These have been
tough times for some of the larger contractors involved in major public sector
outsourcing contracts.
Carillion and
Interserve have produced a series of profit warnings accompanied by management
departures and tumbling share prices in recent months as tough contracting
markets and rises in the minimum wage have taken their toll.
But behind the
headlines, the UK public sector is proving an increasingly significant source
of work for construction businesses, says Glenigan
Indeed, the latest
survey fourth quarter employment sector outlook from Manpower found that
construction sector employers had the strongest hiring intentions of any sector
(with a net employment outlook of +11%, up by 6 points on the third quarter).
Much of that demand is linked to public sector work, particularly renovation
work in the wake of the Grenfell Tower fire.
A report from Ernst
& Young published in September said that the biggest cause of ‘talent
shortage’ currently is competition between public sector bodies and
infrastructure programmes. With £500bn of projects in the construction pipeline
to 2021– including Crossrail and Hinckley Point – the report says that the
scale of the planned investment means demand for project management talent is
set to increase significantly.
Joe Stringer, the
partner for EY government and public sector, said: “We’ve never seen such an
increase in demand for project management, commercial and financial skills
across infrastructure and government at the same time.”
Although the latest
Glenigan index for the three months to August shows that the value of starts in
key public sector areas such as health, education and infrastructure weakened
over the summer months, this was largely due to projects being delayed by the
snap general election.
Glenigan forecasts'
point to a strong finish to the year for infrastructure with the value of
project starts in the sector set to rise by 25% in the third quarter on the
period last year and 57% in the fourth quarter.
The growing
opportunities from an increasingly heavy public sector construction workload
are reflected in reports from the larger quoted consultancy groups.
One bright spot at
Waterman Group currently is its business seconding over 430 highways and
transportation engineers to UK public sector infrastructure clients. Under
long-term frameworks, the firm provides consultancy and staff to many local
authority engineering departments. Today, the firm is seeking to diversify its
model from highways and transport into new areas such as water and
environmental services and has recently secured secondments to Natural Resource
Wales and the Environment Agency.
The health of the
public sector infrastructure market was also underlined in recent results from
Kier Group. It reported a record £3 billion of new contract awards in the year
to June, which included HS 2 joint venture awards worth £1.5 billion and which
will start to generate revenue from 2018. Today, the firm is seeing more
transport opportunities and recent additions to its order book include three
new Smart Motorway projects including design and survey work on the M20 and
work on the M6.
It has also won a £38.5 million contract on
the A13. Yet whilst Kier is finding ample opportunities for infrastructure work
– it is also working at Hinkley Point C, Farringdon Crossrail and the Mersey
Gateway – the firm sounded a note of caution on the ‘higher risk profile’ of
some projects. Today, it says the business is focused on improving margins
(currently 2%) by winning high-quality work with repeat key clients as well as
risk management, contract terms and cash performance.
Yet whilst Kier is
finding ample opportunities for infrastructure work – it is also working at
Hinkley Point C, Farringdon Crossrail and the Mersey Gateway – the firm sounded
a note of caution on the ‘higher risk profile’ of some projects. Today, it says
the business is focused on improving margins (currently 2%) by winning
high-quality work with repeat key clients as well as risk management, contract
terms and cash performance.
