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Housing holds key to success

The prospects for the UK construction industry appear to be good, according to the bosses of the Top 100 contractors.

It is unsurprising that, for the second time in three years, bosses at the Top 100 contractors thought that the UK economy was more likely to stumble than improve over the next 12 months. This is because our poll was conducted during a period that saw the FTSE and other global markets do a fair impression of a lead balloon as the US sub-prime mortgage crisis began to bite.

But it is perhaps a reflection of both the Government’s continuing investment in public building programmes, and the fact that contracts awarded in calmer financial periods may only now be getting underway, that the same group felt that the industry itself would not only overcome any downturn in the UK’s economy but would, in fact, see an improvement in conditions for both contractors and the industry in general over the coming year compared to the previous 12 months.

In Gordon Brown’s first few days in power as Prime Minister, he set out his stall as the man who was going to tackle the housing shortfall currently gripping the country. His plan to build three million new homes in the next 13 years has clearly had an impact on respondents, with more than half of those polled forecasting an improved outlook for the public housing sector.

Mixed picture

But if it may be the best of times for social house building, you have to look at the opposite end of the scale for these senior executives sentiments about the market for private homes. In stark contrast more than 80 per cent of those asked thought that the market would at best be stagnant, with half of those believing that market conditions would worsen in 2007/8.

The commercial office market, often seen as a bellwether for the whole industry, split opinions three ways with equal measures of those polled expecting improvement, worsening and continuity of conditions for the next 12 months. The infrastructure sector again showed positive expectations among those surveyed, repeating the sentiments of the previous two years. It remains to be seen whether these expectations turn into workload any more this year than they have before, although the indications from announcements such as the rail White Paper, and forthcoming major roads projects such as the M25 widening DBFO contract, may yet allow the civil engineering contractors something to get excited about.

But a consistent approach from the Government is required, something that cannot, it seems, be relied on with three times as many respondents believing that the Government was likely to break its construction spending promises than those who thought they would keep them.

Increased competition

The issues that were capturing the attention around the board tables of the Top 100 firms all seem to be linked to a construction market at the top of its cycle, with competition for resources – both in human and product terms – topping the bill.

Nearly 90 per cent said that finding and retaining management talent was of rising importance to their firms, more than any other factor. One respondent from a medium-sized contractor encapsulated the issue saying: “There are not enough quality people coming into the industry and there is a problem retaining staff who are being poached by bigger companies offering more money”.

Similar factors also rapidly rising up the agenda are labour and input costs, while last years increase in the importance of corporate social responsibility continued in this year’s survey.

Finally the respondents were asked to rate how their perception of the importance of five different measures of financial performance had changed over the past five years. It is encouraging to see that the idea of firms battling it out to be the biggest in turnover terms seems to be receding with profit and profit margins both being seen as a more important measure of success, but it appears cashflow is king, with 85 per cent saying it had risen in importance.

This could be because, as measuring -profit becomes more and more complicated, cashflow is the one tangible that can always be relied on. If something does go wrong at a firm, cashflow is often the first measure to highlight it.