South East contractors fear public sector spending cuts

Willmott Dixon has had a successful ride on the back of public sector work in the South East, but now the firm is cultivating private sector clients like Epsom Racecourse in Surrey where it has completed a £25m new grandstand for the home of the Derby.

Below: Wilmott Dixon completed a £25m new grandstand for Epsom Racecourse, Surrey.

Contractors across the south east are keeping their fingers crossed that the region will be the first to attract a new raft of private investment next year as public money dries up leaving the industry facing a crippling funding gap.

Government spending is keeping many contractors ticking along nicely if they are lucky enough to be signed up with framework and partnering deals with public sector clients.

Those outside the cosy world of long-term arrangements are suffering a tendering free-for-all with ever more desperate contractors slashing bids to win work.

And those firms cocooned by public investment know that the money will dry up following a general election within the next 12 months which will leave the contracting world a very different place.

Kier has been one of the major beneficiaries of public investment across the South East where the majority of its £200m turnover is through framework deals concentrated on the education and prison sectors.

It is working on prisons in Sheppey, Dover and Maidstone and has picked up five schools out of 11 in the first wave of Kent's Building Schools for the Future programme, which involves investment of £540m.

Changing market

South East construction director Peter Searle sees the market changing post-election and believes it could go down one of two routes.

He says: "The first school of thought is that things may revert to a more competitive environment and the frameworks may not continue in their current format.

"The other is that clients will become more dependent on contractors' experience and give them a lower figure for a job and let them be responsible to hit it. We have a lot of experience in these framework-style jobs and know how to keep costs down. The more competitive route won't benefit clients or anyone. We'd much rather be allowed to do what we need to do to hit a revised figure."

Searle is very conscious of a possible funding gap next year with no real signs at the moment that private cash is coming through to pick up the predicted slack in public investment.

He says: "Public spending looks certain to fall and the real horror is if private spending doesn't step in to the void. Then there's a real danger of a double-dip recession which will be horrendous for the industry."

Willmott Dixon has also thrived across the region during the past few years on the back of public work. It has been very active within the BSF market, winning a string of education jobs. Mark Tant , managing director of the Cobham office, says: "We have benefited from a good level of work let which was procured towards the middle of last year.

"We are concentrating on the two-stage market. Work let between June and August last year is now reaching the second stage on site and is starting now."

But the Learning and Skills Council funding fiasco was the first sign of a wobble in public funding and Tant is now looking to woo more private clients as he predicts a downturn in central spending.

He says: "We are very conscious of developing the private sector market at the moment and see opportunities in the hotel and leisure sectors.

"Commercial development will move forward again, it's just a case of when. The South East will benefit more than most regions when it happens and there are lots of city centres ripe for regeneration such as Portsmouth, Guildford, Newbury and Bracknell."

Capita Symonds regional director John Southgate says commercial development is "as low as it gets" at the moment, but is hopeful that the market will pick up quickly.

He says: "Private sector development just stopped for the last 12 months but some new funding is starting to come through and we are seeing some lending. There are a few positive signs around but it's very tentative at the moment."

Speculators

Southgate believes new investors will be a different breed to many of the speculators who eventually led to the collapse of the market.

He says: "People will be looking for longer term returns and to make strategic investments. We are seeing new firms and a different approach in the market. One thing the recession has done is flush out a lot of bad developers who were basically acting like those people on 105% mortgages hoping the market would keep going up.

"Lots of firms were trading illegally and there were some very poor practices around as developers totally overexposed themselves.

"It was like doubling your stake forever on the roulette wheel - it sounds good in theory until you run out of funds."

Some smaller niche contractors are still finding work even today in the moribund private sector.

Dave Hudson of Specialist Contractors Group says: "There are still plenty of signs of life in the market but it all depends on what sector you are operating in.

"We are in the middle of a nice job at Lingfield race course where we have just finished refurbishment of the stable block and built a small hotel for the jockeys. The next phase is refurbishment of the grandstand which should bring the total value up to about £10m.

"The key is to have projects with a single point-of-sale like hotels or student accommodation. That sort of job is still holding up with certainty of completion and an end user.

