Impact of the Recession on Construction Contractors

The UK had recently emerged from the recession 2007-2009, the economy is now recovering. During the recession, many businesses had struggled to survive. The strategies that businesses had taken during recession may affect their long-term profits. For example, as people spend less during the recession, businesses try to reduce their costs and reduce prices in order to encourage customers to buy their product e.g. Primark, M&S etc and many businesses have also closed down branches in order to maintain their

Previous reports on the construction industry have either been implemented incompletely, or the problems have persisted. The opportunity which exists now must not be missed (Chapter 1, paragraph 1.10). Implementation begins with clients. The Department of the Environment should be designated by Ministers as lead Department for implementing any recommendations of the Report which Ministers accept. Government should commit itself to being

Construction is a highly profitable industry that has the ability to support workers with decent wages.

During times of economic downturn, employees can feel susceptible. Employers may need to reduce contracted hours or change staff job roles to save money. This leads to staff feeling exposed and concerned about possible redundancy, which in turn effects how they relate to the organisation.

However, the uncertainty stemming from these financial aspects of construction should be at least mitigated or ideally eliminated with proper forecasting techniques. During periods of economic expansion, major capital expenditures will raise the costs of construction, and during periods of economic downturn these same costs may decline. In order to control costs, some owners attempt to use fixed price contracts so that the risks of unforeseen contingencies related to an overheated economy are passed on to contractors (PM, 2012). Businesses must factor in that contractors will raise their prices to compensate for the additional risks.

The current United States recession began in 2008 which greatly impacted the construction industry. A recession occurs when a county experiences zero or negative economic growth over a period of time. The current recession we are experiencing can be attributed to the many housing foreclosures and excess housing inventory during this period. The housing market crash affected the entire United States economy and caused a negative economic growth. The recession impacted the economy by causing unemployment, low gross domestic product due to low outputs, and increased public debt. The construction industry experienced a sharp decline in the amount of projects, resulting in many construction companies closing. Many American’s feared investing their

Construction wages in the United States are increasing. with wWages are expected to rise 2.4% in 2015. Skilled-trade workers’ wages are rising even more rapidly at 4.6% this year. Unemployment rates in construction are decreasing and the pool of available workers is shrinking., which has resulted in a higher demand for skilled workers from a smaller construction labor force . This has caused is causing a shortage of skilled workers and an upward pressure on wages to increaseincreasing upward pressure on wages. One potential area of relief is the growing movement by state governments to repeal prevailing wage laws. Prevailing wage laws ensure that government contractors pay workers at a pre-determined level based on location and trade. These wages tend to be higher than the market wage and increase labor costs for government contractors. The one relief that many contractors have is the increasing number of states beginning to repeal the prevailing wage laws, which will help stop the increase in construction wages and may even cause a downside wage correction. With construction wages on the rise, state governments repealing prevailing wage laws may take some upward pressure off of construction wages and lower labor costs.

After years of financial crisis, United Kingdom is now one of the fastest growing economies in the world, with an unemployment rate that dramatically dropped by 3 percent in just a couple of years. Although many credit zero-hour contracts with ending the recession, they are still one of the most controvesial topics in the UK.

The construction industry is currently in a state of turmoil – as the economic situation begins to improve, we are finding that the challenges of securing contracts and motivating people throughout the recessionary period are being replaced with different challenges including retaining people, maintaining the business ethos and controlling growth in what remains an incredibly competitive industry. Through recession and as we exit, a strategic approach to business management is key to longevity and sustainability of an organisation. In the context of Read Construction Holdings Ltd (the writer’s organisation), there are significant changes currently underway – a new business plan targeting significant growth over 3 years, new directors and

Recession causes unemployment, this will affect the demand for goods and Tesco profit will drop.

The “Great Recession” is commonly used to explain the massive economic contraction that occurred in the United States during the fourth quarter of 2007. However, the actions of the United States spanned to other nations, leaving massive effect on the global economy. One nation that took on serious financial burden during this recession was the United Kingdom. This nation first faced the effects of the Great Recession beginning in the first quarter of 2008. Overall, the initial mass effects on the nation can be attributed to the nation’s reliance on the financial sector. In fact, after partially stabilizing in 2009, the country struggled with a double-dip recession between 2010-12, and continues to struggle with some of these effects.

Business, consumers and employees are more weak to downturns in the economies of trading partners. For example, recession in the USA leads to decrease in demand for UK’s exports, leading to falling in export incomes, lower GDP and incomes, decrease in domestic demand and rising in unemployment.

There however are challenges in the industry occasioned by uncertainty on future spending on construction projects by the government. Moreover, the cost of doing business and the ability to increasingly make revenue have created a challenging environment for the construction firms. Therefore stakeholders in the construction industry are concerned with whether the government would increase its spending and whether the public construction projects will be available in the future since less than 10 percent are currently financing their clients.

The research takes a case study approach. The case study analysis dwelt on risk management by Contractors who work on energy and utility construction projects, including strategies and supporting structures for managing risks, complete with an analysis of how these strategies and structures are implemented and supported by the Contractors resources base. The researcher specifically chose utility contractors for this study as the Energy and Utilities sector play an indispensable role in the global economy and in the UK, industry employs around 2% of the UK workforce (AGCAS, 2012). Moreover, the UK government identified the Utilities companies as companies that are heavily involved in risky incidents affecting their sector thus playing a crucial role in the preparation and planning for emergencies responsibilities (UK Government, 2013). According to Yip (2003) construction is risky as it almost always certainly involves loss of time and money. Above all, any denial of service during outage result in impact on communities (Lindman, 2008) and utility services are no exception. Against this background, it could be argued that contractors working on construction projects undoubtedly play a significant role in managing risks in order to stay in business.

UK Construction is directly effect by changes to the economy both domestic and foreign (Drake,1994) and is directly impacted by government policy (Myers, 2013). Sloman notes that output of the industry is a reflection of the demand, in this instance buildings and this in turn influences demand for other support services and products. Kishtainy notes that the Gross domestic product (GDP) can influence the demand for a service and determine the levels of employment within and industry.