Weekly Glenigan Newsletter - 15th June 2010
Welcome to Glenigan's weekly customer newsletter that brings you
comment on major industry developments and news updates from the
past week. Click on the links to read the full story.
Construction feeling the pinch as
public sector slows down
Promotions: Allan Wilen to chair
panel discussion at Recycling and Waste Management
Exhibition
ONS Construction Development/Key
Performance Indicators Launch Event
Featured Region: South
East
Featured
Sector: Education
Project News
Expressions of interest
currently invited
Tenders currently invited
Two Bidders invited to Continue
Dialogue
Works have commenced on
site
An Open day for prospective
bidders
Tenders currently invited
Company News
Mears says trading is
strong
Harsh staff cuts could affect
Transport for London
Scott Wilson confirms takeover
approaches
Babcock to hire former Jarvis track workers
Network Rail reports sharp fall in profits
May Gurney pre-tax profit up
7pc
How can we
help?
Construction feeling the pinch as public
sector slows down
The value of construction projects
starting on site in the three months to May 2010 fell back to below
2006 levels as fewer public sector projects started on site
following the General Election. The Glenigan Index for May was 10
per cent up on a year ago, but lower than the Index for March and
April this year. “The construction industry will be looking to the
private sector as government funded schemes come under increasing
pressure in the coming months” commented Allan Wilen, economics
director, Glenigan.
Residential project starts in the three months to May showed a
clear divergence between private and public funded projects. “The
value of private housing project starts remained 58 per cent up on
a year ago while social housing developments fell back from the
surge seen in the first quarter. This pattern is forecast to
continue in the coming months as housebuilders look to capitalise
on gradually improving market conditions and social housing starts
remain under pressure” according to Mr Wilen. The Glenigan
Residential Index remained 26 per cent higher than a year ago, but
fell back from the rise seen in the past two months.
Countering a weak start to the year, the Glenigan Civil Engineering
Index for May was 11 per cent higher than a year ago. Civil
engineering has been boosted by new utility projects including
energy, waste and water projects.
There have been marked differences in regional construction trends
in recent months. Mr Wilen commented “There has been a sharp
divergence in project starts over recent months, with Scotland,
Wales and the north of England enjoying a sharp rise in project
starts compared to a year ago. In contrast, the flow of project
starts has been at best flat in the south of England” according to
Mr Wilen.
Looking ahead, Mr Wilen said “The recent pick-up in private
housing, retail, hotel and leisure projects will continue to be
tempered by low levels of activity in the industrial and office
sectors over the next few months. However conditions in the
industrial and commercial property markets have improved and a more
widespread strengthening in private sector activity is forecast
over the next two years. In contrast Government funding cuts will
restrict the flow of new public sector schemes over the medium
term.”
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Featured region: South East
Recent performance
The value of underlying construction starts in the South East
was dragged lower during 2009 by weak housing, office, retail and
civil engineering sectors.
However, whilst the value of underlying infrastructure projects
has been weak, several large road contracts have helped boost
overall starts in the region. Key large contracts for the region
include a £601 million road improvement near Dunstable,
Bedfordshire and the £200 million Area 3 Managing Agent
Contract.
Non-residential construction has been affected by the
deteriorating economic conditions. CBRE recorded a 32% drop in the
take-up of office space in the Thames Valley and around the M25
during 2008, while vacant floor space edged up to 11.8% of
accommodation by the end of the year. The weakening in demand for
new accommodation, together with the rapid deterioration in
investor sentiment, has impacted upon the flow of new office
developments in the region. The value of underlying office starts
fell by a fifth during 2008 and by a further 37% last year.
The start on site of several distribution warehouses boosted the
value of industrial starts during 2009, but the flow of new
projects has subsequently dried up: The value of industrial
projects starting on site during 2009 was running at half the 2008
level.
An increase in public sector related construction starts has
partially offset the weakening in private work. The value of
underlying education starts remained firm during 2008 and was also
up 4% in 2009. Health projects nearly doubled during 2008 and
remained firm over the last year.
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Prospects
The weak level of construction starts in the South East during
2009 is expected to persist into the first half of 2010.
The flow of planning approvals has continued to weaken, with the
value of underlying projects securing approval during 2009 12% down
on 2008. The private housing sector continues to lead the decline,
with approvals running at half of the level seen a year ago.
This has already translated to
a sharp fall in the value of underlying projects starting on site
during 2009. Based on projects being tracked by Glenigan, we
anticipate that project starts will remain subdued during the first
half of 2010. However, after a weak first half in 2010, a gradual,
if fragile recovery in project starts is forecast for 2011. While
project starts are forecast to strengthen during the second half of
2010, the value of projects for the year as a whole will still be
8% down on 2009. A modest rise of 6% in project starts is forecast
for 2011.
