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Infrastructure and housing workloads keep UK construction sector buoyant

Workloads continue to grow in the UK construction and infrastructure sector, amid financial constraints and Brexit uncertainties, according to the results of the Q3 2018 RICS UK Construction and Infrastructure Market Survey.

RICS UK Construction and Infrastructure Market Survey, Q3 2018: Outcomes

  • Workloads continue to rise across all sectors and geographic regions
  • Infrastructure activity reaccelerates in all parts of the UK apart from Scotland and Northern Ireland, led by rail, roads and energy
  • New business enquiries and hiring increase despite tightening credit conditions

In Q3 2018, 20% more chartered surveyors reported that their workloads had risen rather than fallen (up from +15% in Q2). Unsurprisingly, given the recent support from Government, private housing and infrastructure workloads reported the strongest rise. Private housing workloads improved in Q3 with 30% more respondents reporting a rise rather than a fall, up from +25% in Q2. Meanwhile, the infrastructure sector also continued to strengthen this quarter, with 22% more respondents reporting a rise in workloads.

Looking at the infrastructure sector in more detail, rail, roads and energy are the subsectors expected to see the strongest growth in output over the coming twelve months. Following the go-ahead from Government on major projects such as HS2, Heathrow expansion and Hinkley Point C it is likely that these projects are underpinning the growth as work starts to get underway.

Meanwhile, activity across the private industrial and public non-housing categories improved modestly with net balances of 9% and 11%, respectively. A soft patch was most observable in public housing where the pace of workloads slowed from +12% to +7%.

Jeffrey Matsu, RICS Senior Economist said “hile ongoing capacity constraints have supported steady workload activity, the outlook going forward is far from clear. Recent Brexit-related indecision has added considerably to this uncertainty, but whatever the outcome, the pace of growth is expected to decelerate if only due to cyclical market conditions.”
Regionally, workloads are now reported to be increasing across all regions, with notable acceleration in the Midlands and East. The pace of private housing activity was strongest outside of London and the South East whilst Scotland and Northern Ireland saw the industrial and infrastructure sectors contract.

Despite the growth in recent workloads, financial constraints are reported by 75% of surveyors to be by far the most significant impediment to growth. This is down slightly from 80% in Q2. Anecdotal evidence suggests the difficulties to accessing bank finance and credit, along with cash flow and liquidity challenges are the main reasons for hampering current growth. Cyclical market conditions are also making an impact. In an additional question introduced this quarter, respondents were also asked how credit conditions have changed over the past three months. 12% more respondents reported a deterioration rather than improvement, with them expecting this to worsen over the next three and twelve months.

Near term, the outlook for the sector remains upbeat. Respondents have reported growth in the number of new business enquiries received and 42% more respondents have reported seeing more new hires in their company over the last three months.

However, the outlook for the economy as a whole has led to a reduced optimism for the construction sector over the year ahead, with respondents pointing to a softening in growth. 33% more contributors expect activity to rise rather than fall, down from 41% in Q2, and a net balance of 25% foresee an increase in hiring. As the pace of growth has broadly moderated, since 2014, anecdotal evidence suggests that the uncertainty generated around Brexit, as the date to exit draws closer, is the main reason for the relatively cautious outlook.

Brexit caution could also be a reason for the reported rise in tender prices, as +61% and +50% more respondents continue to envisage greater price pressures in the building and civil engineering areas, respectively. This is up from Q2 and continues to signal rising input costs and shrinking profit margins for businesses. Indeed, expectations for profit margins remained flat in the latest results.

Hew Edgar, RICS Head of Policy concluded “Despite challenging market conditions and Brexit looming, overall construction output in the UK is up on the second quarter of the year, and in particular it’s very positive to see that workloads for much needed new homes and infrastructure are increasing. For three years our respondents have highlighted workloads rising in private housing, however whilst driving the growth in construction, the UK is yet to reach Government’s target of 300,000 new homes per annum. The last time the UK built more than 300,000 new homes per year was in the 1970s when council houses accounted for around half of the total. Hopefully, this is set to change following the announcement to lift the Housing Revenue Account borrowing cap, which should encourage more local authorities to get back into building.

