7 reasons for construction to be cheerful in 2009

The party may be winding down for construction after many years of growth, but it needn't be a miserable Christmas. Contract Journal considers some of the reasons for returning to work in the New Year.

1. Plugging the energy gap

As pensioners and the low waged struggle to pay their heating bills this winter, pressure will mount on the Government to step up its energy programme.

Years of underinvestment caused by uncertainty over the nuclear question has led to the very real threat of the lights going out. This means the Government will have to pull out all the stops to maintain existing power stations and plan new facilities.

It has made plans to build seven new nuclear plants, some with twin reactors, ranging in value from £3.4bn. The construction packages are worth around £600m each and contractors have already begun courting. Balfour Beatty has announced a partnership with Areva. One tier down, Costain, Morgan Est and Robert McAlpine are eyeing potential joint venture construction partners.

In the meantime, the first coal-fired power station in Britain for more than 20 years has been approved. Medway Council in Kent has given the go-ahead for the £1bn Kingsnorth plant proposed by Eon. The firm says the two 800MW 'supercritical' coal fired power units will be a cleaner alternative to the existing plant. The Government's decision on the plant is due early next year.

A host of other power companies have also outlined plans for coal-fired stations and are waiting to see what happens to E.ON at Kingsnorth.

The list includes RWE which is talking about plants at Tilbury in Essex, and Blyth in Northumberland, plus Scottish Power at Longannet, Fife, and Scottish and Southern Energy at Ferrybridge, West Yorkshire. In the meantime there is the potential that gas-fired power stations will be brought on stream as a stop gap.

2. Hands up for education projects

The Government's £45bn Building Schools for the Future programme is seen as a safe haven for contractors in the current economic storm. Partnerships for Schools (PfS) recently reported a number of new entrants sailing into the programme, from the choppy waters of the property and house building sector.

Incumbents resent the increased competition, but for the moment the pipeline looks strong. The programme is being fast tracked with local authorities now able to bring their BSF schemes forward for early inclusion, so long as PfS deems them ready to go.

However, those schemes with PFI deals included are facing funding hold- ups in the current banking climate. The European Investment Bank has sent out a lifeline, offering to provide 50% of funding for up to five BSF schemes. However, another 18 schemes are due to close next year. So question marks hang over how quickly these schemes will reach financial close.

Partnerships for Schools' £2bn National Academy framework is free of these problems. It delivers capital- funded Academy school schemes and smaller BSF schemes, typically under £150m. The framework is due to be renewed in 2009, doubling in size to a £4bn pipeline of work.

Currently six companies are on the existing framework. These include Balfour Beatty, Carillion, Kier, Laing O'Rourke, Skanska and Wilmott Dixon. The new framework is expected to have up to 10 contractors. Competition will be tough, with smaller sized schools contractors hoping for a slice of the action this time around.

The Department of Innovation, Skills and Universities also has a £2bn pipeline of work in the further education sector. The long awaited Further Education framework has yet to materialise but the £2bn pipeline of work it was to deliver continues to roll out via the Learning and Skills Council which controls the funding. Contractors report a steady flow of work, although there are growing concerns that some firms are beginning to bid too cheaply.

3. Healthcare perks up

Government plans to bring forward small and medium-sized construction schemes as a way of kick-starting the economy could provide a healthy pipeline of work for smaller healthcare contractors. NHS LIFT and NHS ProCure21 schemes fit the bill.

Most are under £100m in value and offer much faster procurement routes than large scale PFI schemes.

With perfect timing, both programmes are just about to extend their remit. The NHS LIFT programme is going nationwide, doubling its reach to all 152 Primary Care Trusts in England.

14 firms are currently bidding for up to 10 places on the new £1bn framework, known as NHS Express LIFT.

The deal will run for two years with a two-year extension option. Bidders on the shortlist include Laing O'Rourke along with NHS LIFT veterans Vinci, Skanska, Costain, Miller, Morgan Sindall and Eric Wright.

The framework deal aims to speed up the delivery of primary care facilities by reducing procurement time to less than six weeks. It will also cut bid costs by doing away with expensive design samples.

