Commonwealth Games and public spending boost for Scottish contractors

Among the new facilities to be constructed for the Commonwealth Games in 2014 will be a 5000-seat National Indoor Sports Arena (pictured), to be located next to Celtic Park and the new National Velodrome.

Contractors across Scotland were a worried bunch last month after the country's budget plans were voted down by opposition MSPs.

Luckily the spending proposals were passed at the second attempt to a huge sigh of relief from construction companies who are looking at public spending to keep the industry afloat in these troubled times.

Government spending is one of the few bright spots south of the border. And that reliance is even greater in Scotland where the public sector accounts for a larger proportion of construction spending.

Bam is among a band of national and local companies that have targeted the public purse for work opportunities and are confident of riding out the current economic downturn.

Bam Scotland regional director Ken McAlpine says the firm has already secured 90% of its planned £150m turnover for this year with 60% of 2010's and 45% of 2011's also in the bag.

Public focused

Plenty of firms would kill for that sort of guaranteed work at the moment and McAlpine puts Bam's success squarely down to focusing on the public market.

He says: "Historically, and currently, Scotland has been well supported by government spending. It's the nature of the politics up here. Those spending levels haven't diminished and have been maintained.

"We've always targeted the public sector and never been in housing. The government has always been the biggest client up here so we have always positioned ourselves in that market. It seems an obvious strategy but not everybody has done that."

Education has been a growth area,but McAlpine says the focus is now shifting to health schemes where the NHS Scotland framework is set to be worth £500m.

Bam has won its first job under the framework with an £80m health scheme in Dumfries where construction is due to start in 2010.

Familiar rivals

The firm regularly comes up against the same group of rivals for work competing alongside Balfour Beatty, Miller, Sir Robert McAlpine and Laing O'Rourke on tender lists.

Bam's Ken McAlpine says: "We do compete with the same old faces but there is enough work to go around at the moment."

Apollo Group is a new name on the Scottish scene which can also see an opportunity thanks to public spending. The firm established a presence north of the border six months ago under regional director Eamonn McGarvey.

He says: "We are new in the market and pretty optimistic because opportunities are there. We have been reasonably sheltered from the downturn because our markets are social housing, education and public buildings which are mainly public sector.

"We are targeting partnering and framework arrangements because 60% of the work is there. We are looking at working with local authorities and housing associations and will take on the small jobs which could lead to something bigger."

McGarvey has noticed an influx of former private housing specialists desperately trying to move in to the social market. He says: "The pre-qual stage often weeds them out because it is a very different skill working in occupied estates compared to new housing. It's inevitable thought that the low bids will impinge on margins."

Slow workflow

The speed of workflows in the public sector is also proving frustrating for firms switching over from the private side.

Robert Gairns of Capita Symonds' Glasgow office says: "Our proportion of public sector work will increase but the whole process can be tortuous with 100 days sometimes between a call in the OJEU for interest and something actually happening.

"There are some signs that that might be improving but it's still very slow. There are also more people chasing OJEUs. It used to be one or two but now 20 plus is not unusual. There are also a lot of Irish contractors coming in because their local market is so quiet."

Gairns believes that companies struggling now will face an even tougher time next year. He says: "If you're not winning work now, 2010 will be horrendous."

Skilled professionals are still in short supply across the country but those with fewer qualifications are struggling in the depressed market.

Unqualified tradesmen are finding their job searches increasingly difficult in both the private and public sectors, according to Ian Eker, director at Hays in Scotland. Electrical engineers, mechanical engineers and structural engineers are all in short supply, but there is a market for quantity surveyors, estimators and business development managers.

Elker adds: "The Scottish government is currently investing millions of pounds into new schools and housing schemes, creating thousands of new jobs across all Scottish professions and trades. We are also seeing continued demand for white-collar professionals from local authorities, as well as a need for M&E, civils and infrastructure professionals across the public services sector.

"We are beginning to see jobseekers show increasing willingness to work in the public sector some are simply looking for a safe haven due to the added job security. Those people who are genuinely interested in moving to the public sector should make their reasons clear and do their research prior to any interviews - they will have an added advantage over those who are just looking for a short term haven."

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EXPERT VIEW: Graham Ogilvy, Director for Scotland, ConstructionSkills

While Scotland will see a 1.4% dip in the next two years, the longer term picture is encouraging. Growth is predicted to be above the UK average in 2011, prompting businesses to ensure workers have the requisite skills for when demand picks up.

