Insolvency risk rivals inflation threat

The threat of insolvency could rival inflation as the main danger to the UK’s construction industry, according to a new study by a Yorkshire-based multi-national professional services company.

Turner & Townsend said the potential return of rising insolvencies in the construction industry shows that economic reality is catching up with the sector, following the closure of the furlough scheme in September 2021, and the end of the temporary easing of insolvency rules in March 2022.

Turner & Townsend’s latest UK Market Intelligence Report (UKMI) is alerting the company’s clients to the increased number of construction sector insolvencies which have risen by 72.1 per cent year-on-year to the second quarter of 2022.

It is advising clients to take a pragmatic approach to project and programme delivery to help tackle both inflationary and insolvency threats.

The potential return of rising insolvencies in the construction industry shows that economic reality is catching up with the sector, following the closure of the furlough scheme in September 2021, and the end of the temporary easing of insolvency rules in March 2022.

Michael Grace, Director and North East and Yorkshire Strategic Lead said: “Insolvency risk is becoming a growing issue in our region across all supply chains as the long-term impact of the pandemic is realised, and the fiscal crutches offered by Government are removed.“It’s essential to spot the tell-tale signs of insolvency risk early, these include low productivity, difficulty securing labour or materials, and failure to pay suppliers. To be prepared, build trust and open communication within your supply chain.”

The company has also revised its tender price inflation forecasts in the UKMI.

The report’s estimate for 2022 in real estate has been adjusted slightly to 8.7 per cent, an uplift from 8.5 percent in Spring’s UKMI.

Sustained higher inflation is expected to persist, with 4.5 percent forecast for real estate tender prices in 2026.

Mr Grace added: “Our sector is at the heart of driving forward positive change, with projects such as the Towns Fund in Calderdale, the Cultural Heart in Kirklees and the City of York’s housing programme helping us level up the UK, bring forward social value, and achieve the transition to net zero.“For this potential to be met, risk in project delivery must be minimised.”He added: “This will take programmatic decision-making that plans for the full lifecycle of projects – looking beyond low-cost bids and instead assessing the sustainability and robustness in the financial credentials of firms and their ability to deliver.”

Source: The Yorkshire Post

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How is CaberFloor made?

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In a short video launched by West Fraser,trading as Norbord, the panel product specialist demonstrates how its sturdy CaberFloor is made at the huge Cowie facility near Stirling, Scotland.

CLICK HERE TO WATCH THE VIDEO

 

The 95-second, virtual ‘factory tour’ enables the viewer to appreciate the exacting processes required to produce the versatile and well-proven particleboard flooring panels.  The cameras offer a panoramic view of the space-age interiors through to the highly automated plant: where dust and other pollutants are fully suppressed to create a healthy working environment for the handful of engineers and other staff who operate it.

 

At Cowie, CaberFloor begins life as a series of raw wood streams, carefully sieved and graded to the loadbearing panels’ precise specifications, while the fibres are dried to regulate their residual moisture content.   Minutely regulated chemical treatments are used to facilitate the panels’ formation in layers on the production line and pressure applied to achieve the exact thickness.

 

Next, the panel blanks are cooled and cured on a slowly rotating carrier system, enhancing their long-term performance and durability, prior to them being mechanically sanded and precision cut to size.  CaberFloor also features a machined tongue and groove interlock around all four sides to provide stability and minimise the need to support joints.

 

While the finished CaberFloor panels are carefully checked and labelled by experienced operators for distribution to merchant stockists and other customers, housebuilders and specifiers across the construction industry can be confident in the consistency of a precision made, fit-for-purpose product.

 

To find out more about West Fraser’s products for housebuilders, CLICK HERE to email Dan Clarke or CLICK HERE download product brochures from the housebuilder page of the West Fraser website.

For further information, call 01786 812 921

or CLICK HERE to visit the website

 

THE SUMMER ISSUE OF MMC MAGAZINE IS NOW AVAILABLE TO READ ONLINE

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PLANNING ‘GOING NOWHERE’

Fiona Sawyer, Professional support lawyer, planning, London

IPA Annual Report on Major Projects – end of the road for planning reform?

