SMEs in construction: vital, agile, sustainable
For a number of years now, there have been articles appearing in the press outlining the importance of small and medium-sized enterprises (SMEs) to the UK construction sector. This is hardly surprising, given than at the start of this year, 99.5% of all businesses are SMEs, which make up half of turnover in the private sector and three fifths of employees, some 16.3 million people.
SMEs, how do the numbers stack up?
In construction specifically, the above percentage is replicated, as the reader might expect. There are 300,000 construction SMEs and between them they employ 2.7 million people and are responsible for 9% of the UK’s GDP, some £117 billion per annum. These are no small sums.
Small often equals agile, so SMEs are more likely to be at the forefront of innovative thinking and agile ways of working. As in other sectors, they can function as disruptors that push larger organisations to transform their methodologies and work more quickly. While there are no companies with a market share of more than 5%, there are four UK construction companies with a turnover exceeding £3 billion, so there are big players whose working models can be disrupted by innovation.
What exactly do we mean by SMEs?
This is from the government’s small and medium-sized enterprises action plan 2020 to 2025, though it is the definition employed right across the EU:
“The UK government definition of SMEs encompasses micro (less than 10 employees and an annual turnover under €2 million), small (less than 50 employees and an annual turnover under €10 million) and medium-sized (less than 250 employees and an annual turnover under €50 million) businesses.”
There’s a lot of variety here. In terms of the construction industry, there is clearly a huge difference between an individual contractor who uses a team of a few workers on an ad hoc basis and a company bringing in tens of millions a year with multiple projects involving several teams going on simultaneously.
How did Covid affect SMEs?
Covid hit hard and we saw a 35% year on year drop in construction output with suppliers closing down, supply chains grinding to a halt as the sector shut down. We saw 17% of SMEs in construction reporting a drop in income during COVID.
However, research from six months into the pandemic suggested that recovery in the sector was being led by SMEs, rather than their larger counterparts. Here’s Ian Anfield, managing director of Hudson Contract:
“Our figures show how SMEs are leading the recovery in the construction industry. Smaller companies are proving more resilient, agile and adaptive to the new circumstances and are investing in skilled subcontractors to retain productive labour and finish jobs.”
At the start of the pandemic, it was significantly easier for employees of larger firms to claim furlough than it was for the self-employed, who are more likely to have been working for SMEs. Furthermore, agile working methods lead to quicker decision making, which in this case, it appears, led to investment at the right level more quickly.
What are construction SMEs investing in, to grow for the future?
Research undertaken at the time, by Aldermore, suggest 26% are investing new equipment, a further fifth in an online presence, 17% in new technology and the same percentage in expanding their customer bases and enhancing their sustainability practices.
Seeing sustainability on that list is hardly surprising. It is on the minds of many senior people in many sectors at present. It is seen as essential in terms of keeping the ethical customer happy – both B2B and B2C – and in terms of compliance, with Scope 1, 2 & 3 reporting required, and lastly because – obviously – we all want to see the planet survive. Indeed, the only reason it is probably as low as 17% is due to many construction firms being at the forefront of good practice.
Companies can no longer bid for a contract worth more than £5million p.a. if it does not have extensive net zero goals. There are calls for this to be extended to any job whatsoever, with the exemption for smaller firms to be simply to give them time to get their decarbonisation ducks in a row. While it is hard to see how that could be policed at the lowest level, it is certainly ambitious. What it will mean in practice is a rolling out of Scope 3 for all – at some point. For SMEs to have confidence in this, it will need to be led by the government – hence the importance of greening our homes, tackling emissions and approaching net zero goals.
In general, the vast majority of SMEs in construction make a profit over the longer period. It is an attractive part of the sector and a vital one that aids in the improvement of construction performance, not least due to specialist capabilities, innovative thinking and the ability to be agile and move at speed. This is set to continue. While not seen by everyone as key workers, construction workers for SMEs are seen by the majority of people as a vital part of the economy and a principal way in which the necessary rebuilding (both literally and figuratively) we are seeing in 2021 is going to need to be pushed forwards.
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