Payment and recruitment challenges loom for engineering services in 2023

The latest engineering services sector survey shows that the majority of business owners and decision-makers expect their business performance to improve in the short term but worsen by the end of 2023. Worries about staff shortages, payment times and cashflow persist.

The latest findings of the quarterly Building Engineering Business Survey, backed by trade bodies ECA, BESA, SELECT and SNIPEF, revealed that over a quarter (26 per cent) of businesses have seen their turnover decrease since Q3 2022. However, a third (32 per cent) expect their turnover to increase by the end of Q1 2023.

Almost eight in 10 businesses (79 per cent) expect their businesses to perform about the same or better in Q1 2023 compared to the same quarter in 2022.

Worryingly, over half of SMEs (53 per cent) have one to five per cent of their turnover currently held in retentions. This figure rises to 80 per cent for large businesses. A fifth (20 per cent) of large businesses reported having six to 10 per cent of their turnover currently held in retentions.

A troubling eight in 10 projects (78 per cent) for commercial clients or main contractors were paid for more than 30 days after the job. For public sector work, the figure sits at just over half (53 per cent) of jobs. Almost two thirds (63 per cent) of jobs directly for consumers were paid for in less than 30 days.

ECA Director of Legal and Business, Rob Driscoll said: “It is important to look at these figures in the context of the wider construction industry. The industry faces significant headwinds this year as UK construction slips into recession and global inflation of energy and metal prices continues to loom.

“The issue of late payment remains prominent in the engineering services sector and continues to severely impact our Members’ cashflows, not to mention the devastating impact this can have on their mental health. 

“Engineering services businesses, often sitting downstream of tier 1 giants in construction, typically feel the effects of these economic changes several months later. Members must factor business resilience and risk mitigation into their businesses to prepare now for the challenges ahead.”

Data from the Business Survey has prompted the Construction Leadership Council to seek industry views as it responds to the Government’s current consultation on the Regulations which require large businesses to report on their payment performance.

When it comes to recruitment challenges, engineering services businesses of all sizes face similar challenges, but appear to be tackling them using different approaches. Both SMEs and large businesses said staff shortages were there biggest immediate concern for their business this quarter.

Three quarters (75 per cent) of large businesses plan to employ fewer subcontractors/agency workers in 2023 as a result, and just under two thirds (60 per cent) plan to hire more direct employees. Meanwhile, most SMEs plan to hire the same number of direct employees, subcontractors/agency workers and apprentices.

Eight in 10 large businesses (80 per cent) said they currently have vacancies in their organisations, while under half (45 per cent) of SMEs do. Trouble filling these vacancies is blamed on applicants lacking sufficient knowledge (40 per cent) by large businesses, and unaffordable pay expectations (40 per cent) by SMEs.

BESA’s Director of Legal and Commercial, Debbie Petford said: “Engineering services contractors continually demonstrate resilience despite difficult economic conditions, but that cashflow remains a significant threat.

“There is strong underlying growth in the market and medium to long-term prospects are promising. However, five years on from the Carillion collapse, retentions and late payments still undermine SME businesses.

“However, we are stressing to the government that measuring payment by value – not just by number of invoices paid – is essential to gauge improvement. Any new scheme would require robust enforcement.”

The post Payment and recruitment challenges loom for engineering services in 2023 appeared first on FMJ.