which has bought in a temporary stop on winding-up orders.
Construction companies are collapsing as margins have been cut to the bone, and the cash flow crisis brought about by site closures has tipped companies into administration. Asking construction companies to cut their rates may generate them short-term gains but no one will benefit if it undermines the financial health of the firm’s sub-contractors further.
This is the time when the project teams at all national housebuilders should be thinking creatively and examining all of the changes that are talked about under the umbrella of ‘Modern Methods of Construction’ (MMC). The productivity on UK building sites has not changed significantly in the last 20 years, we should be embracing the opportunity to really look at working procedures and housebuilding techniques to improve this – not crush construction companies into insolvency and make their workforce redundant.
Firms who embrace this ethos, working collaboratively with their subcontractors and teams of professionals, will reap the benefits, including good relationships with subcontractors who are financially secure, a more productive site, and increased returns for their shareholders. A further incentive is that Government funding is currently available to contribute to training costs.