UK construction companies are unprepared for the new Construction Industry Scheme (CIS), according to a construction survey launched today by PKF accountants and business advisers.

The survey paints a picture of construction firms battling to find new work and skilled staff and finding it difficult to pass on fuel costs to customers.

Over 200 UK construction companies were surveyed by PKF in December 2005. Of these 42% do not have the necessary systems in place to implement the new CIS.

About the new CIS:

The new CIS, coming into force on 6 April 2007, will change the rules on making payments to subcontractors. Findings suggest that the sector is not prepared for it. Although 32% of respondents expect the CIS to have a major impact on their organisation, over four out of ten do not have the necessary systems in place to cope with it.

Brian Lovie, director and construction expert at PKF, said: "The survey results suggest that the construction industry is ill-prepared for the CIS scheme. This is worrying given that the introduction of the scheme has already been delayed by a year. It is important that companies act now to ensure they have the correct systems in place and the appropriately trained staff to deal with CIS or they might find themselves caught out by an unmanageable burden of extra administration when the scheme is enforced in 2007."

Challenges and obstacles

• Two thirds of respondents see the shortage of skilled labour as a barrier to growth. This rises to 74% in Scotland but falls to 55% in London and the South East.
• Fuel costs rose by an average of 18% for respondents in 2005, an increase on a perceived increase of 11% in 2004.
• Two thirds of respondents are anxious about rising fuel prices with 70% unable to pass the increased cost onto their customers.
• The top three challenges facing construction companies in 2006 were found to be winning new work (21%); business survival (18%); and finding, training and retaining staff (13%)

Brian Lovie said: "The shortage in skilled labour is not a new issue for the construction industry, but it is one which appears to be having a major impact on its ability to grow.

"Rising fuel prices can have a widespread impact on all input costs. This becomes an even greater problem if the vendor cannot pass these costs onto the customer, which seems to be the perception of many respondents. I would advise those that are not in fixed price contracts to explain the effects of rising fuel costs to customers so they at least understand the reasons for the increased prices when it becomes necessary to pass them on."

Sector growth prospects

• Two thirds (64%) of UK construction companies expect their sector to grow in 2006 with the majority of growth from new housing. Thirty percent did not expect the Construction sector to grow in 2006 while 6% were unsure.
• Of those who expect the sector to grow, the majority (76%) predict the sector will grow in new housing. This percentage rises to 87% in Scotland.
• Confidence is highest in the Midlands and the North with 70% expecting the construction sector to grow. In London and the South East 18% of those expecting growth think the Olympics will play a major part.

Brian Lovie said: "It is promising to see optimism amongst the majority of UK construction, given pessimistic forecasts about UK economic growth. In a year where companies in the South East will be chasing Olympic contracts it is encouraging to see that the Midlands and the North are also confident of their prospects.

"Sector growth may unfortunately mean that the struggle to find skilled workers gets worse, so construction companies need to act now to invest in training and recruiting a quality workforce to ensure they don't get caught short."

For a copy of the full survey, which includes a regional breakdown of data, please go to www.pkf.co.uk/constructionsurvey or contact Deepa Thakker at deepa.thakker@uk.pkf.com.