Construction companies: What are your main priorities for 2018?

UK, November 22, 2017.- The UK construction industry recorded growth rates in the first half of 2017, but now as the industry seems to be slowing, what are we to expect in 2018?. In this article we highlight multiple market priorities in the sector which have been expressed in recent months and explore in detail, reports from Construction News and The Telegraph with topics ranging from investment in infrastructure to diversity and gender equality in this dynamic market.

Reel in construction’s boom and bust cycle

An issue that has come up time and again is how short-termism has starved the construction industry and the need to invest long term. Moreover, how should private firms be incentivised to invest in the R&D needed to tackle the persistent problems of productivity, low margins and fragmented supply chains. As the body responsible for 35 per cent of all construction work in the UK, the government has a unique position to influence the entire industry.  

Gleeds chairman Richard Steer says the government must come up with fresh pipelines rather than rehashed plans and states “the only way to get organisations investing in our industry is to have a steady workflow if the economy goes a tad wobbly.”  He continues “whether major infrastructure can be timed to coincide with downcycles is asking too much, but if you knew there was a strong and consistent public sector workload it would be easier to look far in to the future and invest appropriately.” But to do that we have to know what is coming a decade down the line. “We need to have investment long-term in infrastructure to give private sector confidence so that they can continue to invest as well. Whoever wins the election, they will present either an emergency or an autumn Budget. I ask that they first stop recycling the promises they have made and commit large lumps of money to actually be spent. If we get a process of re-announcing previous plans we will just roll our eyes.”

Cast Consultancy chief Mark Farmer agrees that certainty is the main solution to countering boom and bust: “Public sector spend certainty and more general housing market diversification lies at the heart of more stable acyclical and counter-cyclical demand planning, which will better enable the long-term thinking from industry needed to underpin modernisation.”WSP planning and advisory MD Ian Liddell adds: “Longer term investment planning is crucial to give the private sector greater investment confidence”.

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Guarantee access to skilled labour

The UK is also an ageing society with millions soon due to retire across all sectors, particularly construction. One of the most critical issues the next government needs to address is just how it anticipates finding the workers we need for major projects while controlling immigration and getting numbers down to the “tens of thousands”. The labour requirements of the huge infrastructure schemes in the UK’s pipeline are of particular concern. Birmingham Airport chief executive Paul Kehoe says: “In our quest to manage immigration, we need to ensure that we also allow people here who can help us deliver our infrastructure projects on time and successfully. The available labour pool, the engineering support system and skills will be the main challenges.” As RICS president Amanda Clack notes, there needs to be a serious discussion on what professions are given priority in the new system which is to be drawn up once we leave the EU. According to the RICS, 53 per cent of respondents said lack of skilled labour was impeding growth. “Eight per cent of the UK construction workforce comes from the EU,” Ms Clack points out. “If we lose access then there are 250,000 jobs under threat – that threatens the £500bn pipeline of projects we have got. 

“We need to guarantee the immigration system allows us to access the skilled labour we need – and getting professions like QS in the skills shortage register is vital. We also need a plan for passporting professional standards – we need the availability of that skilled workforce to deliver on those programmes.”

Aecom UK chief executive Patrick Flaherty echoes the need for certainty as soon as possible: “With 200,000 EU workers accounting for 54 per cent of the construction workforce in London alone, we would like the government to secure the rights for EU nationals already in the UK to remain here and for companies to continue to be able to recruit the best available talent in the global market.”

Get inward investment back on track

When it comes to places to park international funds, the UK has long been thought of as a safe bet. The favourable timezone, stable government, enviable judiciary and strong ties to the two largest economic blocs in the world – the US and the EU – helped shape that perspective. However, two elections and two referendums in just over three years, culminating in the current campaign and Brexit negotiations, have begun to change some investors’ perspectives.

At Mipim in 2016, UK Trade and Investment aimed to lure investors from the likes of Europe, the US, China and Japan to back £15bn of projects across the Midlands. Similar programmes such as the Northern Powerhouse have also helped entice investment across the regions. The survey, conducted among 453 “international decision-makers”, revealed a sharp drop in confidence in the UK’s attractiveness in areas such as transport, infrastructure and labour skills, which can have a knock on effect on projects currently in the pipeline. EY’s infrastructure leader Malcolm Bairstow said the UK must focus on having “world-class and connected infrastructure”, but that “this is unlikely to be achieved unless the sector can attract foreign direct investment and private finance to support both capital investment and infrastructure operations”.

Maintain environmental standards and launch a new green deal

What is noticeable, however, is that far from retreating from sustainable programmes, the construction industry is pressing ahead with new standards. Balfour Beatty became the first contractor in the world to achieve the ISO20400 standard for sustainable procurement, which has been in development since 2013 and was drawn up by a committee of representatives from more than 40 nations. Clients are demanding energy efficiency and sustainable measures are in fashion. If anything, this shows that the government and the industry have gone out of kilter. The next government would do well to work with industry to draw up how the UK (which launched the BREEAM standards, it should be remembered) can continue to lead in this area. A new green deal would be welcomed. Aecom chief executive Patrick Flaherty says continuing the standards set by the UK’s EU membership is crucial. “The government should stick with energy regulation and building standards already established by the EU to promote ease of access when working across borders and then evolve over time if changes are deemed justified,” he says.

