After a difficult five years of downturn in the mechanical and electrical sector, the market is beginning to look a little brighter in 2014 as the benefits of recovery in the construction industry begin to filter throughout the supply chain.
“We’ve certainly seen an upturn,” says NG Bailey group business development director Sean Wickens.
“Main contractors are more optimistic and we lag behind them by about 12 to 18 months. There is more work out there and less appetite to bid for work at reduced rates.”
But the troubles M&E contractors have faced since the start of the recession are far from forgotten. The exit of Emcor and Mitie from the UK M&E market in 2013, and the failure of both large and small specialists, remain concerning for contractors.
“When you look forward, it will be anywhere from 2017 to 2022 when we recover to those 2008 levels”
Sean Wickens, NG Bailey
Balfour Beatty has issued two profit warnings so far in 2014, for £30m in May and £35m in July, due to problems in its Engineering Services division.
Speaking to Construction News in July, Balfour Beatty Construction Services UK chief executive Nick Pollard said the scale of its M&E business would reduce from a previously estimated £260m turnover in 2014 to between £150m and £200m.
Long recovery ahead
It serves as a reminder that the sector is not out of the woods yet, and of the challenges contractors will continue to face in the next year while delivering jobs bid at lower prices in a rising market.
Mr Wickens says: “The market has contracted by as much as 30 per cent [since 2008], which is why some of the bigger companies are struggling. When you look forward, it will be anywhere from 2017 to 2022 when we recover to those 2008 levels.”
For M&E contractors, workloads are increasing in the commercial, industrial and energy sectors, both in London and the South-east, and across the country.
Infrastructure is also set to grow over the next few years as the government invests in improving the UK’s transport and energy infrastructure.
M&E firms are seeing growing opportunities in client and consultancy services, such as advising customers on reducing their energy consumption and driving down the associated costs, as well as making their businesses more sustainable.
Spreading out to survive
Contractors including NG Bailey and Spie UK say they have survived by diversifying their businesses into engineering services and facilities management, as well as providing traditional M&E services to building contractors.
““We find it is about value rather than cost. We are not seeing people win work on lowest price”
Sean Wickens, NG Bailey
They are also working directly for the end-user customers as well as subcontracting to main contractors.
“Increasingly customers are coming to market and wanting a turnkey role with supplier and wanting it direct,” Mr Wickens says. “Sometimes it is customer-driven, and it is also part of our strategy.
“We still see competition but find it is about value rather than cost. We are not seeing people win work on lowest price – we do not see so much of that anymore.”
M&E specialists, like all other contractors, are grappling with the impact of rising labour and materials costs on already slim margins.
A shortage of skilled people in the industry will also present a challenge for firms as workloads pick up, with a need for increasing recruitment and training budgets.
At the smaller end of the market, the Electrical Contractors’ Association found in its most recent quarterly business trends survey that 48 per cent of its members were optimistic about the market and expected their turnover to increase in the next 12 months.
Commenting on the survey, ECA chief executive Steve Bratt said the benefits of economic upturn and improvement in the construction industry were beginning to be felt lower down in the supply chain.
He urged smaller M&E contractors to prioritise winning repeat business, invest in skills and identify new markets to enter.