Leading contractors take on smaller contracts

Commonwealth Games Village for the 2022 games in Birmingham

Leading contractors are taking on smaller contracts according to new construction industry research from Glenigan.

The combined order books of the top 50 contractors fell by 31% last year. This was partly due to fewer major projects starting as clients held off work due to uncertainty over Brexit.

As a result, the size of the average contact won by the top 50 contractors last year fell to £14.9 million from £17.2 million in 2017.

Average contract size is a key measure of risk, as when work is scarce some contractors tend to take on bigger projects to keep cash rolling in.

Any problems that emerge further down the line inevitably cost more on major projects.

Only last month (February), Galliford Try announced another £26 million hit from the troubled £1 billion Aberdeen Western Bypass project, which the group took on with Balfour Beatty and Carillion, which subsequently collapsed last year.

Lendlease takes on biggest projects

Out of the top 50 contractors in 2018, the company taking on most large major projects was Lendlease.

Last year, the UK arm of the Australian giant won major work including the £350 million 2022 Commonwealth Games village in Birmingham and the £300 million Bishopsgate commercial scheme in London.

At Lendlease, which has successfully pursued a strategy of taking on a handful of major projects, the size of the average contract increased by 26% in 2018 to £134.5 million.

The biggest increase in average project size amongst the leading 10 contractors last year was at Wates. The average contract won by the group more than doubled as awards included the £650 million Northern Estate Programme at the Houses of Parliament.

Fewer big jobs for big contractors

In 2017, the size of the average contract award had increased at nine out of the top 10 contractors as major projects HS2 and Battersea Power Station swelled order books.

Last year, only five of the top 10 contractors were awarded, on average, larger contracts according to Glenigan’s industry research.

At Galliford Try, the size of the average contract award shrank by 18% as the group’s order book fell by 50%.

The biggest drop in contract size last year, down 57%, came at Sir Robert McAlpine but the company’s overall order book also reduced by 55% in 2018.

N/c = No comparable figure for Tarmac due to re-organisation of the group

At the bottom

The contractor in the top 50 taking on the largest amount of smaller value jobs is BW Interiors.

The average contract won by the fit-out group in 2018 was valued by Glenigan’s market intelligence at just £3.9 million – down from £5 million in the previous year.

The size of contracts reflects exposure to different sectors. A focus on maintenance means that the average contract at ENGIE, which bought Keepmoat’s regeneration business in March 2017, was next smallest at £4 million.

The size of the average job won by Interserve, which is struggling to stay afloat, shrank 28% last year to £5.1 million.

That reduction in risk profile over the past 12 months will help Interserve appease investors in uncertain times and reduce the risk profile.