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Featured sector: Education
Recent performance
Over the last five years there has been a sharp increase in
investment in education facilities. Amid growing concerns over the
impact of the credit crunch and a slowing economy, the education
sector has remained a bright spot for UK construction.
Education has been a long-standing political priority for the
current government. Investment in English school buildings alone
has almost doubled to £3.9 billion over the last five years; at the
same time, there have also been sharp increases in capital
expenditure in other parts of the UK and by universities.
The key objectives of planned investment have changed. Whilst an
initial priority, especially for the school estate, was tackling
outstanding disrepair, the Government focus has now shifted to
providing a ‘modern learning environment’. Central to this is the
Building Schools for the Future (BSF) programme, which aims to
rebuild or refurbish every English secondary school over a 10 to 15
year period.
After a slow start, the BSF programme is now rapidly gathering
momentum. While only 12 schools had been completed by April 2008, a
further 42 opened during the last financial year. The Government
expects 115 to open during 2009/10, with the programme scheduled to
accelerate further to 200 schools a year by 2011/12. Furthermore,
the Government is now embarking on a similar programme of
improvements for England’s primary schools, half of which will be
remodelled or refurbished over the next 14 years.
There has also been a sharp increase in capital expenditure on
the Scottish school estate. Direct government funding has more than
doubled since 2005/06, while PPP schemes have further accelerated
the pace of renewal.
Against this policy background, education construction was one
of the few sectors to perform strongly over the last two years. The
official statistics recorded a 12% rise in construction output
during 2008. Output slipped back during the first quarter of 2009
and although it subsequently recovered and output during the first
nine months of 2009 was unchanged on the corresponding period of
2008.
A 17% fall in the value of underlying planning approvals during
2008 restrained the flow of underlying construction starts during
the closing months of the year and the first quarter of 2009 (see
table below). However, detailed planning approvals began to
stabilise during the final quarter of 2008 and subsequently
strengthened last year. Approvals during 2009 were 23% up on a year
ago.
This upturn in planned education schemes has filtered through to
a sharp increase in project starts since April 2009, as a number of
planned BSF projects have finally started on site. Furthermore the
sector is receiving an additional boost from extra funding for
school repairs and improvements to primary schools promised in last
autumn’s Pre-Budget Report.
More encouragingly project starts have strengthened since the
start of the new financial year as additional government funding
first promised in the 2008 Pre-Budget has started to filter
through. Whilst, the pace of project starts began to lose momentum
during the early autumn after the initial surge of new work during
the opening months of the current financial year, recent months
have seen a renewed strengthening in project starts. The value of
underlying project starts during the three months to December was
15% up on a year ago. This helped lift the value of underlying
construction starts during 2009 as a whole to stand 11% up on the
previous year.
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Prospects
Looking ahead to this year, the prospects for continued sector
growth are fading. In 2009’s Budget, the Chancellor announced that,
following consultation last year on the future delivery of BSF, the
Government has decided to move from the ‘wave’-based model used to
date, so that local authorities who are currently discussing new
BSF projects with Partnerships for Schools can join the programme
on a rolling basis, in line with “available resources” and only if
Partnership for Schools assesses that they are ready.
In theory this could enable a steadier flow of new projects over
the longer term. In reality, following the decision to bring
forward capital funding into the previous financial year, the
“available resources” are set to decline by 6% in 2010/11. Against
this financial background, project starts are now expected to slip
back by 14% this year as proposed education projects come under
increased financial scrutiny. This is despite a resilient
performance during the first quarter of the year, in which project
starts rose by 9%.
This year’s Budget revealed a sharp contraction in gross
government investment in the near future and it is becoming
increasingly evident that a more significant retrenchment of
overall government spending than currently planned will be needed
over the longer term. Whilst projects in the development pipeline
point to a subsequent lift in project starts during 2011, there is
a significant downside risk that the value of new work will fall
short as planned projects are shelved.
A change of government also poses a downside risk to project
starts during the forecast period. Whilst Conservative policies
support continued investment in education in order to drive up
standards, this support does not automatically apply to existing
capital programmes such as BSF. Indeed the party is proposing a
redirection of the £4 billion Academies Programme; initially
towards 12 new schools in the largest urban areas, with further
schools to follow. The schools could be developed in conjunction
with Lord Barker’s Trust. Accordingly, the flow of new projects is
likely to be disrupted post-election as existing programmes are
reassessed in light of funding restrictions and the new
Government’s longer term ambitions.