A massive expansion of the £2.9bn NHS ProCure21 framework is also planned when the contract is retendered next year. The new £4bn contract, likely to be called ProCure21 Plus, will allow all local authorities and Government departments to use it, which could see its workload more than doubled.

ProCure21 currently covers publicly funded healthcare facilities, but under the new framework its brief could be expanded into social care, housing and education schemes.

A major 60-day consultation exercise with contractors, NHS Trusts, local authority and central Government departments is to be launched in January, before the framework details are finalised. It will be advertised in May.

Competition will be tough. Contractors on the current framework are all expected to bid for the new contract. They are Balfour Beatty, BAM, Costain, IHP (Norwest Holst/Sir Robert McAlpine), Interserve, Kier, Laing O'Rourke, Medicinq (Bowmer & Kirkland, Midas, Osborne and Simons).

4. Driving through work

News that site-clearance work has now started on the £5bn privately-funded M25 widening scheme has provided another shot in the arm for the road-building industry.

Doubts had been raised over the Balfour Beatty-led ConnectPlus consortium's ability to raise funding for the Design Build Finance and Operate.

But the preparatory work is a show of faith by the Highways Agency that the country's largest ever widening contract will be in full swing next year.

The M25 is the latest boost to civil engineers after road construction was one of the major beneficiaries in Alistair darling's pre-Budget report.

Projects that will be fast-tracked include:

• £30m improvements to the A180/A160 junction near Immingham Port.
• £100m A46 dualling between Newark and Widmerpool.
• £30m of improvements to the A12 between the M25 and Ipswich.
• £165m south east Manchester relief road.

5. Water deals keep flowing

Water infrastructure work is never normally likely to get contractors' blood pumping, but work under the AMP4 programme is now well underway.

Ofwat anticipates expenditure of £7bn in the years 2008 to 2010, but this is likely to be pushed even higher, as water companies have under-spent by around £800m in the last three years due to project delays. By ensuring that these projects go ahead before 2010, Ofwat says that spending should therefore be around £8bn. On top of that, a number of water and sewage firms have made requests to the regulator to bring forward investment into the period. This could see as much as an extra £500m again over 2008 to 2010. Which should be enough to quench the thirst of some of even the most parched civils contractors.

6. Crossrail back on track

The £16bn Crossrail project, billed as the largest civil engineering project in Europe, is one of the big bright spots for construction in 2009 and on. The rail scheme, running from Maidenhead in the west, to Shenfield and Abbey Wood in the east, was envisaged 20 years ago.

But it now finally has the go-ahead, after the Crossrail Bill got Royal Assent in July this year.

And the work the project will generate could not come at a better time. The £300m to 400m project delivery partner role will be announced in March. Enabling works frameworks will be awarded in the same month, while contracts notices for the main works will be published in summer next year.

The short-listed tenderers for stage two are Bechtel, Legacy 3 (a joint venture between Parsons Brinckerhoff, Balfour Beatty Management and Davis Langdon), and Transcend (a joint venture between AECOM, CH2M Hill and Nichols Group).

Competition for the work is likely to be fierce, but contractors can also take solace from the fact that the client still expects to procure the work on best value, rather than price, on a two-stage tender.

7. Plant pot

While there is a lot of doom and gloom around, plant owners have a number of reasons to be cheerful. One positive will be that falling interest rates will feed through to lower interest payments for those buying machines on variable rate finance.

Then there is the fall in fuel prices which, despite a 4% rise in fuel duty, has seen the cost of red diesel drop from almost 72p/litre (ex VAT) to around 46p - taking a massive chunk out of running costs. There is also a 25% fall in the value of sterling. While this will make imported machines (and foreign holidays) more expensive, it does give UK plant owners an edge in selling under-utilised machines abroad.

Back at home the demand for plant may have dipped, but it has not disappeared and will be bolstered by the Government's pledge to accelerate spending on schools, hospitals and infrastructure. The Olympics and Crossrail couldn't have come at a better time, with the Games alone expected to employ up to 2,000 machines a day.

Add to that the work put out by the utilities companies, councils and Government agencies, and it is clear there wil be a sizeable amount of plant business to be won in 2009.