UK construction faces staggering over-capacity in the coming months unless there is a significant increase in confirmed work.
A unique new survey of the UK’s largest contractors shows just 55 per cent of projected turnover for 2011 has so far been secured, dropping to 31 per cent for 2012, 15 per cent in 2013 and 0.9 per cent in 2014.
The findings came as part of supply chain research - shared exclusively with Construction News - conducted by consultant Davis Langdon, which polled over 70 of the largest UK based contractors.
Davis Langdon head of offices sector for Europe Iain Parker and senior project surveyor Peter Medland headed up the venture with a view to offering major clients a snapshot of how contractors had “weathered the storm”.
Mr Parker said he was surprised by the gap in projected and secured turnover, saying it “raises serious issues”.
“If workloads continue to remain low, contractors will be forced to shrink and that in turn raises questions about industry’s ability to satisfy the workload when it does come back again,” he said.
Contractors would face “tough business decisions” if turnover was not secured, he added. Contractors were asked to provide details of projected turnover figures and secured order books.
Mr Parker highlighted the “vast differences in performance” over the last few years. “Some contractors doubled turnover and some shrank by
70 per cent,” he said.
“The movement in the market is interesting and suggests the traditional bands might not be as fixed as once thought.”
Those contractors that fared better often enjoyed a high volume of long-term work secured before the downturn.
Contractors were asked around 25 questions focusing on strategy, turnover and orders, tenders, procurement, innovation and subcontractors.
The survey found Great Portland, Derwent and Land Securities were the three clients most targeted by contractors, with firms such as Hammerson, Stanhope, Development Securities, Frogmore, British Land and Tesco also highly sought-after.
It found hard evidence of the shift from public to private sector work. The public sector share of total work before the recession was 7 percentage points higher than its share of the total now.
There has been growth in the relative share of commercial (4 percentage points), residential (2 percentage points) and retail (1 percentage point).
Pre-recession, contractors had focused on volume and public sector work, and were willing to pursue one-off opportunities, the survey found.
But most contractors said they had undergone a significant shift in approach.
Mr Parker said: “There is a trend towards London and a move towards the commercial and energy sectors.”
While 60 per cent of respondents said tendering had increased this year, some suggested this was because of the rise in the number of contractors on tender lists.
Around half of all tendering activity was in London, while the most common size of tender was less than £5 million.
Almost 80 per cent of contractors said they preferred a two-stage design and build procurement route, with other forms of single-stage or construction management procurement accounting for less than 10 per cent each.
Mr Parker said: “The mad panic of 2008-9 where people were bidding for anything and everything has passed. People are sitting back and thinking about how they spend time, money and energy.
“Almost 70 per cent of contractors saw refurbishment - and mainly office refurbishment - driving future tendering.”
The survey revealed changing relationships between tier-one contractors and their supply chains, with regular “health checks” now common practice.
Mr Medland said the financial crisis had taken its toll on relationships, with some contractors having to review formerly trusted supply chains as relationships become strained.
He said: “In response many contractors are consolidating their supply chain, with a view to being closer to fewer, where they may agree preferential contract terms for trusted subcontractors in order to receive reliable service and competitive costs.”
He noted some contractors “widening their supply chains geographically” by using European and Asian subcontractors.
Bridging the gap between projections and reality
The growing gap between projected turnover and secured order books should sound alarm bells in boardrooms.
Contractors cannot force clients to spend but they can position themselves better for when workloads return.
Before the recession, contractors were willing to pursue one-off opportunities but according to Davis Langdon’s survey there is a new focus on quality client relationships.
Mr Parker notes a tendency to target clients with “big corporate portfolios” and suggests contractors carry out “proper research as to who would be a good target and why”.
He said: “There is often a tendency to spread too thinly rather than apply a truly qualitative approach to building a relationship.
“Our industry is dependent upon relationships to achieve great outcomes and if you are going on a journey with someone for a significant period of time, such as a construction project, you need to be wholly confident that competence, co-operation, honesty and trust are at the forefront of that relationship.”
The survey found that contractors were also attempting to innovate by using prefabrication, sustainability and building information modelling.