MoD construction spend shrinks as savings targeted

The value of construction contracts let by the Ministry of Defence has halved over the last year according to Glenigan’s construction market research as the MoD targets a major savings plan.

Three years ago, the MoD committed to generating savings of £9.2 billion by the end of 2021.

These savings will come from £1.8 billion-worth of ‘re-profiled spend’ and a £7.4 billion five year ‘efficiency savings target’ according to a report published last year by the National Audit Office.

The NAO report also showed that the MoD is targeting a 30% reduction in its built estate by 2040.

The MoD has consistently been amongst the construction industry’s top 10 clients over the past five years according to Glenigan’s construction industry analysis, but workload is waning as these cuts bite.

Glenigan’s research shows that the total value of contracts awarded by the MoD has shrunk by 129% in the 12 months to Q2 2018 compared to the preceding 12-month period:

Shift offsite

The savings drive is seeing a continued shift towards offsite construction, which the government pledged to favour from 2019 onwards.

In his Autumn 2017 budget speech, chancellor Philip Hammond pledged: “Building on progress made to date, the Department for Transport, the Department of Health, the Department for Education, the Ministry of Justice, and the Ministry of Defence will adopt a presumption in favour of offsite construction by 2019 across suitable capital programmes, where it represents best value for money,”

In April this year, the Defence Infrastructure Organisation published new building standards that are “expected to save the taxpayer between 15 and 20% on Ministry of Defence construction programmes” and subsequent contract awards illustrate this shift.

In June, specialist Caledonian won orders to supply modular housing on two MoD projects for Kier and Skanska.

At Worthy Down, Caledonia’s £14 million job for Skanska comprises 352 rooms divided into three  blocks and to be delivered across two phases of work on the site at Worthy Down.

On Kier’s £35 million redevelopment of the MoD’s base at Lyneham in Wiltshire, Caledonian will provide 296 rooms in five blocks for troops returning from overseas and relocating within the UK as part of a £13 million contract.

Caledonian supplied 1,145 rooms over 12 blocks at Lyneham for Kier in 2012/13 and, over the past 15 years, has delivered over 14,000 bed spaces for the MoD.

Work continues to shrink

In the most recent period covered by Glenigan’s construction industry research for July 2018, the MoD did not award any construction contracts at all. In July 2017, placed orders for £181.3 million-worth of work and was the biggest spending client of the month.

Construction work placed that month included a £135 million hangar and airfield project at RAF Marham awarded to a joint venture between Galliford Try and Lagan and a £45 million job at the Faslane naval base in Scotland for Morrison.

While the MoD will remain a key industry client in the future, such a big swathe of work let in a single month seems unlikely to materialise in the near future.