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Opportunity time for construction SMEs?

22 August 2019
Is now the time for Clients and SMEs to consider direct engagement in the wake of the on-going struggles of major contractors?

It has long been acknowledged that Small to Medium Enterprise companies are fundamental to all aspects of our UK economy. However, the problem is over the last 10 years the procurement model has been 'big is beautiful' as the benefit of reduced numbers of suppliers is seen to represent value.

This has translated into various problems. For construction it has seen the major contractors acquire and merge into mega tier 1 companies hungry for work and, for some, with a suicidal commercial approach to winning turnover. Meanwhile the construction SMEs have become part of the tier 1 supply chain having to trade on the basis of how the work has been won with a decreasing opportunity to have a direct link with the investing client.

Furthermore, as well as competing in a very competitive environment, the SMEs have been starved of cash with the provision of lengthy payment periods and even in some instances up-front payments. Worst of all, the collapse of tier 1s leaves a trail of non-payment down the supply chain.

Some clients, particularly large ones from the public sector, have realised the need to ensure SMEs are engaged in construction. However, this is done on the basis of still appointing tier 1s who provide a commitment to engage a certain percentage of SMEs' as part of their offer. This can be seen to be attempting to address the issue but still the SMEs are left in the hands of the tier 1s and there will be different degrees of checking post tier 1 appointment to verify if they are acting in accordance with the offer of SME engagement.

The present context is the failure and ongoing poor performance of our tier 1 contractors. Meanwhile our more agile SME contractors are doing good business delivering sustainable margins.

Why are clients not realising the opportunity of more direct engagement with our SME contractors?

Some clients suggest they are actually seeking direct engagement by having open industry days seeking discussions on procurement. However, the feedback is these appear to be poorly attended by the lower levels of the supply chain.

Is this down to trust? Do our SMEs really believe the clients are ready to listen and adapt procurement accordingly? Are client procurement teams ready to move on from 'big is beautiful'? Is now the opportunity to influence the new government to take this seriously and mandate direct SME procurement? Are project managers realising the associated opportunity to manage the balance of risk client side instead of transferring to a single contractor?

Or is it time for construction SMEs to recognise the time is now to organise and become part of what could be a more sustainable and valued construction delivery solution?

 

Further Reading

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