West Midlands contractors braced for cuts in public spending

Public spending is still providing healthy business for contractors across the West Midlands. But companies are now concentrating on the long term to gauge what effect a change of Government could have on funding levels. Grant Prior  reports.

Below: Carillion will start work next year on the £193m Library of Birmingham.

Willmott Dixon midlands managing director Peter Owen is doing everything right in the current market. The firm is focusing on frame-work deals in healthcare and education and reaping the benefits as public money continues to be pumped into those sectors.

Gordon Brown is sticking to his spending plans and even bringing forward schemes to stimulate the economy.

But Owen is a realist and knows that the country cannot invest with borrowed money forever and firms must be ready to adapt when change is forced on the Government by financial reality or a change in political party.

He says: "If there is a change of Government after the next election it will be very easy to say they are still committed to spending plans but announce a review and delay funding."

The Conservative party has already said major public spending plans will all be put under the microscope, so the industry is bracing itself for a downturn in the type of work that has provided safe shelter during the ongoing economic storm.

Owen says: "Lots of firms are going through turbulent times in the region - particularly those involved in the housing market.

"This time last year market talk was all about the huge amount of flats coming through and regeneration schemes based on new residential areas. Flats were springing up all over the place, but that changed overnight and the world is now a very different place.

"The public sector is the saving grace at the moment. Outside of that the market is extremely tight and people are bidding at suicidal rates.

"You can understand why they do it, but it is not a strategy that works in the long term."

Owen and his team are constantly looking for expert advice and information as they plot their way through the current economic conditions.

He says: "We get in economic experts to brief our teams and look at where things are heading, but it is still a very confused picture.

"Trying to see how it will unfold is very difficult. At the moment we are keeping a close eye on the planning lead side as a good indicator of future work levels."

Willmott Dixon employs 175 staff across the whole of the Midlands, turning over around £120m.

Owen says Wates and Kier are his main rivals when it comes to winning work and the trio often share the same shortlists.

Educational value

He believes that there is still between £1bn and £2bn worth of education work in the pipeline over the next few years.

The firm is part of a consortium recently chosen by Sandwell for its £280m BSF programme, Wolverhampton has just kicked off the race for BSF partners, while academy spending plans are due to be launched in Walsall and Coventry.

The recent funding fiasco at the Learning and Skills Council (LSC) is the one recent setback for education spending. GB Building still sees education as a vital sector in the region, but commercial director Peter Stone warns that it is becoming a hugely competitive market.

"We are still very active in obvious sectors such as education, but the LSC debacle has created a bit of doubt and academies work involves a long timescale. There is a lot of potential work, but a lot of people interested and it is long term," he says.

GB specialises in education, non-acute health schemes and care homes. It currently places around two-thirds of its business with repeat or framework clients.

Stone says it would like to raise that percentage. "We do not want to become a business scrabbling for first past the post tender races.

"You have to pursue some because of the present climate, but it gets you nowhere and is a very brutal market," he says.

"If like me you have a few grey hairs, you have lived through this sort of thing before and you know where cut-throat tendering gets you - silly prices lead to subbies not being able to do the job, then claims and dissatisfied clients.

"Those are all the things the industry has been trying to avoid, so we are happier with a smaller business but better quality work."

Stone predicts future cuts in public spending, but believes an ageing population and the need for education will protect his core markets.

Build for success

Mark Williams, regional director at consultant Capita Symonds, is predicting a tough six months, but believes construction companies have to face the downturn head-on rather than hide away. "It is all about building for success, not survival," he says.

"The rest of this year is going to be tough and we are working harder than we have worked for a long time in order to keep clients and acquire new ones, but we do not want to batten the hatches down for the rest of the year.

"The temptation in times like these is to have a duvet day which lasts the whole year."

Capita has been involved in Birmingham's new £193m library for more than two years.

Social housing has also been a boom sector, but Williams explains there is "a little concern around that market at the moment."