"Anything multi-point like residential work is just too much of a risk for most people at the moment."

Skills shortages are not currently a major issue in the South East with workers just happy to hang on to their jobs.

Barhale director Patrick Curran, who also runs the firm's recruitment arm Civils Select, says: "The market has totally flipped on its head in the last year away from being one where potential employees had the upper hand and could dictate terms. That only happens now at very senior level or professions where supply is still limited like estimators and planners."

Alison Longdin, regional business director at Hays Construction, says: "There is no doubt that employers have the upper hand and jobseekers need to be more flexible, both in terms of salary and location. Employers are far more demanding and so it is important for jobseekers to clearly outline any transferable skills and tailor their CVs to each role.

"They are increasingly looking for business development managers who can implement strategies to generate new business in different sectors. More is expected from prospective applicants, and in some cases, roles have been merged to generate cost efficiencies as budgets have come under scrutiny."

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EXPERT VIEW Christina Montague, ConstructionSkills Regional Strategy Advisor

Fluctuations in skills demands have stayed high in the past six months as the economy struggles through recession. Construction has been hit hard, and forecasts made by the Construction Skills Network (CSN) at the start of the year will surely now look different - which is why the CSN is in the process of making revisions to ensure more up-to-date data is available to industry.

Despite the recession, the construction industry in the South East at the start of 2009 was predicted to remain the largest region in employment terms over the next five years. Infrastructure is expected to be the strongest sector in the region with the £1bn M25 road-widening project and a number of rail improvement schemes.

The South East has traditionally been the biggest employer of construction workers across the UK - accounting for 15% of the UK total - and this is set to continue. Over the next five years, the largest percentage increases in employment in the region are expected to be among plasterers and dryliners (8.3%), surveyors (8.1%), construction managers (7.6%) and logistics (7.3%). In contrast, the forecast for private housing is muted, with an annual average decline of 1.7%, despite a recovery in activity from late 2010. Long-term housing demand in the region will remain strong as household formation continues to outstrip the UK average.

Public housing is projected to be one of the healthier sectors, with annual average growth of 4.2% from 2009 to 2013 - availability of £1.4bn of public funding to build new social housing and improving local authority stock will drive growth.

In contrast to that of the UK overall, the commercial sector is forecast to see growth over the long-term with an annual average increase of 2%. The relatively robust forecast for commercial construction is due to two large PFI hospital projects - Maidstone and Tunbridge Wells NHS and Pembury Hospital, Kent - creating significant output streams. Office construction activity in the region, particularly the Thames Valley, is expected to hold up better in the short term than across the UK as a whole.

In the South East we have some large scale projects underway helping underpin demand for workers and in line with this we have a projected annual average growth of 0.5% over the five-year period, in line with the UK average. But at ConstructionSkills, we urge employers to maintain their commitment to 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

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New work in the South East

Interserve, Carillion, Birse and joint ventures between Bam Nuttall and Hanson and Lafarge Aggregates have all won places on a £400m managed works framework contract covering the South East and East of England for the Highways Agency.

Works to be carried out include resurfacing roads and maintaining bridges. The five contractors will operate in Bedfordshire, Berkshire, Buckinghamshire, Cambridgeshire, Essex, Hertfordshire, Hampshire, Kent, Norfolk, Oxfordshire, Suffolk, Surrey and Sussex.

Willmott Dixon is working on a £32m contract with West Berkshire Council to build a new home for St Bartholomew's School in Newbury. The job is the firm's latest contract under the IESE framework which was set up in 2006 as a procurement vehicle for local authorities and public bodies in the South of England. Willmott Dixon has been appointed for more than £150m-worth of work under the IESE framework.

Siemens Transmission and Distribution has won the first contract on what will be the world's largest offshore wind farm. Onshore work will start this summer on the £2bn first phase of the London Array project off the Kent and Essex coasts with offshore work due to begin early in 2011.

The whole scheme is set for completion during 2012. The 341 turbine farm is being promoted by energy firm E.ON, working alongside Dong Energy and Masdar.