Frameworks rule the South West

The South West is split between those on framework deals and those scrabbling for the scraps, with the region predicted to become a challenging area to work.

Contractors hope the planned £1.5bn regeneration of Taunton and the £1bn East of Exeter project go ahead with the same success as Bristol's Cabot Circus development (pictured).

Contracting across the South West is splitting rapidly between the 'haves' and the 'have-nots'. On one side are contractors happily signed up with public sector framework deals, which are confident of their forward orderbooks. Then there is the rest of the industry - desperately bidding against each other to win work from an ever-diminishing pool of private commercial and residential jobs.

There is plenty of work in the pipeline across the region despite predictions from ConstructionSkills that the South West is set to become the UK's least buoyant area (see box, p18).

The problem is that work is becoming concentrated into the hands of major framework contractors, while the rest of the industry resorts to cut-throat tendering in a bid to survive.

HBG is typical of the big names operating in the area who have spent the last few years forging relationships with local authorities.

More than 75% of the firm's forward orderbook is publicly funded work and HBG has kept its exposure to the ravaged residential market to a minimum. Regional director Steve Tapson explains: "We are fortunate in having a plump orderbook at the moment, which is mainly due to public sector work in areas like health and education.

"We are on a number of framework deals and a lot of firms are looking at those enviously now, but it's difficult for outside firms to get on them. We are fortunate we have experience in operating them, which is what a lot of clients demand."

HBG is not totally immune from the downturn and is currently experiencing a hold-up on a £45m private job for Richmond Villages in Torquay. Plans for the retirement community have been put on hold because the elderly cannot sell their existing homes to fund a move due to the overcautious mortgage market.

"We are currently developing costs with QSs, but the job is on hold because of uncertainty over people selling their homes to move in," Tapson adds.

"It's a super job and won't go away, it's just a question of when they press the button on the 20ha site."

A number of major projects are in the pipeline across the region, including the £300m Exchange scheme in Swindon, a £1.5bn planned regeneration of Taunton and the £1bn East of Exeter project. Major contracts are still gunning through with significant jobs won during the last month, including a £310m Ministry of Defence deal at Corsham in Wiltshire picked up by Interserve in joint venture with John Laing.

Bideford college deal

Morgan Ashurst has also won a £44m college job in Bideford for Devon County Council, which started on site last month and is due for completion in August 2011.

Question marks still remain over the future of many private projects because of the funding problems.

But publicly funded framework deals offer guaranteed work for a fortunate band of firms in the South West.

Kier Western managing director Peter Young says the firm has made a business decision to try and get on every public sector framework available. "That is a significant part of our underlying confidence at the moment."

Kier is the exclusive contractor for Cornwall County Council education jobs and also enjoys a place on the frameworks for the University of Plymouth and Plymouth City Council.

Plymouth council is currently involved in more than £50m of projects under ProCure 21 and Kier is the preferred bidder for its largest scheme, worth £30m.

"The framework approach has benefited our business and means that 90% of this year's work is already secured, which is ahead of our 80% target," Young says. "For 2008/09, it is almost business as usual then there is uncertainty from then on."

Kier turned over £125m in the region last year and is planning to increase that to £135m this financial year. HBG is operating at a similar level, with a turnover of £120m-£125m and 185 staff employed across the South West.

Specialists are also seeing a split in the market, with those on main contractors' supply chains in the best position to weather the downturn.

Young says: "We restricted our supply chain about seven years ago and now 70% of our work is with our preferred suppliers. With our traditional tendering work, we are seeing a far greater level of interest from trade contractors. They are pursuing opportunities now and, when before there would have been only three or four on the list, now we are seeing seven or eight.

"There has been a big ripple out from the biblical trades, who were previously working on housing jobs. Quality is a major concern with firms that have only done housing work, so you have to be careful."

The downturn in the residential market across the South West is highlighted by a sudden surge in housing professionals looking to break into other markets.

Consultant Capita Symonds regional manager Andrew Lintern says the credit crunch is having a major impact on residential work. "Our work with housebuilders is pretty much drying up," he explains. "We are getting a lot of CVs coming through from whole residential teams who are being made redundant and are desperate to work in other areas.

"The commercial market is starting to go quiet, but there is still some activity based mainly around pre-let projects in the centre of Bristol. A £150m mixed-use scheme is continuing on the site of the old Courage brewery in the city, which is a major redevelopment that the client has been planning for a long time and is fully committed to the project.

"Fortunately, the public sector is still buoyant. There is a lot of work in education and Somerset County Council is launching its BSF schemes out to prequal. There's also a lot of work for the Learning and Skills Council and further education, with significant investment planned in Cirencester, Yeovil and north and south Devon.

"The health sector is also still holding up well with a range of opportunities including current and planned work at the Bristol Royal Infirmary."

Expert's view 

Roger Stone, Regional Strategic Advisor, ConstructionSkills

The South West is predicted to be the least buoyant of all the regions, with an average annual growth rate of 0.5%, down on the 1.9% forecast last year for the 2007-11 period.

A decline in output is on the cards for 2012, particularly in the repair and maintenance sectors, partly as a result of completion of the Decent Homes for All programme. Some growth in employment is expected between 2008 and 2012 to meet demand - around 4% in total.

Growth is expected to be modest across all construction sectors in the region except public non-residential, which should benefit from continued increases in health and education work.

Falling house starts and above-average population growth has led to a 50% increase in the region's housing requirement for the three years to 2011, to the value of £790m.

Private housebuilders are likely to find market conditions difficult this year, but a return to modest growth is projected in the later part of the forecast.

Construction employment is forecast to rise by a little less than 10,000 between 2008 and 2012, a 4.3% increase and the second lowest in the UK. To meet this projected demand, close to 6,000 new recruits need to be brought into the South West construction industry each year.

For more information visit www.constructionskills.net