“We’ve long called on the government to secure funding to ensure Britain’s exit from the European Union doesn’t impact the delivery of vital infrastructure schemes, and encouragingly our latest survey revealed that rail, roads and energy are the subsectors expected to see the strongest growth in output over the coming twelve months, unsurprising given recent announcements in these sectors.”

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There are still many danger’s in the construction workplace.

From the 22nd – 28th October the European week for safety and health at work will focus on the prevention of risks posed by dangerous substances within the workplace.  In the UK 8,000 people die due to exposure of carcinogens at work and 13,500 new occupational cancer cases are registered in the UK.

Our industry accounts for the single largest number of occupational cancer cases with approximately 3,500 cancer deaths and 5,500 new cancer registrations each year in Britain.  The main factors involved in this are past exposure to asbestos along with exposure to silica, solar radiation, welding fumes and other contributing factors.

The European Agency for Safety and Health at Work’s (EU-OSHA) aims to reduce the exposure of workers to dangerous substances as outlined in their document ‘Healthy Workplaces Manage Dangerous Substances’.

“Protecting workers from exposure to carcinogens is one of the key challenges for occupational safety and health in the 21st century. We are working to highlight the scale of the problem and the importance of preventing exposure to carcinogens at work as part of our current campaign. We believe that by informing and educating workers and employers, as well as offering practical solutions, we can reduce and even eliminate exposure to carcinogens at work, thereby preventing needless suffering and deaths from cancer. said Christa Sedlatschek, Executive Director of the European Agency for Safety and Health at Work (EU-OSHA)

Although use of some of the most dangerous substances, such as asbestos, are now banned or strictly controlled, modern workplaces continue to expose workers to dangerous agents, such as highly toxic liquids and chemicals, as well as nanomaterials, the health risks of which are not yet fully understood but predicted to be even greater.” said David Parr, Policy and Technical Services Director at the British Safety Council.

“The most effective way of managing exposure to dangerous substances in the workplace is the creation of a risk prevention culture. When this happens, workers are pro-actively involved in risk assessment processes and are well informed about the dangers, as well as the control measures that can be taken to prevent or control them.

“Occupational exposure limits (OELs) for hazardous substances laid down in European OSH directives are crucial for the protection of workers’ health. With Brexit growing increasingly imminent, it essential that the well-established control regime relating to this issue is not compromised in any way by the UK’s withdrawal process”

The British Safety Council has been working with employers and decision makers for over 60 years.  Their vision is that no-one should be injured or made ill at work and they are delighted to be supporting EU-OSHA’s campaign through there monthly magazine ‘safety management’.

 

 

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Construction and EU procurement in No-Deal Brexit

In nearly six months’ time, on 29 March 2019 at 11pm UK-time to be more exact, the UK is expected to leave the EU.

The construction industry has already started to feel the impact of Brexit, and has ongoing concerns about, amongst other things, skill and labour shortages, the increasing price of materials, potential import and export tariffs.

Another area of concern for the construction industry has been how the system of advertising UK contracts for works, goods and services to EU companies would work post-Brexit and how businesses in the UK construction industry would be able to continue to bid for work, goods and services in Europe. This is important because many UK construction and consultancy businesses benefit and need to continue to benefit from smooth and open working relationships with EU businesses.

The government’s position

While the government continues to negotiate with the EU, in the hope of reaching agreement on a number of key points in the next few months, it is also starting to prepare for a “no-deal Brexit”.

As part of that, a couple of weeks ago the UK Cabinet Office released guidance entitled “Accessing public sector contracts if there’s no Brexit deal” which sets out how works, goods and services can continue to be accessed across the UK and EU in the event of the UK leaving the EU without an agreement in place.

The current system

At the moment, UK public bodies and authorities can procure certain works, goods and services for construction projects, including from EU businesses, by advertising them on the Official Journal of the European Union (OJEU) via Tenders Electronic Daily (TED). Equally, UK contractors, consultants, manufacturers and other construction businesses can bid to provide works, goods and services to EU public bodies through OJEU via TED.