A developer client recently commented “Because what we need now is more uncertainty, right?”, or words to that effect. Uncertainty about what? Planning reform. Because, in spite of “planning” apparently holding back housing and development for years, stymieing the ambitions of renters to get on the property ladder and of many more to have a home they can call their own, we are no further forward in terms of certainty about planning reform in England. Why does certainty matter? To plan for which development proposals to take forward, developers need certainty about the planning system. To plan effectively for the future of their area, planning authorities need certainty about the planning system. Having spent years being told that “planning” is at the root of the evil that is the housing crisis and that the system must change, what certainty is there about future planning reform?

The Infrastructure and Projects Authority (IPA) seems certain that the government’s current proposals for planning reform are going nowhere.

The IPA recently published their Annual Report on Major Projects 2021-22 – their yearly report to the Cabinet Office and HM Treasury on progress across the Government Major Projects Portfolio (GMPP). The purpose of the GMPP is to “[ensure] robust oversight of the government’s most complex and strategically significant projects and programmes“. The IPA independently scrutinises these projects and programmes. It monitors progress, identifies risks and shares insights with the government for this purpose. The Annex to the IPA’s annual report rates projects on a colour scale from green through to red indicating the IPA’s view of the likelihood that the project will achieve its aims and objectives, and whether it will be on time and on budget. “Green” indicates successful delivery, on time and on budget, “red” indicates that successful delivery “appears to be unachievable” and there are various shades in between – “amber/green” indicates that “successful delivery appears probable“, “amber” that “successful delivery appears feasible but significant issues already exist“, and “amber/red” that “successful delivery of the project is in doubt, with major risks or issues apparent in a number of key areas“.

Planning reform has been rated by the IPA for the first time this year. On the data made available to it by the Department for Levelling Up, Housing and Communities, the IPA has rated planning reform as “red”. Not “amber”, nor even “amber/red”, but “red”. The IPA’s assessment of the government’s proposals for planning reform is that they now appear to be unachievable.

Many of us suspected that the government’s programme for planning reform was at risk once Boris Johnson resigned as Prime Minister and the Conservative Party leadership election kicked off. However, in predicting the end of the current planning reform proposals, this announcement goes further than might have been expected. Whatever its faults, the Levelling Up and Regeneration Bill finally spelt out what proposals for reforming the planning system in England we could expect to be taken forward. Having spent years second-guessing exactly what planning reform might mean, clarity at least was welcome, whether or not there was enough detail or whether it was agreed that the proposals would have the impact intended.

The fact that reform again seems to be up in the air is unhelpful, to say the least. Everyone in the development industry, indeed everyone hoping for a genuinely affordable home, needs certainty about what changes to expect. Recent years have demonstrated how damaging piecemeal reform can be – the introduction of blanket permitted development rights is a case in point. We must hope that the government takes heed of the IPA’s assessment and either recommits to current proposals for planning reform or openly acknowledges abandonment, for now at least.

 

Source: Herbert Smith Freehills

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CONSTRUCTION OUTPUT DECLINES FOR THE FIRST TIME SINCE JAN’ 2021

S&P Global/CIPS UK Construction PMI®

KEY FINDINGS

Civil engineering and housing activity fall in July

Commercial work expands at weakest pace for 18 months

Supplier delays least widespred since February 2020

 

 

COMMENTS:

Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey

“July data illustrated that cost of living pressures, higher interest rates and increasing recession risks for the UK economy are taking a toll on construction activity. Total industry output fell for the first time since the start of 2021 as civil engineering joined house building in contraction territory. Only the commercial segment registered growth in July, supported by strong pipelines of work from the reopening of hospitality, leisure and offices.

“More positively, input cost inflation has retreated from the peak seen this spring as lower commodity prices and supply improvements gradually filter through to buyers of construction products and materials. The latest round of purchase price inflation was the least marked for 16 months, despite sustained pressure from escalating energy costs and staff wages, while supplier delays were the least widespread since the pandemic began.

