What is the difference between Tier 1, Tier 2 and Tier 3 Builders ?

What is the difference between Tier 1, Tier 2 and Tier 3 Builders ?

In the UK construction Industry and around the world, the industry has an informal system of classifying construction companies in terms of their size.

It is reminiscent of the system in which the British Navy classified their ships as first rate (120 guns) to sixth rate (20 guns).

But being the construction industry, there does not seem to be any actual definition of each Tier and instead each tier is very much a loose grouping.

The tier system seems to have no real rules or structure, there seems to be no strict guideline in terms of turnover to qualify as a Tier one or Tier two and it varies country to country.

To make it more confusing, a tier system is also used in general business supply chain management with completely different meanings to each Tier so its important not to confuse the different tier systems.

Introduction to Tier 1, Tier 2 and Tier 3 Builders ?

On most construction recruitment websites, new positions are advertised as working for Tier 1, Tier 2 and Tier 3 Builders or Contractors.

Similarly, in construction circles including print publications, online publishing and even on individual builders websites, people tend to pepper their conversations and literature with tier 1 and tier 2 terms without any further explanation to outsiders as to what they are talking about.

What do these Tiers mean?

It is probably fair to say that most people, if challenged, would be unable to accurately describe the differences between the three classifications.

The below is a very rough attempt at comparing the three different tiers plus an argument for the introduction of more tiers to include tradespersons, specialist trades and very small builders which make up a huge number of the small and medium enterprises in construction.

Tier one builders (roughly + £500 million pounds annual turnover)

Tier 1 simply means the largest contractors in the country.

They will often be a publicly traded company and will have offices across the country and quite possibly be international businesses.

These businesses work directly for the Client and hire sub-contractors to carry out the works.

Their turnover will be from at least £500 million to several billion pounds.

A lot of their work will come from Government funded infrastructure including health care, defence, education and so forth. Tier one builders will contract to build across all sectors including airports, road, hospitals, nuclear facilities, apartment blocks, hotels, houses as long as the project is large enough.

These businesses tend to have low margins and high turnover and concentrate on annual growth.

Examples include:

In the UK, examples of Tier one contractors include:

• Morgan Sindall Group
• Kier Group
• Royal BAM Group
• ISG
• Bowmer & Kirkland
• Wates Group
• Willmott Dixon Holdings
• VolkerWessels
• Winvic Group
• Laing O’Rourke
• Graham Construction
• Equans
• Hill Partnerships
• VINCI Construction UK
• Skanska UK
• Galliford Try
• Balfour Beatty
• John Sisk & Son
• McAleer & Rushe
• Mclaren Construction Group
• Sir Robert McAlpine
• Buckingham Group Contracting
• Henry Construction Projects
• GMI Construction Group
• TSL Projects
• Costain Group
• Mace
• JRL Group
• HG Construction

Tier two builders

(roughly +£100 – £499 million pounds annual turnover)

Tier 2 means medium sized contractors (relative to tier 1).

These businesses can have a national presence just like Tier 1 contractors but will have a lower turnover. They generally won’t be able to compete against the Tier 1 contractors for large infrastructure projects and actually don’t want to. They can sometimes be referred to as specialist contractors because they will concentrate on being very good in one sector.

They may be a publicly listed company but not necessarily so. More often, they will be private family businesses who don’t want to proceed into the next level of becoming a publicly listed company.

For example, a Tier two builder may just concentrate on building apartment blocks, hospitals and university buildings and ignore airports, road, housing and so forth.

Examples include:

• Ardmore Group
• Multiplex Construction Europe
• Robertson Group
• CRH
• Readie Construction
• Ferrovial
• Dragados UK
• Tilbury Douglas
• Midas Group
• IHP Integrated Health
• Siemens
• Hitachi Zosen Inova
• Caddick Group
• Glencar Construction
• J J Rhatigan & Company
• McLaughlin & Harvey
• Serco
• SDC
• R G Carter
• Bouygues UK
• BCEGI Construction (UK)
• Geothermal Engineering
• Gilbert Ash
• RG Group
• Knight Harwood
• CCG (Scotland)
• Benniman
• G W Highways
• C J O’Shea Group
• Farrans Construction
• Tolent
• Anesco
• Ian Williams
• Mott Macdonald Group
• Seddon Group
• Clegg Group
• Bennett Construction
• JSSH
• Domis Construction
• BW Interiors
• Bom Group
• One Group Construction
• Esh Group
• Vision Homes
• Team Van Oord
• PMC Construction & Development
• Neilcott Construction
• Beck Interiors
• Beard
• Barhale
• Jarvis
• Merit Holdings
• ARJ Construction
• Keltbray
• Watkin Jones

Tier three builders (roughly £10m – £100 million pounds annual turnover)

Tier 3 means small to medium sized contractors (again, small relative to Tier 1 and Tier 2 builders).

