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More Than Half of New Builds Are Built by Only Seven Large Companies

The headlines confirm that the UK needs to produce 300,000 new homes a year, but one part of the construction sector has been overlooked in the strategy discussions. They are the small and medium house builders or SMEs.

At one time, SMEs built 40% of new homes. Now, thanks to competition from larger builders, more challenging public procurement processes, and the fallout from the financial crisis, they construct only one in eight new builds.

In 2013 the Federation of Master Builders (FMB) researched the matter and found that 41% of SMEs are successful when bidding for public sector projects less than 10% of the time. Consequently, smaller firms are now reticent about bidding for public sector work and even housing association contracts.

Last year the Home Builders Federation (HBF) estimated the bringing the total number of SME house builders to their pre-2011 levels could result in 11,000 more homes being built per year. Halton Housing Trust representative Paul Mullane said that housebuilding could become a limited opportunity unless SMEs are encouraged to flourish.

He warned that if things continue as they are, the UK will end up with five or six large companies that act as a cartel. SMEs are an important part of keeping the industry independent and competitive.

Structural Defects Insurance

The PQQ process is part of the EU procurement rules for public tenders over a certain value. Mr, Mullane said that it causes difficulties for SMEs. The public sector does not break down deals into smaller lots, although doing so could help housing associations and councils achieve more value.

SMEs also have to contend with the perception that larger contractors are more reliable. Many London councils are actively electing to build new homes through a certain number of larger contractors, which then assume control over the supply chain. SMEs are not only squeezed out: when they do obtain an opportunity, finance becomes an issue.

The development director of Rooftop Housing Group admitted that SMEs have difficulties winning work. David Hannon admitted that smaller contractors can’t compete with medium to large-scale contractors on value for risk, money, and viability.

Mr. Hannon said that many contracts require SMEs to have credit worthiness valued up to £2m. The idea that smaller companies are a bigger financial risk is an issue that the sector and even the government needs to address.

The recent failure of construction giant Carillion could slowly change public attitude towards both large and small firms. One director of procurement of a 183,000-home organisation said that people used to pay a lot to go with a bigger company due to the presumed assurances and the belief that SMEs couldn’t deliver what was required. Carillion’s collapse could make SMEs appear to be less of a risk.

However, even if a small firm can pass the finance and reputation requirements, accreditation may pose a problem when trying to win public sector contracts. The cost of receiving the required accreditation can deter many small companies, and not all alternative accreditations are recognised by landlords.

Specialists in Construction Insurance

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