Time for M&E to join the party

For many major players in construction, the past six years may be regarded as a golden era. Big public sector spending followed New Labour's election in 1997; the PFI system has not only meant secure long-term forward order books but also fatter margins; while the Egan-led Rethinking Construction agenda has started to break down some of the traditional confrontational relationships between contractor, client and supply chain.
But amid all this bonhomie, there is a feeling in the M&E sector that nobody has invited them to the party. And this dissatisfaction with the manner of the workflow in the public sector threatens to become more acute as the commercial sector continues to shrink.
Robert Higgs, chief executive of the Heating & Ventilating Contractors' Association, says: "There has been a bit of edginess among members as to what the future holds in the private sector. A number of big clients are thinking of putting projects on hold. It's important that the government understands how dependent we're becoming on the public sector."
Ray Manning, managing director of Kier M&E subsidiary IEI, is blunter. "There's been a tremendous fall in the volume of work in the commercial sector," he says. "One side effect of this is that projects are taking a lot longer to start from tender stage, and there seems to be a lot of two-stage tendering around. So when you've got a lag of six to nine months from tender to starting on site, it becomes very difficult to plan your resources."
The other side effect, he adds, is that more firms are starting to shift into the public sector. But even there, because of the increasingly large contract sizes involved, the procurement process is still fairly protracted.
And while the PFI bid process has shown signs of speeding up recently, for M&E firms it is still a long time to be tieing up resources when there is no likelihood of the sort of returns main contractors can expect.
Emcor Drake & Scull chief executive Tony Whale says: "On most PFI jobs, the risk/reward ratio is too high to make it worth bidding." (See profile, pages 28 and 29.)
IEI's Manning also worries about the bid costs. "We can only afford to have two or three PFI bids on the stage at one time," he says, "and you have to write your costs off so you're not exposed. You also have to choose your partners very carefully."
IEI is part of Kier, and there has been speculation that PFI clients are increasingly likely to favour contractors that have an M&E capability in their group. Manning, however, insists that this is not the case. "When we go in with Kier, our bid has to stand up on its own merits," he says. "The client wants to see evidence that the M&E subcontractor has the necessary capability and a close working relationship with the main contractor."
Evidence of dissatisfaction about PFI remains largely anecdotal. But there is harder evidence to support discontent about local authorities' procuring practices.
In a recent survey by the Specialist Engineering Contractors' (SEC) Group, 90% of respondents reported that most of their contacts with local authorities did not involve a partnering or alliancing element. About 88% felt that the majority of their local authority work continued to be let on lowest price alone. Perhaps more worrying was the trickle-down effect of this policy: almost two thirds of first-line contractors also subcontracted their work on lowest price.
Procurement practices
SEC Group chief executive Professor Rudi Klein feels the research shows that most councils were applying anything but Best Value in their procurement practices. "There has to be a more concerted drive to ensure that all local authorities dispense with outdated practices and work more closely with the supply side to secure best value solutions," he argues.
Klein believes local authorities that have embraced Egan ideologies have generally been those where the enthusiasm and energy of individuals has brought about change. He has written to local government minister Nick Raynsford urging the widening of the government's Beacon Council scheme, which recognises local authorities that have displayed commitment to best practice.
The hope is that new procurement processes like NHS LIFT and ProCure 21 - where the M&E contractor has a much closer relationship with the client and is involved much earlier in the design process - will offer a beacon that other public sector bodies can follow.
In the meantime, the stop-start flow of much public sector work and the contraction of the commercial sector has forced M&E firms to look for other ways of securing their forward order book. In recent years, outsourcing has become far more popular among both public and private sector clients and, correspondingly, there has been a dramatic upsurge in maintenance work as a proportion of M&E contractors' business.
Maintenance and facilities management accounts for half of Emcor Drake & Scull's turnover, while at IEI the turnover of that part of the business has quadrupled in three years to £13m. Increasingly, contractors offer themselves as a one-stop-shop for M&E - from the design, through to installation and long-term maintenance.
