CIOB reveals worrying landscape for construction SMEs in Wales

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 per cent 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’ was handed to members of the Senedd last week, highlighting 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 per cent 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 on Wednesday 2 October, 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 admitted 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 jeopardizing 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. There are 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. 

To read the report in full, visit: www.ciob.me/welshsme