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Construction SMEs Face Liquidation Due to Procurement Issues and Insurance Costs

Glenveagh Properties

Supporting construction SME’s to grow will help to ensure Ireland’s infrastructure serves Irish communities well into the future

The Construction Industry Federation has called for more significant investment to improve conditions and support innovation in the sector and protect its small and medium-sized enterprises (SMEs).

The construction industry representative body addressed the Seanad Public Consultation Committee on Small and Medium Sized Business in Ireland on 13 November, following a detailed submission earlier this year.

Tom Parlon, Director General, CIF

CIF Director General Tom Parlon, CIF, said: “The impact of the economic downturn was particularly felt among the many SME businesses that operate in the construction sector and beyond. The industry needs the right conditions for its supply chains to thrive and be confident about investing in new research, innovation, technology and people. The construction industry has previously called on Government to assist in developing a strong and resilient supply chain by creating conditions for construction supply chains to thrive by addressing access to finance, education and skills, and leaner procurement.”

Dominic Doheny, President, CIF

CIF President Dominic Doheny said: “The construction industry has long been fragmented, underinvested in, and operating on thin margins. These are not the conditions that support innovation and enable improved productivity. In the context of the National Development Plan 2018-2027, we need to look at ways to incentivise the industry to innovate, invest in more productive skills such as digital and off-site construction, and deliver more value in the long term. Supporting construction small and medium-sized enterprises (SME’s) to grow will help to ensure Ireland’s infrastructure serves Irish communities well into the future.”

Jeanette Mair, Economic Policy and Research Executive, CIF

According to Jeanette Mair, Economic Policy and Research Executive, CIF, “The construction industry comprises SME and micro-enterprises predominantly. Over 97% of businesses in the construction industry employ less than 10 people. Over 65% of people employed and engaged in construction work in small companies of less than 10 persons. As an industry it is highly sensitive to the impact of regulation and administrative costs of doing business, (eg, labour costs, transport costs, insurance costs, planning costs, energy costs and taxation).

Small businesses face a disproportionate burden of regulation and administrative costs and are often the companies most in need of business supports, training and access to finance. The rising costs of construction have made productivity a very important issue for the industry. As a result, it is now essential to facilitate SME businesses across the industry to scale up and become more efficient, thereby maximising the return on any investment by the State.”

CIF Pre-Budget Submission

This year’s CIF pre-Budget submission focused on the areas where Government policy can assist Irish businesses operating in the construction sector to grow, invest and innovate. Issues for construction SMEs include supports for start-ups, training and development of staff and helping businesses build strong routes to market domestically and internationally.

The share of innovation expenditure by small businesses remains just above 13% in Ireland. Investment in R&D by construction businesses by comparison to other industries is even lower. The CIF is recommending the establishment of a Centre of Excellence for Construction and a dedicated National Construction Sector and Education Working Group to direct funding to construction-related areas at third-level and within the research community.

Promoting innovation in construction through expansion of Government support for SME-driven R&D, including direct funding measures, and non-bank financing will help increase dynamism across the industry and wider domestic economy. Despite a positive increase in gross new lending to SMEs in the last year, and according to the Central Bank, SMEs continue to face challenges as they attempt to access bank-based sources of financing. Banks’ rejection rates for SMEs loans and overdrafts are more than twice the rate in comparative countries and borrower discouragement, at 9%, compares unfavourably with comparator countries.

Pre-Budget Submission Recommendations

The CIF also recommended that the committee consider the role of fairer procurement in terms of capital expenditure by the State, with regard to safeguarding and developing Irish construction SMEs.

The CIF recommended that the committee consider widening the R&D Tax Credit scope in line with the UK to incentivise SMEs to get involved in R&D activities on a greater scale in Ireland. Construction companies who have tried to avail of the R&D Tax Credit in the past have found it very difficult to access. Furthermore, the CIF recommends that the committee examine ways to improve access to the Employment and Investment Incentive Scheme (“EII Scheme”) which is a tax relief incentive scheme which provides all income tax relief to qualifying Investors for investments in certain qualifying SMEs.

Click here to read the CIF Pre-Budget Submission which sets out close to 50 recommendations to assist those SME businesses operating in the Irish construction industry