This means that, for example, a UK public authority procuring specialist offshore trenching and vessel services for a government-funded offshore renewables project can receive tenders from specialist construction companies throughout the EU. It also means that UK companies, for example a UK architectural business, can tender for a commission to design a high profile development project in Spain on the same basis as companies based in other EU member states.

But post-Brexit, without a deal, this position would change.

The government’s guidance

There are two key messages in the government’s guidance “Accessing public sector contracts if there’s no Brexit deal”:

First, the UK is aiming to accede to the World Trade Organization (WTO) Agreement on Government Procurement (GPA). The GPA is an international trade deal that the UK currently participates in by virtue of its EU membership, but in a No-Deal Brexit world the UK will need to become a member itself. Whilst this is not a new position it does confirm that there has been no change to the government’s position on the need to seek GPA membership.

Second, the UK will develop a UK version of OJEU / TED, which it refers to as “a replacement UK-specific e-notification service”. The guidance states that:

  • UK-based contract opportunities would no longer be advertised to the EU on OJEU / TED and would instead be advertised on the new replacement UK-specific free-to-use e-notification service
  • This UK e-notification service will be available from “Exit day”
  • The requirement to advertise and ability to access other UK domestic systems will remain eg on Contracts Finder, MOD Defence Contracts Online, Public Contracts Scotland, Sell2Wales and eTendersNI
  • UK businesses who wish to tender or bid for EU contract opportunities may continue to do so via OJEU / TED and
  • To enable the above, some changes to how the current procurement rules operate may be necessary, and these will be made by amending existing UK legislation.

The government has also said that further information will be provided nearer to the Brexit date.

So, has the government provided clarity?

In part, yes. The government has at least given some insight into its thinking about how works, goods and services can be advertised and procured across the EU in the event of a No-Deal Brexit.

However, there is very little detail around how this will work in practice.

In particular, while the guidance says that “Suppliers who wish to access contract opportunities from the EU may continue to do so via OJEU/TED”, it is not clear whether this position would be agreed to by the EU or whether they would have to access OJEU/TED as third country participants.

UK public authorities, construction companies, construction industry professionals and other construction industry businesses may also be concerned that, during a period in which they dealing with other challenges that may arise for their businesses due to Brexit (such as skill and labour shortages), they will potentially also have to familiarise themselves with a new UK e-notification service.

One thing is clear though, with no agreement yet reached with the EU, and with the Brexit date looming in a matter of months, the government should be working hard behind the scenes to flesh out its guidance, to provide certainty for UK public authorities and the construction industry before 29 March. We would hope to hear more on this by the end of this year.

 

Guest post written by WBD UK Lawers Kathrine Eddon, Head of Public Procurement and Michelle Essen, Managing Associate in Construction.

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Construction in the North West is ten times higher than national average

Recently published figures show that overall construction output in the North West is up 15% – 10 times the national average.

According to the Office of National Statistics, total construction output across the region is up to more than £4.6 billion in the 3 months to August 2018 compared to the same period last year.

Overall construction output in Great Britain for this period is up 1.5% compared to the same period last year meaning the North West’s increase is 10 times the national average.

The value of construction work on new housing in the North West has increased by £386 million this quarter compared to the same quarter in 2017 and output of new infrastructure projects has also risen during this period.

Northern Powerhouse Minister, Jake Berry MP, said “It’s wonderful to see how the Northern Powerhouse is driving investment in the North West and helping grow the construction industry to the tune of over £600 million.

“Anyone visiting the North West can see the huge number of construction projects underway and these figures show just how valuable they are.

“This construction boom is helping build new homes, new infrastructure and a stronger economy in the region.”

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UK has sixth-highest rate of excess winter deaths in Europe

Research reveals that the UK has the sixth-worst long-term rate of excess winter mortality out of 30 European countries. In addition, when taking into account cold weather beyond just the winter months, the UK ranks second-worst out of 30 European countries.

Over the last five years there has been an average of 32,000 excess winter deaths in the UK every year. Of these, 9,700 die due to a cold home – the same as the number of people who die from breast or prostate cancer each year. The fact that UK homes are amongst the least energy efficient in Europe confirms that these deaths are preventable.

