community engagement, particularly on its framework contracts. “We add as much value as we can, in bricks and mortar, or in local employment training, or working with local charities. We try to put something back into communities, not bleed them dry.” So can contractors that have managed
to survive into 2012 be sure of having their signs on site hoardings in 2013 and beyond? Grant Thornton’s Westerman believes it is unlikely that another major name will disappear from the construction landscape. “Even if their margins have declined, [the largest players] have got security of income — and security that the end-user will be able to pay and can look forward with confidence.” Jonathan Hook at PwC agrees: “I
wouldn’t expect any major players to come unstuck, they’re generally quite diversified and often in overseas markets that are actually quite strong.” But that’s not to say we’ve seen the
end of construction insolvencies. ”The people who are vulnerable are some of the regional players, focused on public sector work, or smaller contractors more exposed to property developers,” Westerman says. As cash reserves dwindle and long-running contracts reach financial close, these SME contractors could yet fail if income from new, smaller projects doesn’t cover their overheads. Even larger contractors have to tread
carefully. The business development director at one major contractor says it is winding down several contracts in the £100m+ bracket that were signed three to four years ago, and their replacements are smaller in size and value. “There’s nothing of that size to bid for left,” says the director. “Now we’ve moved down the scale, projects get off the ground and complete faster, so the work in hand doesn’t take us as far forward. This year is critical, this is when we have to prove that we really have changed our game plan.”
No room to manoeuvre And in the New Normal, threats could still come from other quarters. Hook says that Tier 1 contractors that improved their own margins at the expense of the sub- contractors may find they have no more room to manoeuvre: “There’s a limit to how much you can continue to squeeze the supply chain.” Westerman also warns contractors
that for the Inland Revenue, it’s business as usual. “Businesses that have had to go through pleading and begging with HMRC [to delay tax payments] are now high on its radar,” he says. “People might find they’ve used up all their credits, and there could be fall-out if they get into default again.” The rising expectations of clients will
force further adaptive changes, and the firms that fail to respond will leave themselves vulnerable. For instance, the focus on BIM and offsite manufacture will create expertise and take cost out of the supply chain. “But that requires up-front investment, and only the stronger players are able to make that investment,” points out PwC’s Hook.
Glimmers of optimism
The business conditions of the New Normal are likely to prevail throughout 2012-13 or longer — until confidence and a revitalised housing market can offset the combined effects of public sector spending controls, high unemployment, and low wage inflation. “I don’t see any signs of relief. Overall, I think times are going to be pretty tough,” says Hook. But he also says government stimulus packages are starting to have an effect on house building, and sees glimmers of optimism. “As we approach the next
It’s normal to work harder to win work... Tendering — and finding projects to tender for — is typically
taking up far more management time than previously. “It takes a lot more management time in terms of finding out what’s available and getting on the lists,” says Steve Burditt, managing director of contractor Steele & Bray in Northampton. “We’re probably working harder and doing less.”
Hampshire-based Wilding & Butler says its strike rate has dropped. “Previously, we’d expect to win one in three jobs, or one in four — now it’s more like one in eight. We’re having to look at every possible avenue when pricing a tender, finding the key to carrying out a job. We’re being a lot smarter when it comes to tendering. At this level, one wrong move and you’ve racked up a loss,” says director Phil Wilding.
The bags packed for European property showcase MIPIM earlier this month were heavily weighed down with
expectations. “Even a week in the south of France is far more serious and business focused,” says Peter Jacobs at Morgan Sindall. “It’s a good example of the New Normal. Rather than R&R, everyone is now focused on building relationships.” Networking and marketing has also changed. Steve Kettle runs Networking in the City, which organises Curry Club events for the construction and property sector in eight locations, including London, Sheffield and Leeds. “Previously, you might have had the business development managers attending, now, you see fairly high powered people, the business owners themselves,” he says.
R
election, we will probably see government release the purse strings and we might see some growth strategies.” Also, major capital projects will
eventually return, says Graham Kean at EC Harris. “In two years, I think we’ll see a change, the emergence of a new model of PFI [will address pent up demand].”
The New Normal presents the challenge of delivering more, smaller-value projects — and backing them up with increased project management skills and business savviness. But there is some cause for optimisim. “In a strange way, the fact that the recession has gone on longer than expected means that the improvements the industry has made can be embedded. In the recessions of the early 80s and 90s, good practice wasn’t really embedded,” says Mark Beard.
The implications of this is that
businesses that successfully adapt to the New Normal should end up leaner, fitter, and more profitable – and better placed to benefit when economic confidence eventually returns. CM
CONSTRUCTION MANAGER | MARCH 2012 | 17
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