Weekly Glenigan Newsletter - 22nd 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 industry productivity
improved during recession according to Glenigan survey
Promotions: Allan Wilen to chair panel discussion at
Recycling and Waste Management Exhibition
Featured Region: South
West
Featured Sector: Community
& Amenity
Project News
Tenders invited for highway term
maintenance
Two consortia bid for NET
Line
Applications to tender for primary
school
Stonehenge visitor centre
cancelled
Edinburgh Tram rescue plan raises
costs by £55M
Health jobs worth £700m approved by
Treasury
Company News
Network Rail boss Iain Coucher
to step down
Atkins upbeat despite 6% profits
slide
Coucher explains decision to quit Network Rail
Profits slide 6pc at WS
Atkins
Trio record low turnovers for
2009
Willmott offers cuts advice to clients
How can we
help?
Construction industry
productivity improved during recession according to Glenigan
survey
The latest Construction Key Performance
Indicators (KPIs) officially launched at the Department for
Business Innovation & Skills (BIS) yesterday show that
construction industry average productivity per employee increased
by 15 per cent in 2009. This is the sharpest increase seen for five
years. However, the increase has come at the cost of over 200,000
jobs and a fall in the median profit margin from almost 10 per cent
a year ago to 7.7 per cent. Furthermore the figures exclude
companies that succumbed to the recession.
Encouragingly, despite the pressures faced by
the on the industry, construction clients reported a marked
increase in projects delivered to cost. Clients also believed that
the industry was improving the impact of its activities upon the
environment.
The KPIs are used as a benchmark to improve
client satisfaction and by government to measure the effectiveness
of contractors. Glenigan conduct the survey of clients, consultants
and contractors to deliver the KPIs in partnership with
Constructing Excellence for BIS and the Office of National
Statistics (ONS).
Allan Wilen, Glenigan economics director,
presented the findings of this year’s survey alongside speakers
from Constructing Excellence, BIS and the ONS. “It is very
rewarding to work in partnership with the KPI team to inform
industry improvement and to be viewed by official government
sources as a trusted source of construction industry data”
commented Mr Wilen.
Attendees to the official launch included Mark
Prisk, Minister for Business & Enterprise, and Paul Morrell,
the Government’s Chief Construction Advisor. Mr Prisk discussed
with Allan Wilen and Robert Davis, Glenigan research director, the
use of the Glenigan database to extend the reach of the survey and
deliver faster results. Mr Morrell emphasised the importance that
the Government places on the KPIs and how they will be driving for
their use across the industry.
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Featured region: South West
Recent performance
There has been a marked deterioration in market conditions in
the region since the middle of 2008 as the credit crunch and
deteriorating economic prospects have depressed private sector
activity. Official statistics reveal that the value of construction
output rose 1% during 2008, but that a firm first half was largely
offset by a 4% fall in output during the final six months of the
year. The fall was even more dramatic during the first half of
2009, with output 12% down on a year earlier.
The flow of new projects faced a similar mid-year reversal of
fortunes during 2008, following a sharp downturn in detailed
planning approvals. Projects starts were especially weak during the
third quarter. Accordingly, while the value of underlying
construction starts fell by only 5% during the year as a whole,
project starts during the second half of the year were a third
lower than during the final six months of 2007.
Private sector related construction in the South West has
experienced a large contraction in the value of projects moving
through to the start on site phase. After a strong start to the
year, the flow of new private housing work collapsed during the
second half of 2008. The value of project starts during the final
six months of 2008 was half that of a year earlier, dragging the
total value of underlying private housing starts down by 1% for the
year as a whole. The deterioration accelerated during 2009, with
underlying project starts down by a third on the previous year,
despite the noted pick-up in project starts during the third
quarter.
More encouragingly, the value of civil engineering projects
starts during 2009 was more than double that of a year ago, in
large part due to work commencing on the £87 million Weymouth
Relief Road and to a £98 million energy-from-waste plant in
Jersey.