The latter includes increasing the number of new school places
by over 20,000 and radically reforming the education system. In
particular LEAs would lose their overarching responsibility for the
management of schools, and new private sector firms and
not-for-profit organisations would be allowed to set up new
schools. The Conservatives have earmarked £4.5 billion of funding
from the BSF programme to establish such schools.
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Project News
Expressions of interest currently invited
Client Northumbrian Water are currently seeking contractors to
express an interest in tendering for the £8m Sludge Treatment Reed
Bed system at its Hanningfield Water Treatment Works near
Chelmsford, Essex. The system will dewater an average of 2 Ml/day
of water treatment sludge by means of a vertical flow reed bed
filter system. Contractors should apply by 2nd July 2010. Work is
to be completed in 16 months. This project has been reported in the
Official Journal of the European Union 2010/S 109-165824.
Project ID: 10229713
Tenders currently invited
The Clyst Honiton Bypass is currently out to tender until the
11th June 2010. Bidders include South West Highways, John Sisk and
Road Form Civil Engineering Ltd. The design and build contract will
include 1km of new single carriageway highway and a new tunnel
structure. The new bypass is proposed by East Devon New Community
Partners currently consist: Hallam Land Management, Persimmon
Homes, Redrow Homes, and Taylor Wimpey Developments and is project
managed by Mike Owen Project Management.
Project ID: 04161583
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Two Bidders invited to Continue Dialogue
Client Liverpool City Council will be issuing Invitations to
Continue Dialogue (ITCD2) to Balfour Beatty Education and Inform
(Morgan Sindall and Robertson) from 9th July 2010 for their
Building Schools for the Future Wave 6 programme. The £300 million
programme will see the rebuilding, remodelling, refurbishments and
minor works internally and externally of 22 schools within
Liverpool. Final bids are expected to be submitted by November
2010.
Project ID: 07187089
Works have commenced on site
Clients Borough of Telford & Wrekin Council have awarded
Kier Moss Construction, who are now site, the sample school, from
their Building Schools for the Future Programme Wave 4. The £35
million project at Abraham Darby Academy, Ironbridge Road, Telford,
comprises demolition of the school and construction of a combined
1,050 place Academy, sponsored by the Haberdashers' Livery Company,
with a 420 place primary school and a community leisure centre. The
design articulates the three different elements (primary school,
academy and leisure) as a series of linked pavilions stepping down
the hill. The Primary School is sited on the high-level plateau,
with its own entrance and south facing garden. The Academy is
composed as a formal 'collegiate' block, with Performing Arts (the
Academy's specialism) at the heart of the school and the Leisure
Centre (to which it is linked) is set to its side, with substantial
areas of glazing allowing users to see in and out and promote the
Council's 'wellness' agenda. The design achieves a BREEAM excellent
rating and generates a 64 per cent carbon reduction.
Project ID: 07273133
An Open day for prospective bidders
Clients London Borough of Barnet will hold an open day for
prospective bidders interested in their Building Schools for the
Future Programme. The £80 million development will include 6
schools: Bishop Douglass Catholic School in East Finchley, St
Mary's C of E High in Hendon, Copthall Girls in Mill Hill, The
Ravenscroft in Barnet Lane, Pavilion Pupil Referral Unit, Oak Lodge
Special School. The initial proposals are that St Mary's will be
rebuilt on its present site, and the Pavilion will be rehoused,
while the others will receive substantial investment for
refurbishment and improvement work. The open day is on 5th July,
2010 at the Emerald Suite, North London Business Park, London N11
1GN. Bidders wishing to attend this open day, are to contact the
Project Team by e-mailing: bsf@barnet.gov.uk before 17:00
hours, 21st June, 2010.
Project ID: 09320598
Tenders currently invited
The remaining six teams making the shortlist are
architect/contractor partnerships of - 1. Anshen & Allen
Associates/Rogers Stirk Harbour & Partners/Laing O'Rouke 2.
Woods Bagot/BDP/Brookfield Construction 3. Hopkins
Architects/Skanska Construction UK 4. Grimshaw/Jonathan Bailey
Associates/Bovis Lend Lease 5. Make/Mace/Buro Happold 6. Allies
& Morrison/Devereux Architects/Kier Regional have been asked to
price the first stage of tender process for the £90m Cancer Centre
at Wolfson House in London for clients Guys & St Thomas' NHS
Foundation Trust. The new building is expected to provide an
outstanding working environment and patient experience, combining
first class clinical care with groundbreaking research.