“Expectations for output growth in the next 12 months are far less exuberant than those seen over the past two years, amid concerns that elevated inflation and higher borrowing costs will constrain demand. Nonetheless, the degree of construction sector optimism picked up slightly since June, which ended a five-month period of falling confidence.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply

“After several months of difficult conditions for builders, these challenges have now resulted in a contraction in construction with the biggest fall in activity since May 2020.

“This disappointing result was felt across all the sectors, including housing which had demonstrated more resilience over the last couple of years, but fell for the second month in a row in July. However, it was civil engineering that fell the hardest and furthest. With fewer new orders in the offing, it may be some time before we see a rebound in this sector bearing in mind the time lag of infrastructure projects.

“Builders optimism remained at the lowest levels seen for two years. Job creation was healthy to complete work in hand but the danger remains that should the UK economy turn unfavourable, this will affect job hiring and the development of key skills. A feather-like fall in prices may ease some of the pain as access to raw materials also improved, but prices at historically high levels will continue to hamper activity in 2023.”

Brendan Sharkey, Head of Construction and Real Estate at MHA

“The UK construction sector continues to ride a wave of strong demand, despite the persistent pressures of inflation, labour shortages and the cost of living crisis. Prices have stabilised for some basic materials such as timber, bricks and certain steel products. Overall, businesses have adapted to the inflationary landscape including changing their methods of purchasing thereby bolstering performance across the sector.

“Housing demand, particularly outside of London, continues to be fuelled by an increase in disposable income due to the switch to remote working and high levels of employment. The levelling up agenda and Commonwealth Games have also played a role, positively showcased cities including Birmingham and Leeds as great places to live, contributing to the housing boom in these regions.

“However, in the months ahead housing demand will inevitably decline as the cost of living crisis continues to bite. Today’s expected interest rate rise, which could see the base rate increase by 50 basis points, alongside increased travel costs, general inflation and reduced employment will also prompt many consumers to put their needs for a new house on the back burner.

“Many businesses will be closely monitoring developments in the conservative leadership election over the month ahead. A reduction of the planned 25% corporation tax cut, a review of the HS2 extension and reduction of red tape on building new homes (mooted by both candidates) would help the sector power through the difficulties ahead. Yet for now, this just remains speculative and come September it may be a very different story.”

Fraser Johns, Beard finance director

“The largest fall in construction activity since February 2020 confirms the view that the next 18 months is likely to be slower for the sector.

“However, there is also an element of market correction taking place as the pent-up demand following the pandemic begins to subside. This is probably why commercial work – which bucked the downward trend – is expanding at its weakest pace for 18 months.

“The reduction in supplier delays is encouraging, the continued delays on some imported items from China and Europe remain a concern.

“Skills shortages continue to be an issue for our sector. Recruitment of staff is a challenge for all industries. We are working hard to attract a diverse and inclusive workforce by offering incentives and opportunities for development at all levels, from apprenticeships to senior managers.”

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NATIONAL MMC ADVISORY SERVICE NOW AVAILABLE

NATIONAL MMC ADVISORY SERVICE NOW AVAILABLE

FROM ARCHITECTS STUDIO ANYO

 

Property developers, contractors and building product manufacturers can now benefit from a new advisory service that provides sector-leading expertise around modern methods of construction (MMC) and offsite solutions.

AnyOffsite from architects and interior designers Studio Anyo, can help clients to speed up their development processes and comes as MMC practices are being adopted and integrated with Design for Manufacturing and Assembly (DfMA) to improve productivity and performance.

Able to support all types of MMC, AnyOffsite utilises digital technology as core to improving construction productivity in the offsite manufacture of structures, components, assemblies and products. A full range of advisory services enable clients to step-up development processes and include market reports to identify the most appropriate MMC options, analysis of the business implications, and the predicted productivity benefits.

Other services cover product development, and design, estimating, and cash flow analysis. Assistance with MMC specific bid management, scheduling, logistics, cash flow and supply chain management is also included alongside architectural, structural, sustainability and MEP reviews.

Strategies to assess the appropriateness and impact of MMC on a client’s operation and procurement schedule are included as part of a comprehensive package of measures that conclude with risk management assessments to identify the specific implications associated with pursuing different forms of construction.

