PUBLISHED IN BUSINESS REPORT DISTRIBUTED WITH THE SUNDAY TELEGRAPH April 2015 · 26 Building Britain British construction, now and in the future By Alan Manuel, Deputy Managing Director – Europe, Sweett Group T: 02070619000 Website: www.sweettgroup.com Construction is a hugely important sector for UK plc, employing over three million people and contributing £93bn to the economy each year, 7% of GDP. The recovery which began two years ago is now felt in most key regional cities, led by renewed housebuilding and helped by infrastructure mega-projects such as Crossrail. But while the UK construction industry has rebounded strongly from the global financial crisis, major challenges lie ahead in the short-to-medium term. The last recession was the deepest and longest in living memory, and its legacy will be pronounced. We’re witnessing a return to the capacity issues of the boom period much earlier than expected, with output still far below the 2007 peak of £104.1bn. Already a massive shortage of skilled labour is hampering project delivery, after a generation left the industry for good. Efforts to address this through apprenticeships and recruitment drives have commenced, but it will be a difficult four years before they come to fruition. As a result, prices will inevitably rise faster than inflation – a challenge for developers and a danger to cash-strapped contractors. Most entered the recession wealthy; many emerged with their reserves drained. They may still be posting profits, but their balance sheets are fragile. Firms that took on projects in leaner times at tight margins must now deliver them in an aggressively rising market. We’ve already seen large sub-contractors and regional contractors go under and they will not be the last. As the market picks up, contractors are exercising considerable discretion in bidding for projects, favouring those that can be won relatively quickly and shunning slow, multi-stage tenders. It can cost millions just to bid for major schemes – these are the ones that may not get off the ground. This includes public-sector projects, which will hinder the government’s efforts to drive more integrated project teams and new technologies through its own procurement process. A clear pipeline would make a major difference, giving contractors the confidence to invest. This is what the government has tried to provide with the Construction 2025 strategy and the National Infrastructure Plan, but now it must deliver to them. The outcome of the general election is another key area of uncertainty, with the future of major projects such as HS2 to be confirmed. Added to this is the possibility of a referendum on EU membership, which will cause investment decisions to be put on hold, as Scotland’s recent experience demonstrates. One factor that could help to relieve the skills shortage is the arrival of new players from abroad. As in the aftermath of previous recessions, the growing UK market is attractive to foreign contractors and the diversity of the supply chain makes it a relatively easy target. The last wave from France, Spain, Germany and Sweden has driven consolidation and led to fundamental change. This will no doubt continue, but Chinese contractors too are now seeking to enter the UK on the back of wellresourced developers. It’s a proven model for contractors from Europe – the only difference is distance. Given the importance of construction to the economy, it’s surprising that it’s not given greater prominence in the party manifestos. But even if the politicians aren’t looking our way, you can bet that hungry players from overseas are.