In addition public non-residential sector starts strengthened as
the year progressed, benefitting from the release of promised
additional government funding. Health and social housing starts in
particular rose strongly during 2009, being respectively 93% and
56% up on a year earlier. Nevertheless the increase in civil
engineering and public sector building projects was insufficient to
fully offset the fall in private sector work, with the value of
underlying projects starts in the South West slipping by 5% during
the year as a whole.
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Prospects
The region’s exposure to the private housing sector has
accentuated the impact of the economic slowdown upon the flow of
new project starts over the last two years. Private housing
projects accounted for a third of all project starts (by value) in
the South West during 2008, compared to a UK average of 25%.
Detailed planning approvals for private housing projects during
2009 were 30% down on a year ago. However, private housing starts
have increased over the quarter by a third compared to the same
period last year.
Excluding private housing, the decline in detailed planning
approvals does appear to be moderating: planning approvals for
health and leisure projects during 2009 were up on a year ago. This
helped stabilise project starts during the closing months of last
year and should remain a source of support over the coming
year.
Nevertheless the recovery in project starts in the South West is
expected to be weak and slow to materialise. Whilst the flow of
project starts is forecast to strengthen modestly over the next two
years, a weak first half to 2010 is expected to leave project
starts for the year as a whole 4% down on 2009. Start on sites are
then expected to strengthen by 8% in 2011 as private sector
activity improves. In particular, the importance of the private
housing sector to construction activity in region is expected to be
a positive influence over the next two years as conditions in the
wider housing market gradually improve. Against this, the
significant boost to project starts from increased government
funding during 2009 is likely to be reversed over the next two
financial years as following the general election the new
Government addresses the budget deficit.
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Featured sector: Community & Amenity
Recent performance
A key factor behind a 7% fall in sector starts during 2008 was a
slowing in the flow of prison-related projects, with the value of
projects starts halving against 2007. The flow of prison projects
subsequently improved during 2009.
Other parts of the sector fared better during 2008. Some £100
million of police station projects was started on site during 2008
and the flow of new projects was sustained last year. Law courts
remained a growth area during 2008, with the value of project
starts rising by 16% to around £100 million over the previous year,
but subsequently starts in this area fell back 30% last year.
However, MoD work was the most significant growth area within
the sector during 2008, with the value of underlying military
buildings projects starting on site rising by 11% and accounting
for a fifth of the starts in the sector. The value of MoD work
subsequently stabilised during 2009. The only large project to
start on site last year was a £150 million contract for the
refurbishment of military buildings in East Anglia.
In contrast to earlier sector growth, which was driven by a rise
in law enforcement and military facilities, community centres and
libraries were growth areas during 2009. The value of library
project starts tripled to £208 million during the year and
community centre projects rose by 21%.
The sector’s fortunes have varied markedly across the UK. Many
regions have experienced a fall in community & amenity
construction starts. In contrast, London, the South East and Wales
have experienced a steady stream of projects.
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Prospects
Whilst there are currently projects in the development pipeline,
the sustained decline in the value of detailed approvals is a
concern for the sector’s prospects over the medium term. The value
of underlying planning approvals fell 25% during 2008 and dropped
by a further 34% in 2009.
Furthermore the sector is likely to be especially vulnerable to
the anticipated tightening in public sector capital expenditure, as
limited funds are prioritised towards areas highest on the
political agenda. In particular, following the drop in project
starts over the last year, the Government’s prison building
programme appears to be a potential Achilles’ heel for the sector
with the risk of further delays to planned projects. While project
starts are forecast to rise by 14% this year, they are then
expected to shrink by 17% in 2011.
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Project News
Tenders invited for highway term maintenance
Surrey County Council is currently inviting tenders for a
highways term maintenance contract. The £200 million scheme will
include term maintenance and major projects in relation to asset
management of carriageways, footways, structures and associated
assets. Tenders are due to be returned 23rd July 2010 with works
starting on site in January 2011.