Some main contractors are also in on the act, bundling together M&E with softer services, like cleaning, into one "total FM" package. The classic example of this is Mowlem.
Mowlem Technical Services business
development director Roger Moore says: "The marketplace has changed considerably over the past 18 months. We are seeing more demand for M&E maintenance services at the core of most outsourcing that's coming out of the private sector. M&E is seen as very complex and requires a large spend. And because of the increasing need for legislative compliance, there's the need to constantly invest in retraining staff. So it makes good sense to outsource it."
Moore believes many clients regard M&E as an area for outsourcing, initially to test the water, before moving other functions like cleaning out of house too. "We're then poised to offer those softer services as well, as and when they go out of house," says Moore.
The bundling together of such services is increasingly extending beyond blue-collar activities in to what have been traditionally white-collar areas. "The market is consolidating behind those that can offer sophisticated management information and IT provision with other M&E services," believes Moore. "For many clients, remote access for their management is now a prerequisite."
Skills shortage
The only problem Moore foresees with the burgeoning maintenance market is the familiar one of skills shortage. "Although we can plan the resourcing better because the contracts are longer, it is still a big issue," he says. "In some geographic areas, like the South East, recruitment of skilled staff can be a problem."
The feeling within M&E is that this sector suffers the most in construction with recruitment problems. HVCA chief executive Robert Higgs regards it as the most pressing issue for his members. "We need a good flow of graduate engineers, and at the moment, we're not perceived as attractive to that kind of young person," he says.
M&E is also one of the least appealing sectors in construction to women. Electrical Contractors Association head of education Denis Hird says: "Only one in almost 600 apprentices to the electrical trade is female."
JTL, the building engineering services training provider part-owned by the ECA, launched a poster campaign to coincide with the new academic year aimed at attracting more women in to the sector. But Hird says: "Perceptions need to change to encourage more girls to enter the trade. Women are often more adaptable, more focused with better interpersonal skills and attention to detail."
IEI's Manning blames universities for not doing enough to encourage M&E trades. "They're not doing the courses any more, so we're often having to convert students who have taken other degrees," he says.
This is why IEI has devised its own way of attracting talent. "What we do as a way around the lack of graduates is to take 16-year-olds from school, send them on day release to college - a kind of modern apprenticeship - and then send them to university," explains Manning.
"We're effectively growing our own - they can be learning and earning at the same time," he says.
There is another way of dealing with the skills shortage: offsite construction. As with any other sector of construction, the appeal to plumbers and electricians of working in a warm factory is likely to be far greater than a cold building site.
Quality control
The appeal should be obvious. In any building project, M&E is generally the area most likely to see problems once the building is complete, so any initiative that can improve the quality control - such as shifting part of the construction process to a factory - has to be welcome.
There are signs that an increasing number of M&E firms are offering offsite construction solutions. In some cases, whole plant rooms are being assembled offsite.
Some M&E contractors are working with suppliers to install all of the services in prefabricated panels offsite - Skanska Rashleigh Weatherfoil's link with CV Buchan on Skanska's prison work is one such example (CJ, 10 September).
But such instances require the encouragement and co-operation of the main contractor, particularly at the design stage, an area too many M&E firms still find themselves excluded from. The HVCA's Higgs says: "Increased use of offsite construction for M&E installation has obvious benefits, but you have to make a huge up-front investment to be able to offer it."
However, there is one other view worth considering on the skills shortage: M&E as a skill set will be less in demand in future because new buildings will require fewer and fewer such services.
"Increasingly, designs are looking at how to make buildings more efficient," says IEI's Manning.
"For example, rather than put in a powerful chiller, they will think about the glazing, the amount of shading the building has, and it's orientation. So in real terms, the capital value of M&E work done will be less as the need for M&E installations falls.
"Public sector buildings need to be seen to be offering value for money and other clients are likely to follow," he believes.
It is an intriguing prospect, but one that the Rethinking Construction agenda, Labour's overhaul of public sector procurement, not to mention the new building regulations, could well make reality.<F0A8>