Leading construction body raises alarms over COVID-19’s impact on SMEs

The Specialist Engineering Contractors’ (SEC) Group – representing the largest value sector in UK construction – has expressed ‘major concerns’ over the impact of COVID-19 on SMEs, which it says comprise 99% of firms in the construction industry. These, it explains, relate to ‘sharp practices’, disruption to repair and maintenance contracts (which represent more than half of construction industry output), and ‘the weak balance sheets of the large tier 1 contractors, with implications for payment security along the supply chain’.

According to the SEC, ‘some evidence is beginning to emerge of supply chains being informed that they will have to bear the risk of any disruption or delay caused to construction works as a result of COVID-19’. As a result, some SMEs may have to bear the brunt of any liquidated damages passed down to them. The Group said: “This is generally facilitated by onerous contracts, which are par for the course in construction.”

There is ‘increasing disruption’ to repair and maintenance contracts, and especially those involving planned maintenance to mechanical, electrical, plumbing, and lift installations.  The SEC explained: “Many contracts have termination at will clauses, which often enable contracts to be brought to an end without compensation. Moreover, there are safety implications to be considered.  Lifts, for example, require regular servicing to comply with statutory safety requirements.” SEC Group is asking for clear guidance to be issued from both government and the Health & Safety Executive.

In addition, SEC Group says that while public sector clients are being urged to ensure that all their payment obligations to their tier 1 contractors are discharged quickly, ‘there is concern that this will not be followed through along the supply chain’.  Moreover, it adds, ‘any disruption or delay to projects could result in severe payment delays to supply chain firms, which will be exacerbated by the fragile balance sheets of the large companies’.  Supply chain contracts often, the Group stresses, allow for tier 1 contractors to suspend works without necessarily compensating their sub-contractors.

SEC Group’s chairman, Trevor Hursthouse (pictured), called on all clients of the UK’s construction industry ‘to be on the look-out for distressed firms in their supply chains, and ensure that, as much as possible, measures are put in place to alleviate such distress’.  He added: “The UK construction industry is on a financial knife-edge. We need to ensure that the industry will still have the capacity and resources to deliver the construction and infrastructure needs that will be required when some level of normality returns.”

While welcoming the Government’s ‘measures’ including the COVID-19 Procurement Policy Note, business loans, grants, and other support measures, SEC Group says ‘the challenge is turning out to be understanding precisely how and where the support is accessed’.