Project ID: 10065830
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Company News
Mears says trading is strong
Mears Group has won £500 million of new contracts in social
housing since March and now has a bid pipeline of more than £3
billion. Ahead of Mears AGM today the firm said strong trading had
occurred across all its divisions with nine new contract awards in
domiciliary care. The order book currently stands at £2.5 billion
with secured revenues of 91 per cent of consensus forecast for the
current year and 77 per cent for 2011. In the statement the firm
said: Mears two growth markets of social housing and domiciliary
care, which account for approximately 90 per cent of group
revenues, are defensive sectors where spend is predominantly
non-discretionary and cash generation is robust. Given the group's
public sector client base, Mears is substantially immune to bad
debts and our customer work patterns and payment terms have
remained on schedule. Mears is well positioned to benefit from an
active contract bidding market and remains confident in the
prospects for the future growth of the group.
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Harsh staff cuts could affect Transport for London
Harsh staff cuts by Transport for London (TfL) could harm its
credit worthiness, a leading financial group warned this week.
Credit rating agency Moodys said TfL should weigh up the risk of
having a dearth of experienced project managers to deliver its
investment programme against planned cost cutting measures. The
agency has maintained TfLs Aa1 debt rating but warned that it could
fall if the organisation axes too many staff. Moodys said total
cost cutting has already been substantial, with a reduction of more
than £3.6bn in operational costs planned between now and 2018. TfL
is also planning to slash 27% from management overheads. Moodys
said these cuts will need to be carefully managed from now on as
monitoring requirements and risk management needs are increasing,
with Metronet and Tube Lines works set to be directed by London
Underground, and with Crossrail going forward under TfL
control.
TfL is currently funding £15.6bn in capital works, which does
not include investments in Crossrail from 2009 to 2018. The largest
project is the revised Metronet works, now integrated into the
London Underground, estimated at over £7bn. TfLs 2004 business plan
projected an annual spend on works of about £700M-£800M under TfL
control. The most recent plan pushes this figure to £2bn per year,
before taking into account TfLs share of Crossrail, for which
spending is anticipated to peak at an additional £2.5bn per year in
2013. Moodys has also warned that the pressure on TfLs declining
cash reserves is anticipated to increase sharply. This stockpile
has been largely earmarked for capital projects and may be used to
meet other short-term expenses. Cash and equivalents reached £1.5bn
as of 31 March 2010, and have provided flexibility to deal with
risks from the termination of private investment contracts and
re-organisation of their related works.
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Scott Wilson confirms takeover approaches
Consultant Scott Wilson today said it had received approaches
with regard to a possible takeover of the company. In an
announcement to the stock market this afternoon Scott Wilson said
the firm's share price had risen as a result of the acquisition
approaches. The consultant said: The board of Scott Wilson Group
notes the recent movement in the companys share price and announces
that it has received approaches with regard to a possible
acquisition of the company. There can be no certainty that these
approaches will result in an offer for the company.
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Babcock to hire former Jarvis track workers
Babcock is set to take on almost 350 former Jarvis workers as it
takes over the lion's share of Network Rail's track renewal work.
According to the York Press, Babcock will hire 346 of Jarvis's
track renewal workers as long as they accept its terms and
conditions. Following its collapse into administration in March,
Jarvis was not awarded a renewal on Network Rail's track renewal
framework while Babcock - which has the largest share of the work -
Balfour Beatty and Colas all received extensions. Network Rail's
director of asset management Peter Henderson said: "This contract
represents a significant proportion of our track renewals activity
and it was crucial that we found a contractor who could deliver
safe, reliable renewals and who also offered value for money. "We
have completed this process as quickly as possible and I hope that
Babcock's announcement will be welcomed by former Jarvis
employees."
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Network Rail reports sharp fall in profits
Network Rail today revealed that pre-tax profits over the past
year have fallen from £1.52bn to £395M a drop of almost 75%. The
rail infrastructure operator and owner reported the figure in its
preliminary results for the year to 31 March. Investment was also
down with the firm spending £3.92bn against a record high spend of
£4.74 the previous year. Meanwhile, net debt rose to £23.84bn from
£22.3bn over the same period, which Network Rail said was necessary
to help fund its investment programme. However, this year's figure
represented a lower gearing ratio of 64% down from 70% and within
the Office of Rail Regulation's 85% limit.
Net operating costs were up slightly to £3.69bn from £3.62bn,
which Network Rail said was attributable to higher staff costs. The
report said that a drop in revenue and profits was "in line with
the regulatory determination that reduced Network Rail's annual
rate of return expressed through track access charges to 4.8%
(compared to 6.5% over the last three years)". Its chief executive
Iain Coucher said that the priority for passengers was punctuality
of trains, which this year remained almost stable at 91% compared
with 90.6% last year. "Passengers care most about trains being on
time and we have delivered another record year with punctuality
surpassing 91%," Coucher said. "Network Rail also has a duty to get
best value for the British people and we have retained a tight
focus on controlling costs. This has meant that we can cut charges
to passenger and freight operators. As a result, the savings we
make could be passed on to passengers in lower fares or to
taxpayers through lower government subsidies to the rail
industry."
