A construction skills crisis coupled with over-complicated tender processes and a lack of local government support have been blamed for a rising number of Welsh construction firms facing administration.
Small and medium-sized enterprises (SMEs) struggle to compete with larger businesses when applying for work, despite making up 99% of the Welsh construction industry, according to the Chartered Institute of Building (CIOB).
CIOB says many SMEs feel forced to take the work even though they know it will involve taking a financial hit, just to ensure they have a pipeline of work to keep their business afloat.
The world’s largest professional body for construction management and leadership revealed some of its Welsh members have even opted to compete for work across the border in England instead, where they say the tender process is far less bureaucratic.
A report called ‘The SME Construction Landscape in Wales | Risk Factor Analysis’ has been handed to members of the Senedd. It highlights the ‘profound impact’ of construction businesses going bust, including projects delayed to the detriment of local communities.
David Kirby, CIOB’s policy lead for Wales and author of the report, said:
“With economic pressures like high inflation driving up material costs, an extremely competitive labour market, and persistent skills gaps in the sector, there is little surprise so many construction SMEs in Wales have experienced significant failures in recent years.
“The effects of these failures are not only felt by the owner and employees of the business, but also their clients, and the wider supply chain.
“Considering 99% of the construction industry in Wales is comprised of SMEs, these knock-on effects can cause serious delays to vital projects like homes, hospitals and schools and cause both unemployment and socioeconomic difficulties.
“When a contractor goes into administration or collapses, it has subsequent effects on thousands of other people, particularly local communities.
“We’re laying out clear recommendations for the Government, SMEs and clients alike to consider which can help simplify the process, keep more businesses afloat and drive Welsh construction projects forward.”
The report highlights some of the skills SMEs currently lack in Wales, including employees with key IT capabilities in an increasingly digital world. Other specific roles lacking across the sector include commercial managers, project managers, and quantity surveyors.
CIOB has long called on the Government to work closely with the construction sector to develop long-term policy thinking, giving SMEs more confidence to up-skill their staff and take on more projects.
The professional body also revealed SMEs struggle to keep up with ever-changing regulations across the sector.
Kirby continued:
“While we accept regulations across the industry are vital, particularly when it comes to the health and safety of everyone using the built environment, we’re urging the Government to make training more accessible to all construction workers so that SMEs can adapt their work practices to the changing regulatory environment.”
Other recommendations for members of the Senedd include more devolution of powers to local governments across the country, affording them more control over their funding and the freedom to plug holes in resource gaps.
The report was handed to Members of Senedd at a drop-in session at the Senedd sponsored by Luke Fletcher MS.
Fletcher said:
“Many businesses have cited issues such as a lack of skills in key areas like project management and IT, a highly competitive tendering process dominated by larger firms, and financial instability driven by tight margins and rising costs.
“These challenges speak to those felt more broadly by SMEs across all sectors in all parts of Wales, but in a sector comprised almost entirely of small and medium-sized firms, the Welsh Government must act swiftly and waste no time in extending its support.”
Meanwhile, Mark Isherwood MS said the report was a worrying insight into the struggles of small and medium-sized construction businesses across Wales.
He added:
“This is a wakeup call for industry, Government, and clients. It lays bare the stark reality faced by construction SMEs. Thankfully, the targeted recommendations provide a roadmap whereby we can address the systemic issues faced by SMEs in Wales.
“The report also illustrates the importance of these SMEs to the construction sector, and the difficulties they face when it comes to new legislation.
“It is particularly concerning to read that “over burdensome regulations” are forcing many SMEs to leave the housebuilding market in favour of other projects, which is negatively impacting Welsh Government social housing targets.
“The stakes could not be higher; if we fail to address the systemic issues, we risk jeopardising our social housing, infrastructure, schools and hospitals.”
The report urges SMEs to seek professional legal advice to fully understand contractual obligations and associated risks when applying for projects.
It also calls for company bosses to educate themselves when it comes to managing risk – such a via resources available through CIOB’s Academy.
Meanwhile, construction clients have been urged to ensure that all terms, conditions, and project scope are clearly defined in a written contract.
Data was obtained through a series of in-depth discussions with SME leaders and CIOB members across Wales.
Mark Hennessey is Managing Director of ASD Build, a construction SME based in Pontypridd.
Having previously employed 15 construction workers, ASD Build recently had to reduce its staff count following battles with inflation and due to being tied into three fixed-price contracts within the social housing sector.
Mark said:
“A simplified process would allow SMEs to compete for public sector contracts, which is crucial in a region like Wales where smaller firms make up a large portion of the construction industry. This could include reducing and simplifying the qualification criteria and introducing proportionate requirements for smaller projects.
“By making procurement more accessible to local businesses, the Welsh Government could ensure more public money stays within the local economy, supporting jobs and growth in Welsh communities.”
Mark admitted he will sometimes opt for contracts across the border in England, due to the overwhelming amount of red tape facing SMEs in Wales.
He continued:
“In the past three years we have frequently taken on work outside Wales, it has reduced our presence in local communities. This can affect our reputation and relationships with local stakeholders, particularly if the business is seen as focusing more on external opportunities than supporting local projects.
“Welsh tendering processes, especially for affordable housing and public sector projects, often require adherence to Welsh Government-specific regulations, such as sustainability and social value commitments, which can complicate bids.
“England has a significantly larger population and economy compared to Wales, leading to a greater volume of construction projects and opportunities.
“This larger market has diverse opportunities for ASD Build and other SMEs to secure contracts, with potentially less competition on individual projects compared to the smaller Welsh market.
“In Wales, local companies might be vying for limited work encouraging a race to the bottom price, which Welsh clients still seem to accept.”
Mark’s company has a strong history in building affordable housing developments – up to 50 homes – across Cardiff and the South Wales valleys. However, a lack of skilled labour available has hindered ASD Build’s ability to consistently meet clients’ demands.
He concluded:
“The construction sector in Wales, like the rest of the UK, is facing a shortage of skilled workers, especially in trades like bricklaying, plumbing, and electrical work.
“We are seeing factors that include an aging workforce, fewer young people entering construction careers in trade positions, with longer skilled apprentices now becoming a distant memory.
“Young people entering industry tend to be shipped around to different organisations without embracing the comfort of an established senior person to act as a mentor for a duration of time. Parents and guardians need to be reassured that an SME company has the best interest of the young person they are placing in their trust.”