The report indicates annual construction output forecast at 0.6% over the next five years, maintaining a demand for construction workers. Of the 3,960 new recruits required to join the industry each year during this period, there will be a specific demand for wood trade and interior fit out specialists such as carpenters and joiners, as well as plant operatives and mechanics.

This projected growth is driven by the Scottish government's 10-year transport investment programme, which mirrors the general UK trend. These new infrastructure orders include the M74 completion project that started in May 2008 and the Glasgow Airport Rail Link, which will boost industry output in the short and medium term. Figures for Scotland also indicate there will be an annual drop in commercial property activity of around 0.6% on current levels, which is reflective of the lesser demand for industrial and commercial facilities.

Scotland will continue to benefit from the public sector spending in transport and projects such as the new Southern General Hospital. As a result growth should return to the industry in Scotland in 2011, when one of the most significant drivers of future activity starts, the Forth Replacement Crossing, estimated to cost £2bn.

This year will be very challenging for construction - some sectors such as private housing and commercial property will be hit further by the economic climate. In response ConstructionSkills is working on measures to support affected employers.

But there is still short-term growth in the industry, assisted by public sector spending, so it is vital the industry focuses its efforts on retaining and reskilling workers currently in employment. A recession is not a time to decrease training levels, and if that happens, the long term skills deficit will be severe. These are issues we still face from the recession in the 1990s.

For more information visit www.constructionskills.net

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Many major projects in the pipeline

Construction growth in Scotland is expected to outperform the rest of the UK when the recession finally ends. And a slew of major projects in the pipeline provide plenty of opportunities for contractors to chase.

One of the highest profile schemes is the 2014 Commonwealth Games in Glasgow where two juicy jobs are up for grabs.

Bam, Bovis Lend Lease and Sir Robert McAlpine are among the contractors chasing a £90m job to build a Velodrome and sports arena complex.

The biggest games contract is the £245m athletes' village, which is currently out to tender with a preferred bidder due to be announced in May.

Three consortia are in the running including a group headed by Broadway Malyan, which includes Laing O'Rourke, Arup and New City Vision. The group is up against rival teams headed by Davis Langdon and Mace.

Scottish planners have also given the green light to an £850m retail and leisure centre in the heart of Edinburgh.

The centre will transform a 5.3ha site into the St James Quarter, replacing the 1970s St James Shopping Centre and adjacent New St Andrew's House.

Demolition of the existing buildings is due to start in spring 2011 ahead of construction proper getting underway later that year.

BAA has also revealed plans for the £40m revamp of Edinburgh Airport and more than £4bn of work could be up for grabs under the Scottish equivalent of ProCure21.

Bam Construction, Interserve, Laing O'Rourke, Morrison Construction and Robertson/Dawn have all won a place on the framework.

On the roads front, a joint venture of Bilfinger Berger and Northern Irish firms John Graham and Northstone has won the £320m PFI upgrade to the M80 between Stepps and Haggs for Transport Scotland. The consortium beat Balfour Beatty to the job, which includes the maintenance of the highway for 30 years. The work is scheduled to be completed by 2011.

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Scotland pushes ahead with PFI

While PFI projects in England are being bailed out by the government, Scotland is pushing ahead with its own private finance model.

The Scottish Futures Trust is designed to provide better value financing for projects while promoting greater partnership and handling of major construction projects.

The trust will raise finance as a "non profit distributing organisation". This method is similar to the traditional PFI or PPP models but returns to the private sector are capped and in some cases, any refinancing gains are shared with community charities.

The SFT is hoping to release £150m annually for investment in infrastructure with the first project due to get underway this year.

Finance Secretary John Swinney said the SFT will "bring together a wide range of partners, expertise and resources to provide the high quality schools, hospitals and transport infrastructure that Scotland needs, in a far more cost-effective way than PFI has done in the past".

Critics of the scheme believe it is taking too long to implement and is delaying construction starts.

Scottish Building Federation chief executive Michael Levack said: "I am really concerned that we will not see any new major projects moving forward in Scotland this year, which clearly isn't good.

"The other question that remains unanswered is that in the current state of financial chaos we have, will the banks want to participate in the Scottish Futures Trust?"