 

Led by a team of specialists, AnyOffsite works with developers and contractors investing in MMC to reduce onsite construction and new build times, while adding design flexibility and significantly cutting property carbon footprints.

 

James Walsh, CEO of Studio Anyo, said as DfMA consultants, AnyOffsite’s knowledge of the supply chain is unparalleled, helping to ensure clients can secure best value for their projects and maximise return on investment in highly competitive markets.

He added: “MMC enable projects and development sites to be brought forward quickly and more efficiently. This allows the finished units to be marketed and sold faster. However, the sector can be difficult to navigate for property developers, contractors and building product manufacturers. So, we can help guide them in the principles of digital construction and management.

“Our services, coupled with our wealth of knowledge and industry experience, deliver technical insight, cost savings, project management efficiencies and, ultimately, strategic solutions to ensure clients are able to successfully deliver their offsite and onsite MMC projects on time.”

CLICK HERE TO FIND OUT MORE

 

AnyOffsite is a member of the Offsite Alliance – a not-for-profit organisation for makers and manufacturers of homes, using offsite/modern methods of construction – and the Association for Project Management (APM), which is the professional organisation for project and programme management. The advisers already work with a number of UK MMC manufacturers, local authorities, housing associations, consultants, private developers and NHS Trusts.

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CHALLENGING UK HEAT PUMPS POLICY

SACRÉ BLEU: French heat pump costs blow hole in ‘nonsense’ UK government policy

 

Evidence of heat pump costs for French consumers blows a hole in UK government policy a leading energy trade body has claimed. Chief Executive of Energy and Utilities Alliance (EUA), Mike Foster, believes this new evidence renders UK heat decarbonisation plans “useless” and calls for a Government re-set.

 

Current government policy believes heat pump costs will fall by 25-50 per cent by 2025 and reach parity with a gas boiler by 2030. The average heat pump costs around £10,000 to install compared to a combi-boiler replacement of £1500.

 

The Heat and Building Strategy, published in October 2021 suggests that increasing volumes of UK heat pump installations will bring costs down. Some of the wilder claims suggest heat pumps could be reduced to £1000 a unit but the evidence uncovered by EUA suggests this argument is fatally flawed.

 

Evidence uncovered by the EUA, indicates heat pump installations in France average £11,000, similar to the UK figure, but last year 537,000 heat pumps were sold in France, compared to 50,000 units in the UK. This suggests that higher volumes do not reduce costs and presents a challenge to current UK policy.

 

Commenting on the findings, Mike Foster said:

 

“The French have blown a hole in UK government policy. Their experience shows that higher volumes of heat pump sales does not massively reduce their cost. The forecasted reductions, claimed by BEIS, are simply numbers plucked from thin air. Just across the channel we have real word experience, 537,000 heat pumps fitted last year, at a similar cost to that experienced in the UK, with our 50,000 sales.”

 

“Heat pumps are a globally traded product, why would they be cheaper in the UK than France? It’s complete nonsense to suggest they would. Once you debunk this myth, the whole UK heat and buildings strategy falls apart. It now needs an urgent re-set.”

 

“Boris Johnson set a target of 600,000 heat pumps by 2028; cost reductions of 25-50 percent by 2025; parity with a gas boiler by 2030. In doing so, he has thrown public money at subsidies, he has scrapped VAT on heat pumps, he threatens to fine boiler manufacturers if they fail to meet his targets. But his own advisory body have warned that heat pump running costs are higher than a gas boiler and now these mythical costs reductions are shown to be just that, a myth.”

 

“It’s time for the new PM, whoever that is, to press the re-set button. It’s time to admit the previous policy was just hot air. And it’s time to urgently get our gas networks converted to hydrogen, keeping UK homes affordably warm without damaging the climate.”

French pricing references:

www.effy.fr/travaux-energetique/chauffage/pompe-a-chaleur/prix-pac-air-eau

www.izi-by-edf-renov.fr/produit/pompe-a-chaleur-compress-6000-aw-bosch

www.prix-pose.com/pompe-a-chaleur-air-eau/

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A quarter of UK construction companies have experienced Fraud

A survey report on fraud in the construction industry reveals the most common experiences and negative impacts on businesses in the UK.