Project ID: 10065923
Two consortia bid for NET Line
Two remaining consortia Arrow Connect and Tramlink Nottingham,
submitted bids on the 20th May 2010 for the £680 million second
phase of the Nottingham Express Transit (NET Line Two) PFI project.
The winning bidder is to be announced November 2011. Once completed
the winning bidder will procure the design, construction, financing
and commissioning of two further lines together with the operation
and maintenance of the entire extended network over 23 years. Works
are due to start on site late 2011.
Project ID: 02461945
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Applications to tender for primary school
Highland Council is currently inviting applications to tender
for the construction of Aviemore Primary School in Aviemore. The
final date for the receipt of requests to participate is 28th July
2010. The £9.5 million project will include 12 classrooms,
nursery/wrap around childcare and assisted supported needs
provision. A joint school/public library, community fitness suite,
community room and learning centre. Tenders are due to be invited
late August 2010 with works due to start on site January
2011.
Project ID: 09017398
Stonehenge visitor centre cancelled
The £25 million Stonehenge Visitors Centre could be cancelled.
The £10 million promised by the former Labour government will not
be forthcoming from the current government and it is said it could
be the end of the project. The funding was needed to move the
visitor centre 1.5m (2.4km) away from the stones and to diver the
nearby A344. The remaining £15 million was due to come from English
Heritage, the Heritage Lottery Fund and other private sources.
English Heritage Commission is expected to make a statement about
the future of the project on 30th June, 2010.
Project ID: 91220604
Edinburgh Tram rescue plan raises costs by £55M
The troubled Edinburgh Tram project is facing cost overruns of
more than £50M, council leaders have said. Contingency plans are
being drawn up to borrow the additional funds for the Edinburgh
project, which had been expected to cost £545M. Edinburgh City
Council is also looking at the possibility of cancelling its
contract with German firm Bilfinger Berger which is building the
line. Edinburgh transport convenor Gordon Mackenzie said: "I think
now it looks quite likely that we will have to go over the £545M.
We`re looking at the costs that are coming through, the additional
works that we`re having to do and the results of the disputes that
we`ve had ongoing for some time now. "Our judgement is that that
its going to be more than £545M." Plans have been drawn up to
borrow up to 10% - £54.5M - in additional funding for the scheme,
although the overrun may not reach this level. A report will come
before councillors next week. But the council has ruled out going
to the Scottish Government for a bailout. "Ministers are fully
aware of what`s happening here and we`re not anticipating going to
them for additional funds,"Mackenzie added. He said a properly
performing contractor could finish the project by the end of 2012.
But he added: "I don`t think its likely based on the way that they
have been behaving over the last couple of years, so I think its
more realistic that we will be into 2013."
Project ID: 08461697
Health jobs worth £700m approved by Treasury
Three hospital construction projects worth £700 million have
been approved by the Treasury. The £400m Royal Liverpool University
Hospital replacement was given the green light following the review
of all funding approved by the former Labour Government this year.
The £220m rebuild of St Helier Hospital in Surrey was also
approved, as was the £80m redevelopment of the Royal National
Orthopaedic Hospital in Middlesex. The approvals come after chief
secretary to the Treasury Danny Alexander yesterday cancelled 12
projects and suspended several more following the review. The £450m
North Tees and Hartlepool hospital was the biggest construction job
cancelled. A Department of Health spokesperson said today:
"Following the Treasury review of all Government projects agreed
since 1 January, we are pleased to confirm that planned hospital
building projects at the Royal National Orthopaedic Hospital, Royal
Liverpool and St Helier will proceed as planned. "In these tough
economic times it is essential that all major hospital building -
whether PFI or public capital - must be affordable and provide
value for money for the taxpayer." The Leeds Holt Park Well Being
Centre remains suspended pending a final decision in the autumn
Comprehensive Spending Review. Balfour Beatty, Carillion,
Brookfield and FCC/Inteserve are understood to have submitted
pre-qualification questionnaires for the Royal Liverpool University
Hospital job. A shortlist is expected next month.
