How can construction SMEs navigate an unfavourable tendering climate?

In January 2023, risk assessment firm Red Flag Alert identified ‘a perfect storm’ for insolvencies in the construction sector, due to extreme labour shortages from early retirees and a decrease in international labour following Brexit, crippling inflation and interest rates, and nearly £300 million in ‘bad debt’ within the industry.

The forecast soon proved accurate, with 15 firms going into administration in January and a further 30 during February. This includes several notable firms, such as Jarvis Contracting, which had been trading since 1905, Jessella Limited, a cladding and façade specialist, and Tolent, one of the largest construction companies in the North East. Furthermore, other notable companies have been reporting steady losses and consecutive negative annual balance sheets.

Overall, the number of companies going into administration and insolvency is at its highest since 2009, with insolvencies in 2022 57% higher than they were in 2021, and a growing number of construction companies now in ‘critical financial distress’. Small- and medium-sized construction businesses are particularly vulnerable in the current market, with the main focus of over a quarter of SMEs listed as ‘survival’ according to a recent article from Construction News.

Although the current outlook for construction companies can seem bleak, it is still possible to for SMEs to produce compelling and persuasive tender submissions. While quick fix solutions or a ‘magic bullet’ do not exist, following these recommendations will ensure you remain competitive in the current environment.

Adopt a targeted approach to tendering

Many of our team note that assessing your business’s suitability for service delivery is a crucial (and often overlooked) first step when bidding for an opportunity. Although it can be tempting to search out the highest value contracts within the construction industry, your success rate may not reflect the level of time, effort and resources spent if you will struggle to meet the contract specifications.

Likewise, even if you submit the lowest pricing schedule or the most competitive and persuasive quality responses, if evaluators have reservations about your ability to effectively resource the contract or service the geographic scope, you are unlikely to be awarded a contract or a framework place. Consider whether the following areas align with your organisational strategy, current strengths and market position:

• Size of the contract: Although you may be well-positioned to deliver on aspects of the scope of works for purchasing authorities, the overall size of the contract may be demanding on your operational resources.
• Geographic area: If the contract requirements include reactive repairs with strict timescales or long-term secondment to a region outside your normal operational base, this will significantly impact both the cost of services and overall ability to deliver on requirements.
• Technical requirements: Read the tender documents and contract specification carefully to determine any strict technical requirements and relevant accreditations within the scope of works. Although subcontracting works is an option if you do not possess the in-house resources, too much subcontracting can run the risk of overextension and, ultimately, failure to deliver on the contract.

Effectively evidence the benefits of your resourcing and supply chain

As suppliers continue to slip into insolvency mid-contract, purchasing authorities will be closely scrutinising the operational resources of prospective tenderers. This underscores the importance of the point above regarding taking a targeted approach to identifying bid opportunities – it may not be of any use to submit a bid for a contract or framework where you would struggle to provide adequate or sufficiently experienced operatives.

Strong evidence for operational resourcing will include:

• Sufficient capacity, qualifications and experience to deliver the programme of works, including adequate contingency built into employee rosters to ensure on-time delivery.
• Robust continuity measures for planned and unplanned absences, such as deputised roles for key positions (e.g. the contract manager and site supervisors).
• A wider local resource to appoint as a temporary solution for the final stage of a programme of works or as a response to increased demand.
• Any figures which evidence a positive relationship with employees, such as an exceptional yearly retention rate or average length of employment.

Equally, a strong, varied and resilient supply chain will also assure evaluators there will be no delays in delivery due to lead times or product shortage – widespread shortages previously affected the industry during the COVID-19 pandemic and the ongoing conflict in Ukraine. This can include an increase in stock levels held at regional depots, engaging in multiple suppliers for sourcing materials, and service level agreements with suppliers which include ring-fenced parts and materials, effectively eliminating any lead times.

Incorporate inflation, industry insolvencies and other current challenges as ‘bid themes’

It can be beneficial for bidders to address wider industry issues within the tender itself. For example, construction tenders will occasionally request bidders to explain what measures they are implementing to ensure sufficient resourcing as the industry experiences a severe labour shortage. In this vein, utilising the challenges inherent to the industry to evidence your suitability can demonstrate a wider awareness of buyers’ concerns and industry challenges.

For example, if purchasing authorities include a question around your supply chain, evidence any supplier level agreements with special considerations that mitigate the current inflationary period, such as price matching guarantees or pegged indices for certain materials. Similarly, including your overall retention rates will reassure evaluators that you are in a strong position as a business and there are no warning signs around your business going into insolvency/administration.

It is important to note that this should not constitute the majority of a response – weaving these ‘bid themes’ into narrative content should only be used as the persuasive element rather than primary evidence.

Demonstrate added value to gain a competitive edge

Evaluators will not only consider how your business will deliver construction works over the contract term, but also how much added value appointing your business will deliver. An effective way to demonstrate added value is through ‘future-proofing’, or extending the overall lifespan of an asset, building or property portfolio. Future-proofing is highly dependent on the type of building and service offered – however, examples include:

• Energy efficiency: with significant focus on the cost of energy for business and residential buildings alike in the last 12 months, energy efficiency will be at the forefront of evaluators’ priorities. In addition to insulation works and energy-efficient lighting/appliances, consider a future-focused approach to energy efficiency, such as including designated roof space to integrate photovoltaic panels or battery charging points.
• Legislative changes: Construction is one of the most heavily regulated and rapidly developing industries in the legal arena – for example, the wide-ranging Building Safety Act 2022 implemented additional duties and requirements to facilitate high-rise building safety following the Grenfell Tower fire in 2017. Anticipating legislative changes is particularly relevant to construction tenders geared around maintenance and refurbishment of existing assets – a forward-facing approach to evaluators will enable them to realise future cost savings in complying with evolving legislation.
• Historic buildings: for maintenance and refurbishment of historical assets, consider offering increased inspections of fragile or aging components (such as brickwork/masonry) and supplementary or ad hoc repairs outside the scope of works, subject to submitting an invoice.

Although you may be reluctant to offer future-proofing services when cashflow is low, demonstrating the capability and willingness to deliver added value may be the difference, particularly when purchasing authorities are looking to realise cost savings.

Since our formation in 2009, Executive Compass has supported construction businesses with over a thousand high-quality submissions. To find out more on the bid and tender writing services we offer, contact a member of our sales and marketing team today at 0800 612 5563 or via email info@executivecompass.co.uk.