Developers that refuse to share the increasing cost of employment could put suppliers out of business, an industry body has warned.
Rob Driscoll, director of legal and business at the Electrical Contractors’ Association, said collaboration was critical to ensure projects and subcontractors remained viable.
His comments came after a major housebuilder spoke of its “robust” plan to manage inflation.
Persimmon this week said it was “working closely” with its supply chain to manage costs, which the housebuilder said would be impacted by measures in the Budget.
Chancellor Rachel Reeves last week announced that employer National Insurance contributions would jump to 15 per cent from April, while the National Living Wage will rise to £12.21 per hour.
Driscoll told Construction News that these changes would “directly increase costs for those employing labour who actually deliver construction on sites”.
He added there was a movement from some suppliers to see whether they could charge more for works due to the shift in employment law.
“Inevitably if clients and developers cannot recover increased costs they will look to challenge this,” he added.
Persimmon said in an update to the City this week: “We are seeing some signs of build cost inflation beginning to emerge in price negotiations for 2025 and are working closely with our supply chain to manage our costs, which will also be impacted by new building regulations and the employer National Insurance increases announced in the recent Budget.
“We are seeking to mitigate the impact of these cost increases through robust commercial controls and other management actions.”
Driscoll said developer action on employment costs must not leave suppliers to “take the hit” as this could “leave them with negative margins”.
“This would be disappointing for an industry which is aspiring to be more collaborative, resilient and sustainable in order to deliver on the government’s housing ambitions,” he added.
“If you don’t collaborate on agreed deals, you risk further insolvencies at a time when compared to 2020, insolvency rates are very high.”
Kent-based housebuilder Vistry last year wrote to its subcontractors asking for a 10 per cent reduction on the prices agreed in existing contracts, sparking anger in the sector.
Specialist body the Finishes and Interiors Sector this spring wrote to both Conservative and Labour MPs raising “concern” that developer profits were partly “a result of the hard squeeze on the supply chain”.
Persimmon this week said it had traded in line with expectations over the past four months and remained on track to deliver completions of around 10,500 homes in its full year.
Chief executive Dean Finch said: “We continue to position the business for success, maintaining our focus on quality and customer service, and converting our land holdings into active developments.”
A spokesperson for the housebuilder told CN that they expected to manage cost mitigation “through standard commercial negotiations”.