The rising cost of doing business, coupled with an escalating pricing war, is threatening the future of SME contractors, according to Constructionline.

In a survey of almost 700 SME suppliers, three quarters said they have had to lower their rates in order to win work, with the vast majority (94%) claiming that cost is the most important factor to clients when tendering.

Competition from larger firms, which are continuing to compete at the smaller end of the market, was cited as another major challenge during the tender process by 60%.

The survey also found that: 

Neil Thompson, director at Constructionline, said: "On the face of it, inflated order books and an influx in recruitment activity would suggest that the construction industry is once again on the road to recovery, but beyond these stats, there is a very different picture. Higher outgoings and lower returns mean that conditions still remain incredibly challenging for construction SMEs.

"While workloads are indeed improving, the sector's recovery is starting from a very low base after years of decline. Fierce price competition – a legacy of the recession – lingers over the sector's smaller firms, while larger firms are finding they still need to hunt at the tail end of the market.

"While the recovery continues to build, it's important that clients remember the risks posed by 'lowest price wins', to place more emphasis on skills, competencies and developing the workforce."

The results represent the opinions of 682 Constructionline members with a turnover of less than £50 million per year. Forty-four percent fall under the £1 million turnover category.

Other highlights of the survey include:

Image courtesy of Shutterstock/Andy Dean Photography.