Data collected from the Fraud in the Construction Industry – Survey Report shows that a quarter of UK construction companies have experienced fraudulent activity over the last year. The common experience of fraud takes the form of changing the quality of materials, which has affected three in five companies surveyed.

A third of firms have fallen victim to invoice fraud, and one in every five companies have been affected by falsified expense reimbursements, false billing, contractors lying about qualifications, purchase fraud or stealing tools for other projects.

Although a quarter of these companies have experienced fraud in the last year, two in five didn’t report it to the police.

 

“The substitution, removal, or simple exaggeration of materials used on a project is becoming a frequent type of construction fraud. Contractors, subcontractors and tradesmen may utilise a particular grade or brand of material, or a specific piece of equipment, only to replace it with a less expensive one and keep the difference.”

–Declan Rate

CEO and Partner, Forensic Procurement Partnership Ltd

 

Bid Rigging

 

A fifth of the 39 companies surveyed had also encountered bid rigging, bribery or another form of corruption.

Bid rigging can also take the form of cover bidding, where firms agree to submit bids that were deliberately priced to lose the tender, resulting in customers paying higher prices or receiving lower quality services. This was the case in June 2022, when the Competition and Markets Authority discovered that ten construction companies have been involved in “illegal cartel agreements” when submitting bids.

They provisionally concluded that the firms colluded on prices through illegal cartel agreements when submitting bids in competitive tenders for contracts worth over £150 million, involving demolition work at the Met Police Training College, Selfridges and Oxford University, amongst others.

 

Accounting Diversion

 

Declan Rate, CEO and Partner at Forensic Procurement Partnership Ltd, defined some of the other most common forms of fraud in the construction industry:

“The construction industry has always been vulnerable to the threat of fraud and cybercrime, particularly account diversion. This is where a company receives a notification of a change of bank account email purporting to be from a legitimate construction company, when in fact, it is from someone attempting to defraud them.

“Due to the current economic crisis, fraudsters are taking more desperate measures. The substitution, removal, or simple exaggeration of materials used on a project is becoming a frequent type of construction fraud. Contractors, subcontractors and tradesmen may utilise a particular grade or brand of material, or a specific piece of equipment, only to replace it with a less expensive one and keep the difference.

“We recommend “taking 5” prior to answering any emails or entering into any transaction to ensure it’s a genuine transaction. Lack of vetting and screening could potentially cause long-term financial and reputational harm. We’d also suggest doing your due diligence when hiring anyone on a project. Check work history, and confirm qualifications and certifications. Ask yourself: Can you perform more background checks? Do they have recent references you can request?”

 

Recognising the Signs of Fraud in the Construction Industry

 

  1. Scrutinise any last-minute changes to invoices or materials
  2. Examine the details of expensive purchases
  3. Supervise workers to make sure they have the skills and health & safety knowledge required
  4. Watch out for unusual working practices, such as someone taking on duties they wouldn’t normally perform
  5. Ask your accountant to inspect your accounts
  6. Beware of resistance to anti-fraud measures

Source: ThisWeekinFM

 

click here for the survey

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‘Contagious’ Administration Risk

The Horizon Cruise Terminal was built by Brymor Construction

A RISE in administration cases among builders such as Brymor Construction could bring the risk of “contagion” to the wider economy, an expert has warned.

All 107 jobs were saved when administrators sold the business and assets of Brymor, which built Southampton’s Horizon Cruise Terminal and had the contract for the Saints’ new gym at Marchwood.

But the sale to a new venture set up by Winchester-based Portchester Equity left £16million owed by the Hampshire-based Brymor companies to unsecured creditors, who are unlikely to see any of their money.

Days later, the civil engineer Woodmace Ltd and sister company and Woodmace Plant Ltd also went into administration and were sold in a pre-pack deal to the business’s founder and former owner.

The deal saved more than 100 jobs at the business, which also worked on the Horizon terminal and on Southampton’s King George V dock.

