Consolidation in the construction industry is threatening recruitment agencies as competition increases and clients reduce preferred suppliers lists (PSLs).

Martyn Makinson, co-founder of construction recruiter Bromak, said that a “turf war” had started as contractors slashed their PSLs.

“Whereas before they were working with 10 to 15 agencies they might now only be working with three or four,” he told Recruiter. “They are getting absolutely battered by other recruitment agencies and are pulling up the drawbridge and saying ‘no thanks’.”

Dermot McGinley, chairman of McGinley Specialist Recruitment, told Recruiter insolvencies and mergers had increased consolidation and the amount of work done by the large players.

“The current economic climate has pushed companies to buyouts and mergers to enhance their overall presence in the construction market. These larger businesses then look to reduce their supplier base.”

Figures from accountancy firm PricewaterhouseCoopers found that insolvencies in the construction sector increased by 40% in 2008 compared to 2007.

As recruiters compete for a place on diminishing PSL lists, entry is becoming more difficult as clients focus on accreditations and increase contract size.

Tom Greenhaugh, senior consultant at technical recruiter, Andersen Banks, told Recruiter: “A couple of the big consultancies are reducing the number [of recruiters on PSLs]. Entry is more stringent, allowing them to regulate the volume and stop unsolicited applications.”

McGinley added: “Only the larger more successful recruitment businesses will succeed [in bidding for large contracts], as they are stronger financially and have greater compliance.”

Consolidation has been compounded in the public sector, as the government now advertises tenders on a national basis.

Mark Calver, general manager of UK Construction Recruitment, told Recruiter that it had reduced the number of local, SME construction firms working on public sector contracts. “The government’s requirements that all tenders should be open nationally means we are now having national companies doing all the work in local areas.”

In turn the national construction companies would put the work out on a national or regional PSLs. “Historically you could visit building sites and form relationships with your local site managers and get the booking. Now you have to go to the head office,” said Calver, comparing the consolidation of the industry to the emergence of the supermarket giants and the problems for local retailers.

Calver predicted the shift in the sector would mean the end of localised recruiters who deal solely with local contractors.

In response to the changing market, UK Construction Recruitment has had to become “more sophisticated” in the way it trades, according to Calver, gaining ISO and Investors in People accreditations.

McGinley is targeting larger contracts through a series of joint bids. “When trying to win larger contracts, everything is relative to size. We are partnering with other businesses in market sectors that we feel will enhance our overall brand and service delivery,” said McGinley.

The company, which turned over around £60m in 2008, is looking to work with companies of a similar size in the aerospace, construction, industrial and rail sectors and is also planning to work with niche recruiters to support their ability to bid for projects.

A decrease in the amount of recruitment and the number of companies on contractors’ PSLs has put pressure on recruiters’ margins.

Makinson said: “The companies who are recruiting have buying power and are looking at their rates more competitively. Construction candidates have had to lower their expectations and we have had to our margins squeezed — it’s a knock-on effect.”

Calver said the rates had been pushed down. “Our rates are back to 2006 levels, after the boom of the last two years things are starting to settle down.”

However, Makinson added the consolidation of PSLs had benefited the company as existing client relationships were cemented, adding “if you are not already in bed with the client it makes it very problematic”.

Makinson also suggested that listed recruiters, who could easily win contracts on a size basis, lacked manoeuvrability on margins because they had to answer to the City.

“I think a lot of smaller agencies are struggling, but then on the flip side, some of the bigger agencies are struggling too. They have to answer to the City and don’t have the flexibility on margins because they still have to hit profit. From their point of view they are damned if they do and damned if they don’t.”