Mid-size contractors squeezed

Published:  21 June, 2010

UK: Mid-size contractors are under pressure as large builders try to replace lost government contracts.

During the downturn, the top tier of building companies have focused on winning high value PFI contracts from the public sector, developing projects such as new schools, hospitals, and roads.

As that source of work shrinks, mid-tier builders fear that their larger rivals will muscle in on the already constricted pool of mainly privately financed work on which they depend.

David Wheeler, business development director at McLaren, a privately held contractor that typically bids for jobs with a value of about £10m, said in an interview with the Financial Times, "We have already had to fend off competition from some much bigger companies that usually wouldn't be anywhere near the kind of work we normally do."

The concern is widely held among medium sized building groups. Some of McLaren's rivals have even suggested that the larger construction companies are using their stronger financial positions to take on work at uncompetitive margins. The issue of bidding for work simply to bring in cash and utilise workers, or "buying work" in industry parlance, is widespread in the building sector.

Indeed, smaller contractors often complain that the medium tier does the same to them.

Jack Kelly, an infrastructure partner at Deloitte, says the risk for medium sized companies is that larger rivals can sustain work at lower margins for longer periods.

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