Garry Lee, chair of R3’s Southern and Thames Valley region, said: “There have been a number of high-profile administrations in the construction industry over recent months.

“Insolvency practitioners are anticipating an uplift in insolvency related activity as inflation hits record levels and is expected to rise further.

“Cost pressures and shortages in materials are being keenly felt along with increasing fuel prices while the legacy of Covid continues to impact some businesses.

“Clearly, the administration of a main contractor will have repercussions in the supply chain and carry the risk of contagion to the wider economy.”

He advised suppliers and subcontractors to “prioritise contract management” to guard against payment delays and service level disputes, as well as ensuring any additional work is agreed and confirmed in writing.

“If financial problems do begin to manifest themselves, the best advice is to take charge of the situation at the earliest available opportunity,” said Mr Lee, an associate director at professional services firm Evelyn Partners in Southampton.

“The sooner advice is taken from a qualified and regulated insolvency professional, the greater options there are for a more positive outcome, whether that involves restructuring or some form of administration, voluntary arrangement or liquidation.”

Source: Daily Echo

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WIN AN IPAD: Complete the Fire Safety Survey

Here at Briton, we’re working to find out the most common fire safety issues for people operating in your education buildings, and we’re hoping your answers will help!

We’ll use what you tell us to help inform people that work in and maintain these buildings as to how they can be better prepared for fire safety risks.

And did we mention the iPad prize!

Qualifying entrants* must have a good level of experience in the education sector and are required to answer a short questionnaire (we estimate only 5 minutes!) When you complete, you’ll be automatically entered into our prize draw, which will take place on 15/08/2022.

CLICK HERE TO COMPLETE THE SURVEY

 

 

Competition T+C’s

*Qualifying Entrants

To be entered into the prize draw you need to complete the entire survey as well as your basic contact details at the start of the survey – name and email address. Only one entry per email address is allowed. We will not use your contact details in the results of the survey, all data will be anonymised. The deadline for entries is 07/08/2022.

Prize Details

The winner will be chosen at random at Allegion (UK) Head Office by a person unrelated to this draw on 15/08/2022. The winner will be contacted on this date to arrange delivery of the prize.

This competition is being run across three publications, and the entrants will be pooled together.

The prize is an Apple iPad 10.2″ 64GB WiFi – Space Grey (2021). The prize is non-transferable and there is no cash alternative. Allegion reserves the right to substitute a prize of equal or greater value at any time.

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MERGER CONCERN – CMA

Chemical admixtures are an essential input for products like concrete and cement used in the construction industry. These specialty chemicals are commonly used to improve the strength of concrete or to control its setting time, to allow wet concrete to be transported over longer distances or held on-site for longer periods.

Chemical admixtures, which have become increasingly important as construction methods have developed, also play a key role in reducing the cost and environmental impact of concrete production.

Sika AG is a Swiss-based multinational specialty chemical company active across the construction sector and motor vehicle industry. MBCC is also a leading global supplier of construction chemicals and solutions. Sika announced its intention to acquire MBCC, in a deal valued at around £4.5 billion, in November 2021.

Sika and MBCC are the two largest suppliers of chemical admixtures in the UK and compete closely, particularly for customers with large volume requirements . Both companies are also two of the few competitors able to support customer requirements for product development and innovation.

The CMA (Competition & Markets Authority) found that the combined business would account for over half of admixtures supplied in the UK after the merger and face limited competition, giving customers less choice and potentially leaving them facing higher costs and reduced innovation .

Colin Raftery , Senior Director of Mergers at the CMA, said:

Chemical admixtures are vital to the UK construction industry, used in projects that range from laying pavements to the very largest infrastructure projects.

The loss of competition that this deal could bring about could lead to higher prices and poorer quality products for customers, increasing the costs of these projects.

Sika AG and MBCC Group now have 5 working days to submit proposals to address the CMA’s concerns. If suitable proposals are not submitted, the deal will be referred for an in-depth Phase 2 investigation.

For more information, visit the Sika AG / MBCC Group merger inquiry page.

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