Contractors must maintain discipline and resilience as ‘new era’ dawns

The UK’s top contractors have doubled aggregate pre-tax profits to £1.92bn, according to Construction News’ CN100 index — but analysts say maintaining resilience and discipline will be key to sustaining those gains.

Aggregate pre-tax profits among the leading firms have nearly doubled to £1.92bn, with average margins rising above pre-pandemic levels to 2.7 per cent.

Speaking on the latest episode of CN’s First Site podcast, Atul Kariya, head of construction and real estate at audit and business advisory firm MHA, said the sector’s recovery after years of volatility was welcome.

But he said that “plateauing at a sustainable level may be just as beneficial as chasing growth”.

Max Jones, director and head of construction, infrastructure and transport at Lloyds Bank, said the improved figures stemmed from contractors being more selective, better cost control, and easing material prices.

He added that “really clear”, simpler and more transparent business models were helping firms prepare for long-term infrastructure programmes.

“I think we’re heading into quite a long period of time where there’s going to be an emphasis on resilience through multi-year [civils and infrastructure] programmes,” Jones said.

“So I think this lens around resilience is only going to grow.”

Kariya said it was “absolutely key” for contractors to adopt machine learning and other digital transformation tools.

Jones said these would enable firms to go beyond “sticking to their knitting” by continuing to enhance operational resilience and bear down on costs.

“The return to resilience [from the latest CN100 data] should mean better delivery, more on-time delivery and the possibility that the contracting base can invest in future skills and ESG.”

Jones added that he had noticed a “genuine shift” towards more stable civils contracts terms “away from some of the fixed-price contracting risks we saw in the past”, as clients recognise that excessive risk transfer hurts the entire supply chain.

That change, he said, will benefit tier ones as the government’s £725bn infrastructure programme gathers pace.

Jones argued that lessons have been learned under previous forms of contracting “where there was just too much risk transfer and those weren’t risks that could always be managed effectively or by the right parties”.

With a “new era” of civils opportunities emerging, he said, contractors “have become better at determining what they want to focus on and making sure they’re taking risks they’re comfortable with”.

Kariya pointed out that risks often extended beyond inflation. “Behind every legacy contract… there is invariably always another risk… perhaps the contract was particularly complex, wasn’t in the usual wheelhouse of that contractor,” he said.

Looking ahead, Jones said the NISTA pipeline offers clearly lucrative opportunities “at the start of a golden age of infrastructure investment”, but he warned of potentially rising inflation and the “predominant risks” attached to cyber threats.

Kariya added that “green shoots of optimism” were emerging with stronger GDP forecasts.

Hear the full discussion on the First Site podcast.

CN Premium subscribers can access CN100 data going back to 2018 in our interactive dashboard.