Exclusive: The industry’s leaders are hopeful turnover will return to pre-recession levels by 2015, but fear rising costs, skills shortages and supply chain failure will make for a painful recovery.
The first Construction News Barometer, which measures the views of the chief executives, chairman and senior directors of the CN100 index of the UK’s largest contractors, also reveals their suspicion that private sector clients put low bid costs ahead of innovation, skills or project experience when awarding work.
The government’s emphasis on long-term infrastructure spending as part of this year’s spending review receives a thumbs-up from industry leaders, with 68 per cent saying the post-2015 plans for infrastructure spending will provide a “significant boost” for the industry.
However, 57 per cent think a Labour government would spend more on infrastructure than the coalition government, and 96 per cent believe the current government needs to do more to boost construction growth.
“Without cash, a robust pipeline and a joined-up national policy on infrastructure, one [party] is no better than the other”
Leaders’ views on which party is best for the industry are very close: 47 per cent say the Conservatives, ahead of 43 per cent for Labour.
One respondent said: “Without cash, a robust pipeline and a joined-up national policy on infrastructure, one [party] is no better than the other.”
Almost 90 per cent say private sector clients are more interested in developing schemes than a year ago. However, the vast majority feel that clients place greatest emphasis on low bid costs during procurement.
The results suggest there is a gap between public sector and private sector procurement: no one identified building information modelling, the use of which has been mandated by the government on public sector contracts from 2015/16, as of significant importance to private sector clients, although 42 per cent say it is of ‘some importance’.
One said: “Clients are talking BIM but still don’t understand how to implement [it].” Another says: “The take-up of BIM is slow. There is a lot of ‘BIM wash’ around without fully considering the issue holistically.”
“The take-up of BIM is slow. There is a lot of ‘BIM wash’ around without fully considering the issue holistically”
More than 80 per cent of contractors have seen a supplier stop working on more than one of their projects in the past year.
However, as the industry moves out of the downturn and work starts to pick up, fears over rising material prices and labour costs are highlighted by 52 per cent and 60 per cent of respondents respectively as among their biggest concerns for the next year.
One said “pricing levels are still very fierce and profit levels very thin, so making an acceptable profit is a worry” while another referred to “projects already won at low prices with costs going up”.
Almost a third of construction leaders do not support the business case for HS2, and 28 per cent feel their businesses will not benefit from the scheme.
But almost half of Construction News Barometer respondents support the business case for the scheme while a quarter expect their business to see significant benefit from HS2.
If the government was to invest money from HS2 elsewhere, industry leaders would want to see the money reinvested in transport schemes, while 28 per cent would want to see more invested in schools and hospitals.
The scheme was labelled “a grand folly” by the Institute of Directors this week and former chancellor Alistair Darling branded the business case for the scheme “foolish”.
KPMG head of infrastructure Richard Threlfall said “failing to invest in projects like HS2 will only speed up putting the UK on a downward spiral to a second tier economy”.
The single biggest concern, however, is a lack of skilled staff, identified by almost 80 per cent of respondents.
Fears over an impending skills crisis were highlighted by the CITB earlier this month when it warned of a skills “time bomb” in construction, as 400,000 people retire in the next 10 years.
“Pricing levels are still very fierce and profit levels very thin, so making an acceptable profit is a worry”
Housebuilders have also raised their fears over the lack of skills to meet growing demand, according to a Home Building Skills report released this month by groups including the Home Builders Federation and the National House Building Council.
Their survey showed that almost one in two respondents felt more needed to be done to ensure the sector has the right skills in place when growth returns.
Industry leaders see the greatest business opportunities over the next year in housebuilding, rail and education - each selected by 70 per cent of respondents.
Looking further ahead, sectors expected to have the strongest work opportunities in five years’ time include energy, roads, health and offices.
Energy is the sector that most expect to enter in the next two years, while a handful of firms expect to leave education, health, retrofit and FM.
Energy is also the sector that contractors most want to see given greater emphasis by the government (39 per cent), followed by schools and hospitals (25 per cent) and new housing (18 per cent).
“Workload is shrinking and competitiveness is growing the [further] north and west you travel”
Low tender prices are the biggest challenge facing businesses today, followed by a lack of work, skills shortages and late payments.
Anticipating the next 12 months, one respondent said: “The industry is bidding low prices at a point where there will be an upturn in demand, leading to higher input costs.
“This is the period when more businesses will have a cash crunch.”
The Construction News Barometer was a survey sent to the chief executives, chairmen and senior directors of the top 100 contractors in the UK, ranked according to turnover.
The survey contained 16 questions and was open from 5 August until 27 August. It was completed by 61 industry leaders.
A Construction News Barometer report, containing the full data set, will be sent to those who took part. The survey will be repeated quarterly.