Tuesday, May 28, 2019

Engineering services on path to recovery, but challenges remain

ECA, BESA, SELECT and SNIPEF study shows boost in sector confidence despite rising costs and persistent payment issues

The latest sector-wide Building Engineering Business Survey, sponsored by Scolmore, shows that the sector appears to be showing signs of recovery after a challenging 2018.

The survey, which included data from industry trade bodies ECA, BESA, SELECT and SNIPEF, found that:

• 75% of businesses said their turnover had increased or remained steady in Q1 2019, compared to the previous quarter (Q4 2018)
• Outlook for Q2 2019 is largely positive, with almost 29% of businesses estimating their turnover will increase.

However, costs are on the rise, continuing trends seen in 2018:

• 58% of businesses saw higher labour costs in Q1 2019 compared to Q4 2018
• 73% saw higher materials costs in Q1 2019 compared to Q4 2018

Payment terms and retentions remain largely unfavourable for the sector:

• For commercial work, 81% said the typical number of days to be paid for a project or job was 31 days or more
• For public sector work, 63% of businesses said the typical number of days to be paid for a project or job was 31 days or more
• 58% of businesses had between 1% and 10% of their turnover tied up in retentions in Q1 2019

ECA Director of Legal and Commercial Rob Driscoll said:

“Although sector margins continue to be squeezed, businesses have started the year with a strong performance. The sector appears to be regaining confidence as we head into summer, but key cultural shifts that were identified after a challenging 2018, such as fairer payment practices, do not seem to be taking hold just yet and we have not seen out the uncertainty that the Brexit shadow may cast across the economy.”

BESA CEO David Frise said:

“It is encouraging to see confidence returning to the sector. However, the trend in higher labour costs will not be eased until, as a sector, we address our widening skills gap. This illustrates the increasingly critical need to encourage young people into the industry via apprenticeships.”

SNIPEF Chief Executive Fiona Hodgson said:

“While the growing confidence in the sector is positive, it is clear challenges remain that must be urgently addressed. Poor payment practices will continue until the sector as a whole, along with Government, takes action with meaningful change. Equally, the sector must focus on the recruitment of apprentices to address the skills gap and slow the increase in labour costs.”

SELECT Managing Director, Alan Wilson said:

“Whilst it’s encouraging to see increased confidence in the sector, we continue to see business failures with some inevitably causing a domino effect down the supply chain. Perennial issues such as late and reduced payment and withholding of retentions, serves as a reminder that much still needs to be done to change the culture of the industry.”

The survey received 442 responses from companies across the multi-billion-pound industry, mainly regarding their performance in Q1 2019 (1 January to 30 April 2019), and expectations for Q2 2019.

Overall, the engineering services sector is estimated to account for some 40% of UK construction and maintenance turnover.

ECA, BESA, SNIPEF and SELECT represent over 5,500 businesses across the entire UK, covering England, Scotland, Wales and Northern Ireland. Member businesses have a combined annual turnover of £12 billion, spanning building, infrastructure and maintenance activity.

The four trade bodies cover a broad range of engineering, design, installation and facilities management activity, including electrical, heating, plumbing, energy management, micro-generation, ductwork, ventilation, fire and security, and wireless systems.

The BESA summary of the full report is available here 

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