Construction 2015: top five issues set to affect the industry

The uncertainty is certainly there. Few, if any, pollsters have ventured a firm prediction, though the consensus is that a majority government of any colour is unlikely after the May poll. Minority Conservative or Labour, Con-Lib Dem or Lab-Lib Dem, or a coalition of three or more parties all look possible, with the rise of the UK Independence Party, a strengthened Scottish National Party after September’s referendum and potentially the Green Party all upsetting the electoral maths and threatening to take a particularly large bite out of the Liberal Democrats’ share of the vote.

Fewer specifics have been given around infrastructure spending, especially from the Opposition, but again here an understanding appears to have formed by both parties around the importance of long term stability in infrastructure planning.In the key areas of housing and infrastructure the policies of Labour and the Conservatives, one of whom will almost certainly choose the next Chancellor, are closely matched. Shadow communities secretary Hilary Benn stated at the Glenigan Breakfast Briefings in May last year that Labour would not amend the National Planning Policy Framework (NPPF), which Glenigan has found to have had a positive impact on new home approvals. The focus of upcoming housing policy from both main parties appears to be supporting and encouraging more small and medium sized house builders back into the market.

The coalition government’s approach has been the creation of the National Infrastructure Plan and related planning reforms, while Labour has committed to going further in the form of setting up the Armitt Review’s recommendation of a National Infrastructure Commission.

Highways England (formerly the Highways Agency) is to begin operating as a government owned company in April, again bringing some relative stability to the forward funding outlook. Labour’s exclusion of investment spending from their pledge to run a neutral current account also bodes well for investment spending over the course of the next parliament.

2. Construction insolvencies - so far, so good

Company insolvency is a spectre that we expected to rear its ugly head in 2014. Expansion in workloads, alongside rising material and labour costs and fixed price contracts, can have a devastating impact on the cashflow of profitably trading businesses. 

Yet official figures from the Department for Business, Innovation & Skills (BIS) paint a positive picture. The number of firms entering administration or undergoing voluntary liquidations fell by 8% and 14% respectively during the first three quarters of 2014. More historic numbers covering the first half of 2014 also show drops of 23% in the number of compulsory liquidations and 15% in the number of self-employed individuals in construction declaring bankruptcy.

However this trend could still reverse during 2015 as issues on jobs negotiated during the downturn continue to emerge. Of 32 major contractors surveyed in Construction News’s latest barometer, only 19% were confident they had no problem contracts within their business and the majority expect them to cost up to £25 million during 2015. 

This risk has been acutely observed by those working in the industry. Analysis by Creditsafe, a global credit checking agency, found that six construction contractors and two builders merchants were among the ten most searched organisations for credit checks in the UK in 2014. Among the new entrants to the list was Balfour Beatty following its recent financial woes. 

3. What will the 2015 UK Construction KPIs look like?

The 2013/14 Construction Key Performance Indicators (KPIs) painted a picture of an industry that had been battered by the economic downturn, but can hold its head high from having held a solid base of performance. The 2.1% median profitability rate found by the last survey is among the chief concerns, especially when combined with clients’ worsening perceptions of value for money they received from their project teams. However improvements in cost predictability, health and safety and environmental performance provide a decent base for the industry to build upon as conditions improve.

4. Hinkley Point C

Energy company EDF hope/expect to make a final investment decision on Hinkley Point C during the first quarter of 2015, though several of these awaited dates have already come and gone during the last two years. The 3,200 MW, twin reactor generator at Hinkley Point in Somerset is set to be the UK's first new nuclear power station in 20 years (Glenigan Project ID: 01611123). While site preparation works are already underway, the main civil engineering works now appear unlikely to begin until 2016. 

5. Time to get ready for BIM

From 2016 Building Information Modelling (BIM) will be mandated on all central government projects. Repeat private sector clients are also increasingly looking to BIM to help deliver cost savings, accelerate construction times, cut risk and improve asset management. 

Glenigan survey data has found that, to date, BIM usage has been on a small, but rapidly expanding proportion of projects. However, the current year promises to be a year of transition as the government’s 2016 deadline approaches. BIM proficiency may quickly become a widespread requirement for clients, making training and development a priority for the year ahead.

Construction outlook for 2015

At Glenigan we are forecasting sustained construction growth in 2015 led by the private sector, with the recovery taking hold away from London and across the UK’s economic regions. For the full sector and regional outlook for the industry over the next 12 months, download our Construction Prospects for 2015 report. 

What issues do you think will make the biggest impact to your business in 2015? Share your top five predictions with us via our social media channels - simply click on the icons at the top of the page.