Project ID: 04276653
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Company News
Network Rail boss Iain Coucher to step down
Iain Coucher has told Network Rail's board he is to step down
after eight years with the company, including three years as chief
executive. He will remain in his post over the coming months and be
involved will be involved in the search for his successor. Prior to
Network Rail, Coucher was chief executive of Tube Lines. Before
joining Tube Lines, Coucher worked for EDS for 15 years,
culminating in heading up the company's mergers and acquisitions
across Europe, the Middle East and Africa.
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Atkins upbeat despite 6% profits slide
Consultant Atkins has said pre-tax profits slipped nearly 6%
after a year in which it cut staff numbers by 10%. Restructuring
and increased pension costs impacted on the group's performance as
pre-tax profits fell to £96.6M from £102.7M a year earlier. But
chief executive Keith Clarke said they were good results, with
operating profit up 9.6% to £113M and an operating margin up from
6.9% to 8.1% for the year ended 31 March 2010. "They are good
results. Yes, we are smaller. Yes, we have reduced staff. But our
margin is up and we have improved the business and we are very
proud of that," said Clarke. "We are proud of being an engineering
company because the future of the UK is in better engineering."
Atkins said it performed well at an operating level in the year to
31 March but warned the uncertainty caused by UK spending cuts
meant it was prepared for a period of tighter Government spending.
The Epsom-based firm, which works on a host of major projects
including the London 2012 Olympic park, said it expected to benefit
as clients put greater emphasis on planning and design disciplines
to achieve maximum value. It responded to lower market demand by
reducing staff numbers in the financial year from 17,400 to 15,600,
while also redeploying 500 people into different roles. The
restructuring cost the company around £16M. Clarke said the firm's
new staff level of 15,600 was now right for the challenges ahead.
"We are recruiting in niches and making modest cuts in other areas.
But we think there will be stability at this level, plus or minus
100." Recent contract wins have ranged from a ten-year road
maintenance deal with Oxfordshire County Council worth £350M to its
appointment as architect engineer in a consortium to build an
experimental fusion reactor in the south of France.
Coucher explains decision to quit Network Rail
Network Rail chief executive Iain Coucher has given his reasons
for quitting as head of the rail operator He has said that after
eight years with the business three as chief executive and five as
deputy chief executive - he could not see himself staying for a
further five years. And that would be what he would have to commit
to in order to see through the negotiations with the regulator for
the companies CP5 spending period for 2014 to 2019, a Network Rail
spokesman explained. Negotiations are due to start in 2012. The CEO
really needs to be there throughout all the negotiations, Network
Rail said. A new CEO would need at least a year to understand the
company and the issues which means they would need to be in place
by 2011. Hence the timing of Coucher's resignation. Coucher has
said he will stay at the company until a new CEO is appointed and
will be involved in the selection. Speculation that large cuts were
being demanded by Government from Network Rail's £35bn current CP4
spending period were quashed by the company. "There would have to
undertake an interim review with regulator approval and that takes
18 months," the spokesman said. The company is however seeking £4bn
of efficiency savings. And suppliers to the sector are expecting a
tough year. "Atkins told analysts this week that the UK rail market
was going to volatile and awful," said analyst at Arden Partners
Geoff Allum.
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Profits slide 6pc at WS Atkins
Design and engineering firm WS Atkins has said pre-tax profits
slipped nearly 6 per cent after a year in which it cut staff
numbers by 10 per cent. Restructuring and increased pension costs
impacted on the group¿s performance as pre-tax profits fell to
£96.6 million from £102.7 million a year earlier. Atkins said it
performed well at an operating level in the year to March 31 but
warned the uncertainty caused by UK spending cuts meant it was
prepared for a period of tighter Government spending. The
Epsom-based firm, which works on a host of major projects including
the London 2010 Olympic park, said it expected to benefit as
clients put greater emphasis on planning and design disciplines to
achieve maximum value. It responded to lower market demand by
reducing staff numbers in the financial year from 17,400 to 15,600,
while also redeploying 500 people into different roles. The
restructuring cost the company around £16 million. Recent contract
wins have ranged from a 10-year road maintenance deal with
Oxfordshire County Council worth £350 million to its appointment as
architect engineer in a consortium to build an experimental fusion
reactor in the south of France.