Pedro Guertler, co-author of the report from E3G comments “The UK has one of the worst records on cold homes-related deaths in Europe and it is not only a public health tragedy, it is a national embarrassment. This epidemic is entirely preventable and E3G and NEA are calling on the UK Government to reinstate public capital investment in home energy efficiency to fix the cold homes crisis. As well as ending needless suffering and premature deaths, it would also address a wide range of national infrastructure priorities.”

Alongside existing private investment, E3G and NEA are calling on the Treasury to use public infrastructure capital – as opposed to revenue expenditure – to co-fund area- based energy efficiency schemes to systematically improve the quality of UK housing in every part of the country. The report says this is essential if the UK is to meet its fuel poverty and carbon emission reduction targets. Scotland, Wales and Northern Ireland have already been developing these programmes with great success but the UK Government has yet to back similar programmes in England and the number of insulation measures installed in UK homes has crashed by 90% since 2012 due to ill-judged cuts to home energy improvement programmes.

Peter Smith, the co-author from NEA added “As the UK experiences one of the harshest winters for several years, it is important to remember that this causes needless hardship, places health at risk and leads to premature death. Beyond the terrible scale of cold related winter deaths, people experiencing fuel poverty can also struggle with poor mental health and this can sadly lead to total social isolation and even suicide. This preventable tragedy must end. The UK Government must support the strong case for the re-introduction of adequate public capital investment – a necessity if we are to make the UK’s homes warmer and safe for human habitation.”

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Government to assist the 74% of construction companies being killed by late payment

A new announcement by Government to address the issue of late payment is expected to help the 74% of construction companies that have almost gone into liquidation due to the unfair practice.

The package of measures unveiled by the Small Business Minister Kelly Tolhurst will also reduce the hidden, human cost of delayed payment. According to research commissioned by the Prompt Payment Directory, 48% of the 400 construction companies polled reported depression, panic attacks, suicidal thoughts and anxiety as a result of late payments.

Late payment also affects a company’s ability to reliably predict cash flow, invest in training or even pay staff and bills.

The Government is pulling together strands that have existed for a while, but is now backing them with enforcement.

The small business commissioner will join the board of the Prompt Payment Code and measures will be put in place to remove signatories from the code’s list. This will help avoid the farce of Carillion and other similar companies being on the list despite their payment terms of 120 days being well beyond what could be considered reasonable.

The Government will aim to pay 90% of undisputed invoices within five days. Central and local government are not always prompt payers, often paying outside the terms of legislation. Having the Government lead by example will help change the culture.

There are also proposals that include consideration of how company boards can implement responsible payment practices and the promotion of accounting tools to help businesses manage payment processes.

While the Government has also highlighted its Mystery Shopper service that allows companies to report poor practice, it does not acknowledge the imbalance in the relationship between companies and their suppliers. Often the supplier carries much of the risk of the project in addition to being paid late. Suppliers in this position often do not report late payment because they do not want to jeopardise future work.

Neil Walters, national chair of the National Federation of Builders, said “Payments move from one business to another, but we should never forget the human cost of paying late. Enforcement is the key to making these government proposals work so that construction will no longer be the sector with the highest rate of insolvencies and all small businesses can stay open for business.”

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Government investment to overcome barriers to building

Investment to tackle issues on potential housing sites and get homes built in areas where they are needed most has been launched by Communities Secretary Rt Hon James Brokenshire MP.

Issues like land contamination, infrastructure requirements, and complex land ownership can present real barriers to building homes where they are needed most.

From this week, the government is intervening by providing 2 streams of investment – the Land Assembly Fund and the Small Sites Fund – for Homes England to deploy alongside their expertise. This will help release land to deliver 300,000 new homes a year by the mid-2020s.

The £1.3 billion Land Assembly Fund, will be used to acquire land needing work and get it ready for the market, making it less risky for developers to invest in and start building. Outside of London this work will be carried out by Homes England.

