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Construction Industry

UK Construction Intelligence Report

Overview

All sectors have suffered greatly through this pandemic, infrastructure the least affected and the urgent need for increased distribution space assisting private industrial. However in the growth by sector table the telling statistic is that come the end of 2022 total new work will still be 7% lower than at the start of 2020.

Sector Analysis

Trends

Source – Experian 3Q20


Total Change by Sector 2019 - 2022

Growth

Source - Experian

Liquidity in the Last 6 Months of 2020

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Construction firms might face a cash crunch in the last half of the year. It has been estimated the industry saw a decline in cashflow of £30bn between the end of March and the start of July. This has the effect of cash not flowing down through the supply chain and firms may have to wait up to 60 days for recompense.

The government's jobs retention scheme, which has currently helped to avoid large scale redundancies is set to expire in October. This will be at a time where growth will still be tentative and has the potential to cause a spike in overhead costs as full staff costs are absorbed or redundancy payments are made. This could either lead to further insolvencies or a round of keen tendering as contractors and consultants look to win work.

Without prompt payment this could create a time bomb going forward with many companies running out of money and this could be amplified if clients sit on payments to preserve their own liquidity.

Going Forward 2021 & Onwards

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The fear is autumn will see another spike in infections and as the virus mutates further outbreaks occur until a successful vaccine is run out. Until this point is reached, we must operate within the present stringent health and safety levels with the resultant impact on productivity and output.

As a result Contractors will be more risk adverse, projects will be assessed on the assumed risk that they carry including the complexity of the construction, the supply chain needed and the proposed procurement route. The Contractor may deem these too risky and decline to tender.

Additionally Clients will look at the viability of their scheme and may cancel or postpone it. All parties will also look to cover themselves against further outbreaks of Covid-19 and possible new viruses with new contractual clauses for delays.

It will become even more critical to review the suitability of the contractor against their financial performance and the robustness of the supply chain employed to ensure the best possible outcome for all parties.

Effects of Brexit

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Presently for the first time since 2016 Brexit is no longer the main subject of conversation, but it is still happening and it’s possibly looking like no trade deal will be agreed before the UK leaves. This will mean that we will revert to WTO rules with the potential for increased tariffs on materials. Logistics will suffer as imports and exports are hindered by red tape. While the EMEA materials market maybe volatile with continued travel restrictions and social distancing, this may be offset by the re-emergence of cheaper materials from the Chinese economy recovering from Covid-19 sooner than the Western nations.

The chronic labour shortage faced by the industry will be make worse by the exodus of skilled and unskilled EU nationals as they seek work elsewhere, as previously noted above this will have an effect when the demand returns. The need to win work may result in training budgets being reduced, further increasing the lack of British workers.

Political dexterity coupled with the need to provide voters with a successful outcome in the UK and EU will be needed for both sides. Boris Johnson needs to achieve a political win with an acceptable trade agreement given the criticism he has faced with his handling of Covid-19, the growing calls for Scottish independence and the resurgence of the Labour party.

Public & Private Investment

With the construction and infrastructure facing an unparalleled period of doubt and risk because of Covid-19, its largest client the Government needs to provide a strong pipeline of work to provide confidence and certainty that the industry requires.

It has been stated that infrastructure is close to the PM’s heart with previous proposals for “Boris Island” as a new London airport and the bridge between Scotland and Northern Ireland. If the PM is championing the cause of infrastructure and civil engineering works would bolster confidence. The bringing forward of £5bn worth of projects under the slogan “Build, Build, Build” that are “shovel ready” will assist with the getting equity back into the sector and avoid cut throat margins.

Government

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Described by the Prime Minister as a ‘New Deal’, the ambition is to build better, greener and faster. The Chancellor Rishi Sunak will chair a new taskforce known as “Project Speed” and the investment in infrastructure will include:

  • £1.5bn in 2020 for hospital maintenance
  • £100 million pledged for 29 road projects
  • Over £1 billion to fund the first 50 projects of a new ten-year school rebuilding programme, starting from 2020-21
  • £560 million and £200 million this year for repairs and upgrades to schools and FE colleges respectively
  • £142 million for digital upgrades and maintenance to around 100 courts, £83 million for maintenance of prisons and youth offender facilities, and £60 million for temporary prison places
  • £900 million for a range of ‘shovel ready’ local growth projects in England over the course of this year and next, as well as £96 million to accelerate investment in town centres and high streets through the Towns Fund.
  • As a short-term measure new planning regulation will enable existing commercial properties, including newly vacant shops, to be converted into new homes.
  • £12 billion affordable homes programme supporting up to 180,000 new affordable homes over the next eight years and a £450 million boost for the Home Builders Fund to help smaller developers and support around 7,200 new homes.

It was announced that up to £37bn of infrastructure work will be available this financial year with 340 contracts across 260 projects that have already been committed to for the 2020/21 year, according to the Infrastructure and Projects Authority (IPA). The largest of these opportunities include a £7bn Smart Motorways Alliance contract, the £3bn HS2 rolling stock contract and the £2.8bn Stonehenge Tunnel project.

The public sector operator Pagabo launches frameworks worth £47bn starting in September 2020 for four years. Pagabo is launching two frameworks this year, this one for “all types of developer led schemes within construction and premises”.

The second will be for those who use modern methods of construction. The framework’s three lots cover a huge variety of works including harbour construction, residential schemes, bridges and tunnels, canals, aqueducts and leisure centres. It will be open to all public sector bodies including schools, universities, local authorities, police and emergency services, central government departments, the Ministry of Defence and housing associations as well as NHS organisations.

Modular specialists can win places on a new £2bn housing framework as the Central Housing Investment Consortium (CHIC) has unveiled its new deal, which will run for an initial period of five years with an option of extending by two subsequent five-year periods.

CHIC is a consortium of more than 92 housing associations and local authorities. The group is collectively responsible for more than 700,000 homes. In a contract notice, the organisation said: "CHIC is procuring three contracts for the manufacture, supply and erection of new modular (volumetric) homes with options for all site works.

Private

22nd June saw plans have been submitted to the Royal Borough of Greenwich council for a 1,500-home mixed-use development bordering the Thames in east London, with a gross development value of £760m. This was significant as it was the largest post Covid-19 lockdown scheme to be submitted.