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2014 construction industry review

It was the best of times, it was the worst of times.

It was the best of times, it was the worst of times.

It was the year when workloads returned. There were more jobs, lots of them. As order books grew full to the point of more and more contractors were turning down work, particularly in the burgeoning London and South-east market.

Everything before us

But where did the power lie? In the supply chain. Subcontractors were able to pick and choose so prices inevitably went up. But labour and material prices also grew, so the entire supply chain wanted a bigger slice of the pie.

Did clients get the message? Feedback suggests not as much as contractors would have liked. Evidence grew of intelligent clients, particularly on major infrastructure projects, seeking early contractor involvement, sharing best practice and encouraging their supply chain to do the same.

But with greater workloads and more projects to choose from, developers and public-sector clients sometimes struggled to get contractors to the table.

High-profile examples included the Education Funding Agency’s priority school batches in London, where some of the UK’s largest contractors decided against tendering for work as the cost per square metre targets didn’t make it worth their while, forcing the EFA to raise these costs and in some cases to re-batch schools to make them more attractive.

For their part, tier one contractors were forced to pay higher prices, and seek long-term deals to protect their labour and material suppliers. Despite subbies holding greater power, complaints on payment practices continue to stain the industry.

More tier ones established early payment facilities, but discontent over retentions and late payment continued. Tier ones also increasingly voiced their opposition to project bank accounts. The government continued to stick its fingers in its ears, while the payment charter proposed by the Construction Leadership Council was toothless, and showed little sign of being the game changer it had been trumpeted as.

Things were no better overseas, as Qatar’s World Cup 2022 bid remained on track despite allegations of appalling treatment of workers, resulting in worldwide condemnation.

Echoing footsteps

It was the age of wisdom, it was the age of foolishness. It was the epoch of belief, it was the epoch of incredulity.

‘We won’t take on jobs where the client wants lowest price’. ‘We won’t do single-stage tenders’. ‘If we see others underbidding, we’ll walk away’.

A familiar refrain from the big boys, suggesting they had learned from past mistakes. But their past mistakes came back to haunt them, particularly in the second half of the year. Listed firms had nowhere to hide, with Bam Nuttall, Morgan Sindall and Vinci among those to single out certain jobs as dragging down profits.

Balfour Beatty was rarely out of the spotlight in an annus horribilis that saw Andrew McNaughton start the year as CEO, Steve Marshall end it as acting CEO and leader-in-waiting Leo Quinn expecting a heaving inbox from January.

Office closures, multiple profit warnings and a takeover attempt by the UK’s number two, Carillion, were splashed all over the newspapers as the relationships between their respective leaders became more and more terse.

The UK’s biggest firm shifted its focus from major infrastructure projects towards regional deals and landed more contracts than anyone else in November, showing its ability to win work and retain clients – hopefully at better margins than last year - is still strong.

KPMG will report on its UK contracts next month, with analysts expecting a fresh profit warning.

But the appointment of Mr Quinn as group CEO from QinetiQ is likely to boost the firm, bringing strong leadership and new governance processes.

Recalled to life

It was the season of light, it was the season of darkness. It was the spring of hope, it was the winter of despair.

Cranes blotted the London skyline. At the mid-point of the year, private housing output was up a whopping 20 per cent on 2013. HS2 inched forward. New nuclear remains a pipedream / around the corner / on the horizon (delete as appropriate).

Certain sectors came to the fore. Roads reform could lay the groundwork for greater stability and long-term work for contractors and details of the new Highways England structure which will replace the Highways Agency have started to emerge. That said, if you weren’t a winner on the biggest-ever framework from the agency - its £5bn Collaborative Delivery Framework - chances are you’re downscaling in that sector.

Others fared less well. Tesco’s problems sent shock waves through retail, with the supermarket cutting capital expenditure by £400m in August. Problems beset healthcare projects, but office and mixed-use schemes began to come back to the table after years on the shelf, albeit mostly in London.

Despite the best efforts of industry, fatalities continue to bring pain to families and work colleagues across the country. Among them this year were Slovakian national Rene Tkacik, the first worker to die on Crossrail, and 29-year-old Richard Reddish who died at Laing O’Rourke’s Explore Manufacturing facility.

Fires ravaged Glasgow’s iconic Macintosh Building, ripped through the historic Eastbourne Pier and decimated the timber-framed laboratory being built by Morgan Sindall at Nottingham University.

A far, far better rest

It was a year when everyone appeared to be after a different job. Board reshuffles took place at most major contractors, but for those sitting a rung or two down on the ladder, heads were spinning as fast as the revolving doors. Company stalwarts such as Vince Corrigan at Sir Robert McAlpine and Graham Shennan at Morgan Sindall were among the big names to leave their roles.

Clients were in on the act too, with HS2 greedily picking high-profile staff at will from Network Rail, while others switched from one major project to another, like Andy Mitchell from Crossrail to Thames Tideway Tunnel.

Overseas investment in London’s prime resi market was criticised, but Chinese contractors made more serious moves on schemes, as Construction News revealed that talks were being held over UK joint ventures with firms like Mace and Sir Robert McAlpine.

Firms eyed each other up and (mostly) liked what they saw. Galliford Try bought Miller’s construction arm, while Bullock Construction and United House formed a new heavyweight contractor. It wasn’t just contractors either. Lafarge and Holcim announced a mega merger, while Aecom bought URS and Arcadis bought Hyder in two huge consultant acquisitions. Meanwhile, Kier is currently sizing up Mouchel.

Sinkholes opened up. Rail lines collapsed. Cranes blew over. Potholes multiplied and engineers worked all hours to reduce disruption, most notably at Dawlish, where any politician worth their salt was on site to pay tribute to the workers.

But 2014 was certainly the year politicians woke up to infrastructure (did someone say general election?). In these pages last year, we predicted margins wouldn’t show significant signs of improvement until 2015 and that looks like being the case.

A year of highs and lows, certainly, but for those contractors still here, the prospects look brighter for next year. Now if only we could find enough people to do the work…

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