The North East construction scene - heaven or hell?

Only a saint or a local would endure the North East's construction scene. It isn't so bad when times are good, like now, but workloads swing between famine and feast. When times are good, you can't get the staff, and when times get tough, the locals stick together.

Newcastle/Gateshead is an insular area surrounded by wide stretches of countryside on all sides and its poor transport links are unlikely to be improved while the long-promised dualling of the A1 remains just that.

The current boom is being fuelled by public sector money on housing and education. But it has not always been like this says James Wimpenny, the regional director for the North East for HBG. "The market here is very close knit. Because of the smallness of the conurbation it is much more of a local market.

"I think it is quite hard to break in. Certainly in the past when there was less work around it was a harder market."

Housing boom

The housing sector in the area has been booming. Spending has more than doubled between 2001 and 2005, but is now expected to decline over the next four years. It creates its own challenges, says Richard Bass, the managing director of Haslam Homes North East, which works closely with social housing sister company, Frank Haslam Milan North East, part of Keepmoat.

Originally, one side built social housing, the other private, but more recently they have joined forces to build mixed developments for sale and rent.

More than 50 years ago, the North East replaced its Victorian housing stock with a huge council house building programme and that in turn is now ripe for redevelopment by arms length management organisations, registered social landlords or local authorities. Although the first bids are in open competition, companies that have developed expertise, like these Keepmoat divisions, are well placed to win more work.

Their working method is born of experience. They were the first to develop mixed-ownership schemes in Gateshead four years ago, working with RSLs. That experience created a model of how to redevelop existing estates and associated greenfield sites. "We find the best way is to clear the housing and start again," says Bass. His company is working with Barratt on an estate rebuild in Mandale, Thornaby on Teesside, where 600-plus units are being built. Some tenants will move to the new site, some not, he says. There tends to be a core of people on estates who want to stay in the area, but a minority of difficult ones who make it hard for the rest. His company strategy is to create a rolling programme of new build and demolition of old stock, decanting tenants as the work progresses. They have other schemes in Stockton and Gateshead, all of which should give them five years of work.

They are also looking forward to a forthcoming pathfinder housing redevelopment scheme for Newcastle and Gateshead worth £76m. "We are all waiting with bated breath," says Bass, confident that the mix and match skills of both companies will enable them to bid strongly for whatever combination is wanted.

His colleague on the social housing side, David Mellor, managing director of Frank Haslam Milan (FHM), sees declining government grant aid as a spur to creating innovative business models for housing and retirement homes. "Keepmoat can do some cross-subsidy models to bring more private finance to the table, and with more finance you get more quality and more choice," he says. It has paid off with FHM's turnover more than doubling in four years to £70m.

Teesside consortium

On Teesside, the sister companies work in a consortium with Commercial Estates and Yuill on a £200m mixed-use scheme in Darlington that will include offices and a conference centre. The client, Tees Valley Regeneration, has four other regeneration schemes in the area.

One of their rivals is Rok, currently running framework contracts for ALMOs for Newcastle City, Middlesbrough and Northumberland County Councils, Three Rivers Housing Trust and Anchor.

Rok regional director for the North East Mitchell Smith has seen turnover grow by 40% year-on-year. "We achieve this by being selective and ensuring we work with the customer time and time again and by getting recommended." He believes there are more cost-effective solutions than the hassle and cost of tendering and that clients can control costs more effectively by benchmarking than by taking the lowest bidder.

One of the benefits of working for a national firm, rather than a local one, he says, is that it can import new ways of working, in Rok's case via its best practice forum. An example is their affordable homes design, which was piloted by the parent company. "We have been able to create a defined Rok range of houses that we know how to source and that are the best solutions," he says.

For local firm Tolent Construction, industrial and commercial business is booming in Newcastle, with student accommodation for Newcastle University worth £17m, the library for the city council worth £24m under a PFI scheme for Kajima and the new Haymarket Metro development of shops with offices above for £20m.

Chairman John Wood is also looking forward to the redevelopment of Seaham, a depressed coastal fishing port that in recent years has been put on the map via a Michelin-starred restaurant, Seaham Hall. Now it will be joined by new film studios and in tandem the relocation of the University of Sunderland's media and communication department. East Durham Community College is contributing by locating associated training facilities like hairdressing and make-up.

Bowmer & Kirkland is also in Seaham with a new Asda and retail park. It is working on two business parks, one in Sunderland for Northern Rock, the other the Cobalt Business Park for Highbridge Business Developers, which will give them a steady stream of work for the next four to five years. The company's area director, Alan Johansen, is hoping to pick up some of the local higher and further education spend while awaiting the firming up of plans for central Gateshead, which has been long in the melting pot.

Further education contracts

HBG's Wimpenny is looking forward to a healthy order-book in both higher and further education. An OJEU is out for a laboratory, student services building, admin and teaching block for Newcastle university. On the further education side, there is quite a lot of work at Durham College. But the Learning and Skills Council is in everyone's sights as it prepares to launch its framework scheme, which is likely to involve the construction of a number of colleges split between the north and south of the country.

Meanwhile, HBG is working on the Barnsley Building Schools for the Future (BSF) contract with another due in Durham. The BSF programme will inject more than £240m into the area over the next few years. But Wimpenny is wary of being too successful. "We are also working on a BSF in Birmingham and have just picked up a PFI in Scotland, but you can only do so many, as they are quite demanding."

On the retail side, HBG is refurbing the Washington Galleries for the Pru, working on a shopping centre for Land Securities and a business park in Peterlee for ING.

Although business seems to be booming, it brings its own challenges, specifically getting and keeping a good supply chain. Tolent's Wood says: "The London disease is spreading here - the subcontractors have a mind to earn so much, then they want to go home. The old work ethic is dying." In general though he is happy with his workforce, who are mainly directly employed. HBG's Wimpenny also sees examples of supply chains getting stretched. "People are the most important resource you have. When you are busy, it is important to keep the right people, but there is a limited resource of good supply chain people."

The point is echoed by others, including B&K's Johansen. "There are a lot of good people in the area, both trades and management. I think they like to stay on their home patch. It is becoming harder and harder to attain and keep management skills. You have to treat them as part of the family." Which needs to be done soon. ConstructionSkills forecasts that the area will need almost 500 more constructional professionals and technical staff a year for the next five years to keep pace with demand.

If these new recruits have to come from outside the area, what will be the lure? According to those already working the patch, despite its reputation for being cold and bleak, the North East has plenty to offer.

Wimpenny, a Huddersfield man, is hoping to move further north into Northumberland. "I think the quality of life is good - it is a very attractive area.

"When it is busy, there is plenty of opportunity, however, as an area it always seems to get less money than the others."