Brisk business with the public sector

These have been tough times for some of the larger contractors involved in major public sector outsourcing contracts. Carillion and Interserve have produced a series of profit warnings accompanied by management departures and tumbling share prices in recent months as tough contracting markets and rises in the minimum wage have taken their toll. But behind the headlines, the UK public sector is proving an increasingly significant source of work for construction businesses. Indeed, the latest survey fourth quarter employment sector outlook from Manpower found that construction sector employers had the strongest hiring intentions of any sector (with a net employment outlook of +11%, up by 6 points on the third quarter). Much of that demand is linked to public sector work, particularly renovation work in the wake of the Grenfell Tower fire. A report from Ernst & Young published in September said that the biggest cause of ‘talent shortage’ currently is competition between public sector bodies and infrastructure programmes. With £500bn of projects in the construction pipeline to 2021– including Crossrail and Hinckley Point – the report says that the scale of the planned investment means demand for project management talent is set to increase significantly. Joe Stringer, the partner for EY government and public sector, said: “We’ve never seen such an increase in demand for project management, commercial and financial skills across infrastructure and government at the same time.” Although the latest Glenigan index for the three months to August shows that the value of starts in key public sector areas such as health, education and infrastructure weakened over the summer months, this was largely due to projects being delayed by the snap general election. Glenigan forecasts' point to a strong finish to the year for infrastructure with the value of project starts in the sector set to rise by 25% in the third quarter on the period last year and 57% in the fourth quarter. The growing opportunities from an increasingly heavy public sector construction workload are reflected in reports from the larger quoted consultancy groups. One bright spot at Waterman Group currently is its business seconding over 430 highways and transportation engineers to UK public sector infrastructure clients. Under long-term frameworks, the firm provides consultancy and staff to many local authority engineering departments. Today, the firm is seeking to diversify its model from highways and transport into new areas such as water and environmental services and has recently secured secondments to Natural Resource Wales and the Environment Agency. The health of the public sector infrastructure market was also underlined in recent results from Kier Group. It reported a record £3 billion of new contract awards in the year to June, which included HS 2 joint venture awards worth £1.5 billion and which will start to generate revenue from 2018. Today, the firm is seeing more transport opportunities and recent additions to its order book include three new Smart Motorway projects including design and survey work on the M20 and work on the M6. It has also won a £38.5 million contract on the A13. Yet whilst Kier is finding ample opportunities for infrastructure work – it is also working at Hinkley Point C, Farringdon Crossrail and the Mersey Gateway – the firm sounded a note of caution on the ‘higher risk profile’ of some projects. Today, it says the business is focused on improving margins (currently 2%) by winning high-quality work with repeat key clients as well as risk management, contract terms and cash performance. Yet whilst Kier is finding ample opportunities for infrastructure work – it is also working at Hinkley Point C, Farringdon Crossrail and the Mersey Gateway – the firm sounded a note of caution on the ‘higher risk profile’ of some projects. Today, it says the business is focused on improving margins (currently 2%) by winning high-quality work with repeat key clients as well as risk management, contract terms and cash performance.