Building engineering services contractors reported increased turnover in the six months from July to December 2015, according to the latest State of Trade survey released by the Building Engineering Services Association (BESA).

Continued growth 'reflects the health of the industry', according to the Association' however the rate of increase in order books and enquiries slowed compared with the previous six months. Tender prices also continued to rise, but also at a more sluggish pace. BESA members also reported rising labour and material costs, the survey said.

Problems with late payment have eased slightly, but remain a serious impediment to business growth, according to the Association. A shortage of skilled labour – particularly design engineers, quantity surveyors and planners; poor or zero margins and rising labour costs were all cited by some members of the BESA as becoming more acute since the first half of 2015.

These findings suggest the HVAC market is cooling, but the BESA survey recorded that the 'net optimism barometer measure' was still positive, albeit down since the last survey, from a net of +45% six months ago to +24% in January 2016. Companies with turnovers above £20m seem to be the most optimistic.

Employment levels remain healthy, according to the Association, but smaller companies with a turnover under £1m are not recruiting as many people as their larger counterparts. Overall, a net of +37% expect to employ more staff in the coming six months, which is a similar level to the last survey. There was also a net increase in those employing agency staff, but the trend in employing apprentices and trainees dipped slightly.

With the exception of those with turnovers of between £1 million and £5 million, all other sizes, regions, business types and service groups recorded improvements in order books, although not to the same extent as the first half of 2015.

The impending deadline for the adoption of Level 2 Building Information Modelling (BIM) on public sector projects does not seem to have had a dramatic impact on the sector. Some 31% of members of the BESA took part in projects in the last six months that involved BIM, down from 33% in the previous survey.

With the exception of the Ductwork Group, all specialist groups, regions, sizes and business types remain optimistic about the future, although to a lesser extent compared with last summer's survey.

Anecdotally, BESA members reported impacts on their businesses from government 'austerity measures' including cuts to renewable subsidies; difficulties in financing business growth; and tight margins from 'legacy' contracts where contractors are tied into prices that are no longer competitive due to rising labour and material costs.

Some members reported a trend for clients to reduce maintenance spending in favour of simply repairing equipment on breakdown. The low oil price has also had an impact and a number of members said market confidence was being affected by uncertainty over the UK's continuing membership of the EU.

BESA president Jim Marner said the next three years would be hugely challenging, but also potentially rewarding for building engineering firms.

"We will do well just to keep pace with what is about to happen," he said. "The issues of skills shortages, labour costs, and the movement of resources, modern methods of design, project risk, procurement and quality control will all become even more significant in the coming months."

He said the industry was facing its second 'perfect storm' in recent years, with the growth in workloads coinciding with skills shortages and pressure on cash flow.

Coming hot on the heels of the deepest recession in modern times, he said contractors would have to "step up to the challenge again".

Mr Marner added that the market drivers and technical challenges faced by firms in recent times would be "magnified times 10" between now and 2018.

"It is a very exciting time and the next three years will be full of opportunity," he added. "The question is: Will we be ready and will we be prepared to invest and take the opportunity to grow and prosper?"

He said that the secret of future success would be the creation of a 'smart' workforce equipped with tomorrow's skills, but operating in today's marketplace.

"The wider use of BIM along with off-site manufacturing of building engineering services means we will need new kinds of skills," said Mr Marner. "We will be spending less time on site, but that doesn’t mean we need a smaller workforce – we will need a smarter one."