He believes contractors are only just starting to wake up to the potential problems of a drop in education funding.

"With the LSC funding crisis, we are talking about delays in multi-million pound schemes. Losing them is a massive blow," he says.

The company is being cautious over recruitment at the moment after having to let staff go this year.

Williams says: "We now have endless recruitment consultants knocking on our door, whereas 18 months ago they were almost too busy to help us."

Richard Blackburn, manager at Hays Construction West Midlands, confirms how tough the recruitment market is.

"There are currently no skills shortages across the West Midlands due to the increased number of job seekers on the market, but high-calibre professionals with extensive experience are still in demand," he says.

"We are seeing particular requirements for senior level contractors with previous public sector experience, public sector partnership managers, electrical and mechanical design engineers, estimators, quantity surveyors and business development managers."

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New work in Birmingham

Birmingham is the focus for major new spending plans in the region, with a host of new projects set to get underway.

Work will begin later this year on the £600m transformation of New Street Station, which will take until 2014 to complete.

Mace is delivery partner for the scheme, which is the brainchild of a consortium composed of Network Rail, Advantage West Midlands, Birmingham City Council and Centro (The West Midlands Passenger Transport Executive).

The station will remain open during redevelopment work, which includes full refurbishment of the existing station and the construction of two 30-storey mixed-use towers.

Carillion will start work next year on a £193m deal to build the new Library of Birmingham, which will replace the city's unloved central library.

The new library will be developed at Centenary Square, in the city centre, on land adjoining the Birmingham Repertory theatre. Work is due to finish by 2013.

Government inspectors have given the green light to plans for a £400m extension of Birmingham International Airport, as well as a £750m regeneration of the former MG Rover Site at Longbridge. Advantage West Midlands and developer St Modwen are proposing 1,450 new homes in a development designed to create 10,000 new jobs as part of a 15-year vision to turn the former car plant into a mixed-use sustainable community.

The city's beleaguered residential market could also get a boost from plans for two new towers worth £275m - the £125m Regal Tower and the £150m Beorma Building.

Local developer Regal Property will put in a formal planning application this month, with work on site expected to start early next year.

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EXPERT VIEW

Mike Wainwright, West midlands regional strategy Adviser, Constructionskills

The Construction Skills Network year-on-year data indicates a 3% contraction for 2009, followed by nil growth in output nationally in 2010, then a gradual return to low-level growth of 1% in 2011, 2% in 2012 and 3% in 2013. These figures result in an average annual output growth in the next five years of 0.5%, with West Midlands' figures below average at just 0.2%.

However, one sector projected to grow during this period is infrastructure, at a rate of 5% each year, with work starting on Birmingham New Street station and a number of transport-led projects keeping construction output and demand for workers higher than other regions.

In addition to such infrastructure investments, average annual growth is also forecast for the housing sector - driven by repair and maintenance requirements to existing stock, the roll-out of the Decent Homes for All programme and demand for increased levels of affordable/social housing. Due to these outflows from its construction force, the West Midlands will require 3,620 new workers each year over the five-year period to deliver forecasted projects across the region.

The report also shows that construction employment in 2007 was 226,480, but is predicted to fall to 215,140 in 2009, before rising to 219,070 in 2013.

This year will be challenging, particularly in the West Midlands' industrial sector, where the strongest decline is forecast. But the longer term picture is more positive, with the area set to benefit from public spending and infrastructure projects such as the renovation of Birmingham New Street.

In the current climate businesses may eschew training as a way to cut costs, but the in the medium to long term, those that recognise the workforce is their greatest asset and develop individuals' abilities will be best placed to capitalise on the opportunities when the sector starts to recover from 2010.

It is critical that the industry focuses its efforts on retaining and reskilling workers currently in employment. A recession is not a time to decrease training levels. If that happens, the long-term skills deficit will be severe.

For more information visit: www.cskills.org/csn