Tackle diversity and gender inequality

Construction has a dire record when it comes to gender inequality. Figures reported in April show that the pay gap in the industry is up to 5 percentage points higher than the national average, with men on average earning 23.3 per cent more than women, compared with the UK average of 18.1 per cent. The number of women working in the industry is also low. In April-June 2016, there were so few female workers in the industry that for many of the individual building trades the government was unable to even provide an estimate as to how many there were. From boardroom to building site it is estimated that women account for around 12.8 per cent of the industry’s workforce, according to the ONS. New research released in March by Keepmoat found that only 13 per cent of 1,000 women it surveyed aged 16-25 would consider a career in the industry. The appointment of Katy Dowding as the new executive vice-president at Skanska, Roma Agrawal joining Aecom as an associate director and Balfour Beatty announcing that Barbara Moorhouse will sit on the non-executive board from 1 June this year shows that more female leaders are emerging. However, more needs to be done to balance the gender gap in the sector and the government must play its part in forcing the industry to improve.

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Tackle the costs of doubling up on public tenders

Any contractor looking to land a large contract will be frustrated by the time and vast resources put into the bidding process. Research published in 2015 found that firms winning an average of one in five projects could be spending as much as 22 per cent of their operational turnover winning work. The win ratio is crucial for companies looking to avoid problem jobs and determining whether to bid schemes in the first place.

However, when it comes to public tendering, firms often find they have to start from scratch on prequalification questionnaires (PQQs) when bidding for new contracts within the same local authority or public body. This doubling up and data duplication adds time and cost for both sides. Frameworks have helped allay these problems by allowing multiple jobs to be quickly tendered to a pre-allocated pool of contractors, while the PAS 91 standardised PQQ has also helped suppliers reduce the need to complete a variety of different forms. Nevertheless, a fresh look at how the process can be further streamlined is required.

What’s the post-OJEU plan for public sector tenders?

With all public procurement firmly embedded within the Official Journal of the European Union (OJEU) process for decades, any company looking to work with the public sector have had to sign up to the method of public tendering. Though OJEU is considered bureaucratic, it has become standard practice for higher-value contracts.

However, in just under 24 months’ time that process could be no more. What will replace it is not known and the question of whether UK firms will still be able to access OJEU tendering for other countries across the EU is unresolved. The lack of clarity adds a huge amount of uncertainty for the industry – especially clients who rely on public procurement for their revenue pipeline. Public sector work won’t simply dry up, but the upheaval could disrupt cashflows or see staff temporarily cut until the picture becomes clear.

The government has its work cut out to deliver on this critical issue for all sectors of public procurement, not just construction. A bit of clarity – perhaps with a green paper on the future of OJEUs and the system that will replace it – would at least be a start.

Enforce the BIM mandate and press ahead with Level 3

BIM was identified by the government as an area where its intervention could lead to positive change. By mandating the use of BIM Level 2 on all centrally procured public contracts, it drove a step-change in the way the industry collected and used data on projects. Yet the latest report by the National BIM Service found that not all government departments are sticking by their own mandate. Also, many in the industry believe that Level 3, which will take in the lifecycle of a building and driving greater efficiencies, is where the real cost savings can be found. Arcadis head of strategic research and insight Simon Rawlinson says: “Any government will need to focus on ensuring that the public sector is and continues to be an exemplar client. This includes the role of the Infrastructure and Projects Authority and implementing the BIM Level 2 mandate.”

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Support regional infrastructure plans

With combined authorities and metro mayors such as Manchester’s Andy Burnham now in play, any new government needs to take the next step and begin to take regional infrastructure investment seriously. A study by the Confederation of British Industry in April found that £175bn could be added to the economy if regional infrastructure was improved, which would help in increasing the number of civil engineering successes such as the new crossing over the forth and  Crossrail in London, both of which Doka had been highly involved in.

Transport for London has the kind of economic heft that regional organisations promoting the Northern Powerhouse and Midlands Engine can only dream of. Chartered Institution of Highways & Transportation vice-president Matthew Lugg says: “Planning must address the delivery of transport infrastructure to meet the needs for development in the right place at the right time.” To achieve Mr Lugg’s aim, the UK needs to consider changing the way it delivers and integrates new developments with the required supporting transport infrastructure. CECA Director of External Affairs Marie-Claude Hemming adds: “An incoming government must commit to the delivery of world-class infrastructure outside of London and the South-east. Such a policy intention will attract business to new regions and help existing companies grow.”

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Expand the Accelerated Construction Programme

In the housing white paper launched earlier this year, the government admitted that the housing market was “broken”. One possible way of increasing the supply of new homes is the launch of the Accelerated Construction Programme for local authorities. A briefing paper calling for expressions of interest was launched in January, which aimed to address the barriers authorities face in undertaking development activity such as lack of experience, skills and resources to oversee developments in-house. The paper indicated that the programme could deliver up to 15,000 housing starts on central and local surplus public sector land in this parliament through £1.7bn of investment. The next government should build on this positive start. Cast Consultancy chief executive Mark Farmer says: “Direct government funding, partnering or covenant support such as the Accelerated Construction Programme will drive further investment in high-quality manufacture-led construction solutions, and bring in the new skills needed to deliver them and secure greater long-term housebuilding capacity.” The construction sector has historically been slower than others in maximising the opportunities arising from innovation; the formation of the Infrastructure Industry Innovation Platform (I3P) in October 2016 was a step in addressing this issue.

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