For public land owners or local authorities that are struggling to get building on land in their area, the £630 million Small Sites Fund will provide grant funding to speed up getting the right infrastructure in place to support home building on stalled small sites to provide the homes their communities need.

Communities Secretary, Rt Hon James Brokenshire MP said “We need to act on a number of fronts to build the homes this country needs.

“The availability of this investment will help us intervene in the sort of sites that aren’t yet ready to build on, or where developers have been put off.

“Developers can now get straight on with building homes, rather than overcoming the barriers to build. And in the same way we are also supporting councils that have land for housing, but need additional help to enable development.”

An example of Homes England acquiring land is Burgess Hill in Sussex, a site that desperately needed affordable housing, but which sat undeveloped for years. The national housing agency has stepped in, bought the land and is also delivering the infrastructure, so that the roads, schools and doctor’s surgeries are all in place for over 3,000 new homes that will now be built there.

Homes England Chairman, Sir Edward Lister said “Homes England is stepping in where the market isn’t working, unlocking land and releasing sites to those developers that are committed to providing homes at pace.

“The £1.9 billion announced by the government today will mean we can invest in crucial infrastructure and help local authorities to get more homes built on public land.”

The government will work closely with the Greater London Authority to help ensure targeted funding through the Land Assembly Fund and Small Sites Fund can deliver additional homes in the capital.

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MAC recommendations would cripple construction

The Migration Advisory Committee’s (MAC) report, which sets out a series of recommendations for the new immigration policy post-Brexit, would cripple the construction industry, according to the Federation of Master Builders (FMB).

Commenting on the MAC report published this week, Brian Berry, Chief Executive of the FMB, said “This report makes very worrying reading for the tens of thousands of small construction firms across the UK who are already deeply concerned about the skills shortage. Its recommendations ignore the pleas of construction employers who have called on the Government to introduce a visa system based on key occupations rather than arbitrary skill levels. Instead, the proposal is to apply the Tier 2 immigration system to EU workers, which would be disastrous for small and micro construction firms. Even if tweaked and improved slightly, the Tier 2 system would not make provision for ample numbers of low skilled workers to enter the UK and these are people the construction industry relies upon. For the Government to make good on its construction and house building targets, it will need sufficient numbers of labourers as well as civil engineers and quantity surveyors.

“It’s not at all clear that EU workers with important skills already in short supply, like bricklaying and carpentry, will not fall foul of a crude and limited definition of ‘high skilled’ worker. In addition, the report explicitly recommends that there should be no migration route for lower skilled workers with the possible exception for seasonal agricultural workers. There is also a vague suggestion that if there was a route for lower skilled workers, it should be aimed at younger people and not be open to workers of all ages. This is far too restrictive and simply won’t meet the needs of the construction industry.

“EU workers are vitally important to the UK construction sector. Nine per cent of our construction workers are from the EU and in London, this increases to one third. These workers have played a very significant role in mitigating the severe skills shortages we have experienced in recent years. The construction industry knows it needs to do much more to recruit and train many more domestic workers. However, given the important role migrant workers have played, and the already high levels of employment in the UK workforce, it is crucial that the post-Brexit immigration system allows us to continue to hire workers of varying skill levels, regardless of where they are from.”

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Fatigue in construction is the “Phantom Menace”

The construction industry is a major engine of GDP (over 100 billion in economic output) and employs over two million people in the UK. However, it suffers more than many industries in terms of accidents and injury. With more than 43 fatal accidents in 2017 (four times more than the average across all industries) and over 5,000 non-fatal accidents it is no wonder that this industry more than others is regarded as high risk.

Add to this the other 65,000 work related illness (Stress, Depression, Musculoskeletal Disorders, Respiratory and Skin conditions) and it is clear that Health and Safety needs to be embedded at every level of the organisation and especially integrated into the planning process.

Clearly there are unique and challenging circumstances with construction sites; the dynamic and changing environment and the lack of inherent infrastructure all combine to frustrate the best safety plans. What was safe yesterday may not be as safe today. An unoccupied area yesterday may be occupied today. Multiple activities concurrently taking place create varying risk each day.

