Small construction firms must be central to the government’s Industrial Strategy, argues Derek Ryan, UK managing director at Bibby Financial Services
On the face of it, the Industrial Strategy has landed at an opportune time for the construction industry, which has suffered a turbulent trajectory over the past decade. In theory, proposals to tackle late payments and remove planning barriers, for example, will boost the largely optimistic and confident mood expressed by construction SMEs responding to our recent research.
While it is a promising start, construction SMEs need better access to finance and equal opportunities to compete for contracts versus their larger counterparts. It is therefore vital the government takes action to level the playing field to enable the smallest firms to thrive.
Optimistic but vulnerable: A sector seeking growth
According to our research, small- to medium-sized firms in the construction sector are confident about their business prospects. Sixty seven percent expect sales to grow – up
10% on the same time last year. This confidence is close to its highest level of 69%, which was achieved in 2022 when UK GDP returned to pre-pandemic levels.
This is clearly an encouraging picture, but optimism alone won’t keep these businesses afloat. The reality is that the construction sector remains in the grip of uncertain macroeconomic conditions that continue to plague the operating landscape. Ongoing high materials and labour costs, and labour shortages still place a considerable burden on many firms, with the impact being disproportionately felt by firms at the smaller end of the scale.
In addition to rising costs, many small and medium construction firms continue to grapple with shrinking margins and increasingly limited access to finance. Consequently, firms are being forced to fold.
According to BCIS’s latest figures, construction companies accounted for 15.7% of all insolvencies in England and Wales in April 2025, highlighting the damaging effects for the sector.
While big contractors are more likely to be equipped to navigate economic headwinds, smaller firms are left to weather the storm. Limited cashflow and limited access to external finance make them more exposed to economic volatility.
The uneven impact of the Industrial Strategy
Indeed, the data from our research suggest that construction SMEs are deeply sceptical about whether the government’s Industrial Strategy will truly support them.
Some 60% believe this strategy will benefit large contractors more than smaller ones. Four in 10 are not confident in the government’s ability to support them at all – the highest level of scepticism across all sectors surveyed including manufacturing, services and transport.
The data reveals further insights that illustrate the pressure smaller companies seem to be under, with contractual arrangements proving to be a particular sticking point.
Overall, 58% of firms with 10 to 50 employees feel they can influence and change the terms of contracts with main contractors, but this declines to just 26% for firms with up to nine employees.
For many, contracts are perceived as overly complex, yet they feel obliged to accept them even if this may expose them to greater financial risk. Nearly 60% of those employing fewer than 10 people believe they must accept contractual terms “as they are” or risk losing business completely.
This power imbalance is troubling given that many construction SMEs are subcontractors. Their lack of involvement in contract negotiations can leave them exposed to onerous commitments and elevated financial risk. It’s an issue that impacts the whole of the construction supply chain.
Cost management stunts SME growth
On top of these concerns is the ever-present issue of cost management. BFS’s data highlights that 72% of small construction firms find rising material costs are stunting their profitability and delivering a negative multiplier effect on their cashflow.
This is a key issue because poor liquidity affects SMEs’ ability to take on new projects, compete for larger contracts or invest in expansion. And while 39% of respondents in our Q1 research quote investment in growth as the main reason for them seeking external finance, more than half (51%) said it’s been more difficult to access this capital in the past six months.
A strategy that works for all
Our data appears to raise a clear flag: the Industrial Strategy, positive though it is in theory, must ensure that it is both effective and even-handed in practice. This initiative must help to level the playing field for construction SMEs – especially those at the smaller end of the spectrum. As a funding partner, we are also acutely aware of the significant contribution we can make to the prospects of SMEs in this sector by continuing to enhance access to the type of finance that will better enable them to realise their growth ambitions.
