Tentative steps towards pre-recession highs
The outlook for construction remains on a high according to figures from property and construction consultancy, Gleeds. 70% of main contractors and their supply chain partners report a confident and optimistic outlook for the industry based on performance in Q3 and Q4 2015. Each step forward is not without a degree of nervousness, however, as businesses share their concerns about resource and capacity as the volume of contracts out to tender increases.
Even though recent ONS statistics note a decrease in construction output of around 2.2% when compared to Q2 2015, feedback from surveyed construction firms indicates that workload is robust, the outlook is positive and expected to be so for the next six months.
Despite resource pressures, there has been a significant upturn in bidding activity over the last 12 months. 75% of respondents to Gleeds’ survey said they were making concerted efforts to allow sufficient time to tender for new work. On average, firms are working on between six and 10 bids at a time, an increase of 50% in comparison to Q3 2014. Meanwhile 35% of these reported they were working on 11+ bids.
Overheads and profit applied to tender pricing has fallen over the last nine months. Gleeds survey data shows that it is now more common to see rates of 1% to 6% as opposed to 10%+. This downward trend suggests increased competition in the marketplace, which is likely to be driven by increased power from suppliers over cost and rivalry amongst existing players.
Commenting on the data Gleeds Director for Research & Development, Sarah Davidson, said: “Whilst there is industry-wide acknowledgement that we have a skills crisis on our hands, what’s interesting about the data is that is shows the shortage is not having a pronounced impact on bidding and procurement.”
Davidson continues: “Recruitment levels remain high, with 86% of respondents recruiting for additional staff to bid and deliver work. This suggests that perhaps construction businesses are slightly more confident that they will be able to ascertain the labour requirements needed if new work is won.”
Tender opportunities are reported as plentiful, coming through from both frameworks and traditional competitive tender routes. The volume of tenders procured via framework agreements has increased notably, indicating public sector capex is being prioritised, perhaps in anticipation of announcements made in the Chancellor’s Spending Review and Autumn Statement.
When asked where businesses anticipated future workload coming from, 70% of construction firms expected the majority of work to be derived from the private sector over the next 12 months. An interesting shift in opinion in comparison to Q1 and Q2 2015, when companies predicted that future workload was likely be fairly equally proportioned from public and private sectors.
Statistics reveal that in Q3/Q4 2015 the top five most active sectors based on tender opportunities were:
- Commercial (1)
- Education (2)
- Health (4)
- Leisure (7)
- Retail (9)
Figures in brackets indicate the position at Q1/Q2 2015
“This data highlights two things,” says Davidson. “The first is that the private commercial sector is still very much leading the way when it comes to investment and delivery, meanwhile the improvements we’ve seen in consumer spending are having a knock-on effect in the leisure and retail sectors as customers have more disposable income to spend.”
Davidson continues: “The second is that spend in the private sector is being matched by a fairly substantial amount of government spend in education and health, which has since been reinforced in the Spending Review and Autumn Statement. What is missing is movement in the housing market towards the delivery of the 400,000 new homes Osborne wants built by 2020.”
Gleeds’ report indicates a loss of momentum in the residential sector, with other sectors now presenting greater opportunities, so renewed focus on the housing market is welcome.
Davidson concludes: “Whether or not the magnitude of investment needed to meet the timescale required actually materialises, is another matter altogether.”
Sarah Davidson, Head of Research and Development.
Opinion piece first published by Construction News
Associate Professor, University of Nottingham