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Trio record low turnovers for 2009
Three more mid-tier contractors have revealed the stark effects
of the recession on their businesses in recent weeks. The combined
turnover of Rydon, Tolent and Barhale dropped by more than a
quarter over the past year. The three contractors, who are all in
the CN Top 100, saw their combined 2009 year turnover fall by 25
per cent to £364.6 million. East Sussex-based Rydon's turnover fell
16 per cent in the year to 30 September 2009 from £175.6m to
£147.9m. Pre-tax profit dropped to £8.7m from £15.2m. The
contractor and residential developer said the weak housing market
had led the directors to reaffirm their decision not to start any
new development sites. Walsall-based civil engineering firm Barhale
said it had to reduce its workforce by approximately one third
after being hit by a 'cyclical reduction in water framework
turnover' as utility firms set about renewing their asset
management plan frameworks. Barhale's turnover in the year to 31
December 2009 was £129.1m - down from £157.7m in the prior year.
The firm made a pre-tax loss of £480,000 from a pre-tax profit of
£3.4m. The firm is, however, looking forward to 2010 with
confidence after winning places on AMP5 frameworks with Anglian
Water, Southern Water, Yorkshire Water and Thames Water.
Gateshead-based Tolent saw turnover fall 43 per cent to £88m in the
year to 31 December 2009, while pre-tax profit fell to £58,000 from
£1.3m. The company was particularly hit by the commercial property
downturn in the North-east of England. In the firm's latest
accounts, executive chairman Peter Hems said: "The outlook for 2010
remains very challenging although we are seeing signs that
tendering activity is increasing. "The lack of available bank
funding for private commercial clients continues to be the biggest
challenge and we do not anticipate that there will be any
improvement in the market generally until the second half of the
year at the earliest."
Willmott offers cuts advice to clients
Willmott Dixon has produced an action plan to show public sector
clients how to cut costs without having to stop schemes altogether.
In the face of impending public spending cuts, the contractor has
produced a paper detailing ways to reduce cost wastage. Willmott
Dixon's latest results for the year to 31 December 2009 revealed a
69 per cent increase in turnover to £998.9 million. But around 65
per cent of the firm's turnover comes from the public sector,
leaving chief executive Rick Willmott concerned about where the
public sector axe may fall following the emergency Budget on 22
June. Willmott Dixon's paper highlights four areas where money can
be made to go further in delivering new or refurbished facilities.
Mr Willmott said: "Rather than bemoaning spending cuts, business is
all about adapting. This is about finding ways to help clients get
more value for money." The first point highlighted is co-locating
facilities, with an example given from one of the contractor's
projects in the North-east. Gateshead Primary Care Trust and
Gateshead Council co-located a primary care centre and leisure
centre, saving both clients about 20 per cent on capital costs. The
second point is improved procurement efficiency, with the firm's
part in the Scape framework offered among the examples. That
agreement sees Willmott Dixon pre-qualified for all projects up to
£30m, showing how clients can save time and money by not
advertising through the Official Journal of the European Union. The
third point is to find opportunities to mix new-build and
refurbishment work. At Macclesfield High School, Willmott Dixon
saved 22 per cent of the cost of an entire new build through
refurbishing one-third of the school and rebuilding the rest. The
contractor's fourth point is to merge capital and operating
expenditure to allow clients to judge full life cost of
projects.
How can we help?
We always welcome your comments and suggestions on how we can
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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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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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