Impact of labour shortages worsen for engineering services

labour shortage

The latest engineering services industry survey, backed by trade bodies ECA, BESA, SELECT and SNIPEF, shows the growing impact rising labour shortages are having on business owners in the sector. This is having a clear knock-on effect on their business performance.

Almost half (42%) of respondents said labour shortages were the biggest concern for their businesses – up from a quarter (26%) in Q3 2022, and a third (32%) in Q4 2022.

Worries about cashflow and payment times persist – almost a quarter (23%) of respondents expect their turnover to decrease in Q2 2023, and 40% expect it to stagnate.

While many respondents’ businesses saw revenues rise over the winter, with 40% reporting an increase in turnover between Q4 2022 and Q1 2023, optimism may be offset by the fact that two thirds (59%) of SMEs said that between 1-5% of their turnover is currently being held in retentions – a notable increase from an already worrying 53% when last surveyed in January 2023.

ECA Director of Legal and Business Rob Driscoll says, “The construction sector is feeling the impact of events that were set in motion following the Brexit vote, the pandemic, and the war in Ukraine. Right now, we are coming to the end of fixed price contracts which have seen firms squeezed by inflation rates of more than 23% on materials.

“Rising interest rates have caused a crash in the private housing sector, inflation has reduced spending in the public sector, and infrastructure costs are being reviewed. Increasingly, payments are being delayed to shore up finances when bank lending becomes unaffordable or unavailable.

“SMEs unfortunately sit at the sharp end of these factors. They lack the financial cushioning that allows bigger players to ride out these adverse business conditions. Despite this, the M&E sector remains resilient as RMI increases and construction drops.”

BESA Director of Legal and Commercial, Debbie Petford says, “The picture painted by our latest survey illustrates the direct link between cashflow and business optimism.

“Retentions and late payment are a serious drag on business growth which is exacerbated by the skills shortage. The fact that firms have a high number of vacancies shows there is plenty of pent-up demand for building services expertise, but firms are struggling to find suitably qualified staff and are too busy chasing payment to be able to fully invest in training, recruitment and staff retention.

“As usual, we find ourselves praising contractors’ resilience in the face of these challenges, but we need more action from government to address the continuing curse of late payment. Freeing up cashflow would allow SMEs to dedicate more time and resource to things that matter to the wider economy like improving our built environment and delivering net zero.”

Over half (54%) of sector businesses reported vacancies in their organisations. When asked why they had trouble filling these vacancies, most businesses (54%) cited an insufficient supply of applicants, followed by a lack of appropriate skills (48%) and unaffordable pay expectations (43%).

About the survey

142 engineering services businesses responded to the Q1 2023 Building Engineering Business Survey (BEBS), which asked about their business performance in Q1 2023 and their expectations for Q2 2023 and beyond.

The survey was carried out in partnership with industry trade bodies BESA, SELECT, and SNIPEF, who together represent over 6,000 businesses of all sizes across the built environment sector, and was sponsored by Scolmore.

The survey ran from 18 April to 2 May.

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