These companies form the bulk of the construction industry in terms of sheer number of companies if not turnover. These companies will build one-off houses, small apartment buildings, small schools and so forth.

Examples include:

• Stainforth Construction
• 8Build
• Claritas Group
• Durkan Holdings
• Collins Construction Projects
• P P O’Connor
• Ashcroft Services
• Parkway MK
• RJ McLeod (Contractors)
• Wynne Construction
• LCB Construction
• Clark Contracts
• Osborne
• Henry Boot
• Murphy Group
• Trac Structural
• Cornerstone Construction
• Legendre UK
• J Tomlinson

Tier four builders (Anything under £10 million annual turnover)

We have made up the term ‘tier four’ builders.

It is easy to understand Tier one and Tier two builders. But it gets very murky when trying to explain the difference between a Tier 3 builder and say a tradesperson who builds extensions.

Surely there must be a Tier four classification for what are relatively speaking very small builders.

There are thousands of contractors that are big in their villages, towns and cities but not really operating much outside of their local territories. These may be ‘man in a van’ tradespersons (e.g. plumbers) who will also hire in other trades to complete a refurbishment.

A builder who has an annual turnover of £1 million cannot be lumped into the same classification as a builder who will have a turnover of £50 million. Its just a different type of organisation. A turnover of £1million or less could be just one or two houses every year which could be easily be completed by one-person builder managing trades.

Examples include:

J Dunne Construction

• Balmoral Construction (N.I) Limited
• Synnott Construction
• Cecil Smyth Ltd
• Aquaforce 2009 Ltd
• Cooke’s Building & Joinery Contracts
• L M Design & Build Services Ltd
• Chestnut Contractors
• Nickell & Richmond
• Maypole Construction
• Morrow Construction
• JSW Developments Ltd
• Turley Properties Ltd
• Ashe & Sons
• K Bristow & Son

The tier system we have just described is not a rigid system, its our interpretation of the tiers. To have a proper Tier system, comparable to the British navy First rate system we must be able to classify every builder in the industry from the smallest to the biggest.

Who are the best companies to work for ? Tier 1, Tier 2 or Tier 3?

So, we have looked at the different tiers in construction companies and explained the differences between them.

But now we will look at the pros and cons of working (as an employee) with a Tier 1, Tier 2 or Tier 3 builder.

Pros and cons of working for Tier one builders

Tier one builders are massive companies with thousands of staff. This means that an employee will typically get access to a standard set of employment benefits including a reliable competitive salary, car allowance, healthcare and generous annual leave.

The work culture in the business will be in line with international standards with a large human resources department dictating strict guidelines about how employees conduct themselves so there is little chance of getting bullied or been discriminated against (and if you do, then they will react positively to being called out on it).

However, working for a Tier one business means working on massive projects as part of a large team. This means you could be working one specific part of a project for several years and you may end up getting limited experience. Also, it may be difficult to stand out from the crowd and get promoted.

I would say that working for a Tier one builder means job security but look at Carillion, a Tier one company in the UK who went bust overnight.

Pros and cons of working for Tier two builders

Generally, the benefits of working with a tier two builder will be similar to that of tier one with similar employment benefits including a reliable competitive salary, car allowance, healthcare and generous annual leave.

A Tier two builder will generally have a less plush office and vibe than a Tier one builder. There will not be as a professional work culture as a Tier one builder because less money will be spare to invest in a human resources department and cultivating a positive environment.  For example a provincial builder could be a family run business for several generations and could have a ‘banter’ driven environment where bullying and discrimination thrives.

A Tier two builder will work on smaller projects than a Tier one builder meaning that an employee might have more involvement in the various aspects of the project gaining more experience.

Pros and cons of working for Tier three builders

The benefits of working with a tier three builder can vary.

A small builder might not have a nice office and may completely lack a positive work culture or even a human resources manager.

The typical Tier two builder will work on smaller projects than a Tier one builder meaning that an employee might have more involvement in the various aspects of the project gaining more experience.

A young employee will typically get a lot more experience working with a tier three builder as they will be asked to do everything and anything. Whether or not this experience will be a delivered in a structured and positive manner will be entirely up to chance.

Other points

Interestingly this tier system does not apply to Architects, Quantity Surveyors, Structural engineers, Mechanical and Electrical Engineers. There are different, again informal ways of classifying whether a consultant is a big company or small.

In this article we are only talking about Main Contractors and completely skipping sub-contractors who themselves can be Tier 1, 2, or 3. For example, Otis lifts are definitely a Tier 1 sub-contractor. Also, Keltbray is a massive sub-contractor but they don’t make the list of Tier 1 Contractors as they are a sub-contractor.

Tier 1 and Tier 2 builders do not advertise their presence or their services to the public at large. There is no need to. These builders market to their Clients which will be Government departments and large commercial corporations. So when you google ‘builder in my area’ you will simply get lots of small builders and tradesmen advertising their services.