Add to this “P&P” (Pressure & Penalties) which are now standard in the industry: if tight deadlines are not met there can be seriously damaging financial penalties and so a six or seven-day week and/or long hours for workers is commonplace. Little wonder then that injury rates are so high.

But beyond the hard hats and high vis, what can be done to reduce this blight upon the industry?

The first is the recognition that fatigue is your greatest enemy. Fatigue impairs your ability to process information, slows your reactions and decreases awareness and attention. In short, it reduces your ability to accurately estimate risk. In fact, 20% of major road incidents are the result of fatigue and many of the most publicised accidents (Exxon Valdez, Herald of Free Enterprise, Chernobyl, Clapham Junction, Texas City and Challenger) have been linked to tiredness.

To put it simply in many cases fatigue is a predictor (“lead” indicator) to an accident (“lag” indicator).

The maxim “you can’t prevent what you can’t predict” is very pertinent here. If you can understand the causes and drivers of accidents (fatigue) and you can assess likely fatigue in shifts/patterns, then you can reduce fatigue and prevent the associated outcomes (accidents)

The second is to recognise that long hours/weeks are not the friend of tight deadlines but its nemesis. Accidents create downtime and lost productivity. They CAUSE delays. However, because there is not a 100% correlation between fatigue and accidents, there is a tendency to roll the dice when pressure and deadlines encroach. But you cannot build an enduring business or industry upon this strategy. It is not a replicable/repeatable route to success. You may dodge the bullet more than most but sooner or later it will hit and may create not only contractual or financial strife but also long term reputational damage.

The solution lies with new technology and software that ensures you have the right people in the right place at the right time with the right skills. These planning systems can build in sufficient periods or rest and cover for absence/training and holidays, so you can ensure both and safe and optimum levels of resource to meet deadlines without the need for overtime/extended work periods. The benefit of planning effectively also delivers dividends through reducing fatigue, overtime costs, absence and accidents. Indeed, some solutions already have fatigue factors built into the system to reduce risk and provide assurance.

Another risk factor within construction sites is keeping track of who is on-site and where they are. Again, technology has come a long way with mobile apps which allow supervisors to register staff onsite, fully self-sufficient clocking terminals that are solar/battery powered with 3G for data transit, and beacons/tags that allow the site manager to know exactly who has turned up and exactly where they are in real-time. These solutions are the next generation “high visibility” tools allowing the site manager to know who is where without the need for line of site or audio contact. If there is an situation or emergency, the site manager can instantly view the location and presence of his team and act immediately.

The ability to plan and track workers in real-time does not only reduce accidents but also provides a constant feed-back loop to enable planners to constantly improve their planning based on outcomes. This process is not only critical to ensure health and safety but also though analysis, improve quality, productivity, delivery and reduce downtime, accidents and delay.

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Drop in EU migrant workers sounds alarm bell for UK construction

The drop in EU net migration has sounded alarm bells for the UK construction industry, the Federation of Master Builders (FMB) has said.

Commenting on the Migration Statistics Quarterly Report for August 2018, published by the Office for National Statistics, Sarah McMonagle, Director of External Affairs at the FMB, said “EU net migration is at its lowest level since 2012 and this is deeply worrying for those sectors that rely on workers from the EU. Despite the fact that we are still operating under the free movement of people, we’re already seeing far fewer EU workers coming to the UK and a greater number leaving our shores. This could be due to financial reasons since the depreciation of sterling following the EU referendum, which means that if these workers are sending money home, or saving up, their UK wages are now worth less. It could also, quite simply, be that some EU workers no longer feel welcome.”

“The drop in EU net migration is a particular problem for industries like construction. At present, 9 per cent of our construction workers are from the EU and therefore we are more reliant than most on EU workers. In London, this proportion rises to nearly one third. We can’t afford to lose any more EU workers as currently two-thirds of construction SMEs are struggling to hire bricklayers and 60 per cent are struggling to hire carpenters and joiners. If the Government wants its new homes and infrastructure projects built, it needs to do more to back up our industry’s message to all EU workers – they are welcome and they do have a bright future here in the UK.”

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