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Contractors must put value before price as they balance the risks of growth

Last week, the government celebrated a technical recovery from recession with the announcement of a 1 per cent increase in GDP.

While this can only be good news, it is marred by a continued slump in construction output: down 2.5 per cent this quarter and down 10.8 per cent in the past 12 months.

Volumes of work are declining, although confidence surveys by the Royal Institution of Chartered Surveyors and the Civil Engineering Contractors Association show a broadly flat position.

But for contractors the picture isn’t even that simple. The figures are distorted by a few larger projects, showing London is not in recession but regional workloads are depressed.

Overall, the infrastructure sector is probably stronger than the construction sector.

Frameworks provide continuity of work for some contractors but often they are zero value and in effect just three-stage tenders, invariably delivering substantially less volume than promised.

On the bright side, the government understands the importance of construction, especially infrastructure, in stimulating the recovery. However, finding the money is not easy.

I took part in the Construction News Forecasting for Construction conference last week, where we discussed many of the factors affecting the industry.

Construction customers are quite rightly expecting ‘more for less’. While this should be a drive for good value, we are seeing more price-led bidding and price/quality competitions that on detailed inspection are largely price-led.

This inevitably sets good value against short-term cost with increased risks to both customers and contractors. Some customers are able to award contracts to the non-lowest bidder but only within a very tight margin.

Contractors are being asked to find savings against a backdrop of terms and conditions that are becoming increasingly onerous. These are almost always bespoke and need thorough scrutiny to avoid the hidden risks and costs.

So how can contractors balance the risks, maintain their workload or even grow?

When order books are thin and work availability is reduced, there is a temptation to pursue new types of work. But without in-depth knowledge this may bring disproportionate risk to the business.

In an uncertain climate, there is much to be said for concentrating on what you know best and looking for opportunities to use existing skills in other sectors.

That way you can be more selective in only bidding for work that has a very good chance of going ahead and that you are confident you can win.
On the other hand, why does everyone want to grow?

Is there a perception that lack of growth is a failure? It’s certainly better to make a profit on less work than a loss on more work.

And, of course, to help maintain their position every contractor should be looking long and hard at overheads - taking more from a sinking market just isn’t an option.

Looking to the future, I’m sure I speak for all construction leaders in saying we have confidence in the recovery, and so now is the time to think about attracting people into the industry.

We need to broaden the skills base by supporting the apprentice schemes, promoting our industry and making it attractive to young people.

Construction has a lot to offer: let’s spread our influence in schools and challenge students’ aspirations.

Stephen Fox is chief executive of Bam Nuttall

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