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Hinkley forces South-west contractors to rethink their plans

The approval of Hinkley Point C and the impact it will have on local resources is forcing contractors to change their approach to regional schemes.

The South-west has shown signs of recovering since the recession, with the number of projects coming to market steadily increasing in the past two years

In Q2 2016, the value of new orders in the region hit £1.44bn, the highest level since before the recession, with particularly strong private housing and public sector pipelines.

The Southern Construction Framework for public sector bodies, covering projects worth more than £1m, has provided a steady flow of work for the 10 firms working across the South-west lot, which include Bam Construct, Midas, Morgan Sindall and Wates.

But the approval of Hinkley Point C will create a boom in work, with the £18bn project and associated infrastructure set to keep the local workforce busy for the next decade once construction gets under way.

Most regions can have multiple larger projects progressing simultaneously without main contractors having to worry about where their supply chain and labour force will come from. But when an £18bn project is approved on your doorstep, it becomes a different matter.

That’s the challenge contractors in the South-west are now facing, with Hinkley forcing them to think differently about their supply chain – and even making some firms choose different designs to accommodate shortfalls in skilled labour being hoovered up by the UK’s first new nuclear plant for a generation.

Post-recession recovery

With the start of construction at Hinkley on the horizon, there are still projects keeping contractors in the South-west busy – both in the private and public sectors.

While some of the region’s private markets have seen a decline in new orders – particularly the commercial sector, where their value dropped 14 per cent between Q1 and Q2 this year – others are proving strong, according to Midas CEO Alan Hope.

He says the dividing lines between public sector and private sector “aren’t as clear as they used to be”. One example is Midas having a robust pipeline of student accommodation, driven by private developers rather than the universities themselves, with the firm on site in Exeter, Portsmouth, Bristol and Bath.

Outside of student housing, Mr Hope says many firms are “chasing the grey pound” and focusing on higher-end retirement living, as well as high-end care homes to cater for an ageing population.

Public sector pipelines

The commercial market has been quiet over the past six months, he adds, a view echoed by Bam Construct western regional director Tim Chell.

He says frameworks form the backbone of Bam Construct’s work in the region, contributing revenue in excess of £100m. But he adds that it has been difficult for speculative commercial development to get off the ground, with funders less attracted to projects in the region compared with London and the South-east.

“We’ve got a lot of key subcontractors and we’re talking to them constantly”

Tim Chell, Bam Construct

In the public sector Bam has won a place on the ProCure22 health framework and has a strong education pipeline through its place on the EFA’s Main Contractor Framework, worth £6bn. CN revealed this year that Bam had won 18 contracts on the framework worth nearly £176m.

And while public frameworks and certain areas of the private sector are proving lucrative for the region’s contractors, one mega-project is always at the forefront of their minds.

Sourcing South-west skills

“Hinkley Point is on the tip of everybody’s tongues,” Mr Chell says. With contracts for the £18bn project finally signed in September, construction activity is expected to ramp up, with more than £3bn of construction deals already agreed. But while it will provide a fillip for thousands of supply chain partners, for contractors not working at Hinkley it is already forcing them to think about their business models in the region.

Construction workforce in South-west peaks and troughs

Construction workforce in South-west peaks and troughs

Source: ONS

The first issue that contractors will have to deal with is labour supply. ONS data suggests the construction workforce in the South-west has recovered steadily since its recessionary trough in Q2 2010, when it hit 169,000. It has since recovered to 208,000 as of Q2 2016, having hit 216,000 in Q4 2015 to exceed its pre-recession peak.

However, Hinkley will place huge labour demands for both skilled and unskilled workers. According to EDF, the project will provide 25,000 job opportunities and more than 5,600 people are expected to work on site during its core construction phase, meaning main contractors will face a battle to maintain their supply chain.

Hinkley’s labour demands

Mr Hope says that, once main construction work begins at Hinkley, it will be a major pinch-point for the region’s workforce. “It’s going to be a big draw on labour, particularly unskilled,” he says. “[EDF] is already suggesting they are willing to pay a premium to attract labour to that site.”

Mr Chell agrees that the amount of work on offer at Hinkley is likely to soak up much of the available workforce in the region, making it more difficult for main contractors to attract the people they need. “It could lead to an increase in wages and an increase in the cost of projects due to subcontractors wanting to reward their staff accordingly,” he adds.

This means contractors needs to be proactive when it comes to mitigating the potential impact, and have started early engagement with their supply chains to make sure they can still attract high-calibre subcontractors and skilled labour.

“[EDF] are already suggesting that they are willing to pay a premium to attract labour”

Alan Hope, Midas

“We’ve already been having conversations with our key subcontractors and suppliers around making sure we get some prioritisation because of our track record of working with them,” Mr Hope explains. “It is going to be a challenge but I’d like to think we’re better placed than most to deal with that in the South-west, given the amount of work we’ve been doing here in the last 10 years.”

Mr Chell adds that his firm has had early engagement with its supply chain to try to secure labour and fix rates before Hinkley work ramps up, making sure Bam will have the labour force it needs. “We’ve got a lot of key subcontractors that work for us on a regular basis and we’re talking to them constantly,” he adds.

But it’s not just in recruitment that contractors will face challenges.

Changing designs

Contractors are now having to think differently about design and how they can adapt it to suit skills that will be more readily available during Hinkley’s construction. The nuclear plant will require 3m tonnes of concrete, which could force contractors to change their designs on future projects.

Mr Chell says his firm is trying to “second guess” the market in terms of design. “It could mean, for example, we would steer away from concrete frames to steel frames because we surmise there’d be a big demand for steel fixers and concrete crews at Hinkley, so [we would] be better steering our projects towards the steel frame option,” he says.

“[Hinkley] will drive projects in our area to look at more offsite fabrication solutions”

Alan Hope, Midas

Mr Hope adds that his firm is taking a similar approach, with more focus on steel frames and added attention on offsite manufacture. “We’re looking at bringing offsite fabrication into designs so we’re less reliant on labour on site,” he says. “I think [Hinkley] will drive projects in our area to look at more offsite fabrication solutions.”

For contractors working in the South-west, the future will require long-term planning to meet demand while one the UK’s largest infrastructure projects is built.

Mr Hope says Midas has been in conversation with EDF regarding some of the works around the site – not “inside the wire,” as he puts it, but enabling works and support projects that the client will need. Midas has also won a contract to deliver Somerset’s New Nuclear College, one of two government-funded nuclear colleges in the UK.

So while Hinkley may cause supply chain headaches for some contractors, many are already beginning to tackle those issues before they arise.

For others, it has brought opportunity, too – and may force firms to think innovatively about delivery and design as a result.

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