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May Gurney pre-tax profit up 7pc
Turnover at May Gurney rose 3 per cent to £483.1 million as
pre-tax profits grew 7 per cent to £21.6m in the year ended 31
March 2010 the firm said today. In a very positive results
statement May Gurney said its turnover grew by 3 per cent to
£483.1m in the year to 31 March 2010 compared to £470.3m a year
earlier. Underlying pre tax profits, excluding one off charges,
rose to £21.6m, compared to £20.2m last year.
After winning work, including contract extensions, of £1.1bn in
the last financial year, its order book increased by nearly £500m
to £1.7bn. On top of this, directors said there is a pipeline of
bidding opportunities and contract extensions totalling £4bn in its
core markets. More than 95 per cent of revenue was generated from
long-term contracts, fitting in with the strategy chief executive
Philip Fellowes-Prynne detailed to Construction News in a recent
interview.
Mr Fellowes-Prynne said: "We are delighted to report record
turnover and profits for the eleventh year in succession, together
with a strong cash position, significant business wins, an enlarged
forward order book of more than £1.7 billion (excluding potential
extensions) and a healthy pipeline of sales opportunities in our
core markets." The firm ended the financial year with £29.2m cash
in the bank. Group revenue was split as follows: * Public Services
Sector £285.3m * Regulated services Sector £200.8m.
How can we help?
We always welcome your comments and suggestions on how we can
help improve our service. Whether you have a suggestion about the
website, or would like assistance from your Account Manager on how
to meet your aims and objectives, please contact us.
Allan Wilen to chair panel discussion at Recycling and Waste
Management Exhibition
The seminar programme for Recycling and Waste Management
Exhibition (14-16 September at the NEC Birmingham) is NOW LIVE
so that our visitors can begin to plan their time at the
show. Allan Wilen, Economics Director at Glenigan will be
chairing a panel discussion entitled ‘Waste
to energy plant construction - new facilities and
investment in the pipeline’ on day 2 in the Business Seminar
Theatre. Indeed, with 3 seminar theatres and over 40 sessions
covering numerous recycling and waste related themes, the topics
covered are designed to interest our very diverse visitor audience.
Register here for free entry and to be kept updated with
regular show news and updates.”
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ONS Construction Development/Key Performance Indicators Launch
Event
Location:- BIS Conference Centre, 1 Victoria Street,
London SW1H 0ET
Date:- Monday 21st June 2010
Time:- 10:00am start, 2.00pm close
Agenda
Time Topic
10:00 Registration and coffee
10:15 Introduction & Welcome
10:20 Project background and deliverables
10:30 Explaining the Current Price Output Series
11:00 Inclusion in National Accounts
11:10 Future Publications
11:30 Coffee Break
11:45 Introduction to KPI Launch
11:55 2010 KPI results
12:35 Case study
13:00 Summing up and conclusions
13:15 Lunch
14:00 Close
Please note that places are limited and attendance will be
confirmed on a first come, first served basis. To secure your
attendance, please contact Gemma Thomas by email (gemma.l.thomas@ons.gsi.gov.uk
) or by phone – 01633 455577
Directions
BUS: Nos 11, 24, 148, 211 stop right in front of our building.
Other bus routes pass nearby. Visit Transport for London for
further information.
UNDERGROUND: 1 Victoria Street in walking distance of Victoria, St
James' Park and Westminster stations. Check the TFL website
to plan your journey.
RAIL: Victoria, Waterloo and Charing Cross stations are 10 to 20
minutes away by foot or by tube. Schedules on National Rail
website.
CAR: Parking is available at sites in Horseferry Road and Abingdon
Street.
Allan Wilén, economics director,
Glenigan
Allan joined Glenigan to head the development of the new market
intelligence service for Glenigan subscribers. Allan has over
twenty years of experience analysing and forecasting the UK
construction industry. He was previously Economics Director at the
Construction Products Association and responsible for all economic
aspects of the Association’s activities. This included briefing
members, the media and Government on the commercial implications
for the construction industry of the changing economic environment
and the delivery of the Government’s expenditure plans. Allan was
also responsible for developing the wide range of regular economic
reports published by the Association, including its Construction
Industry Forecasts, which provide members with timely and valuable
market intelligence.
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