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10/08/18
The recent National Infrastructure Commission report highlighted several issues in the industry. Amongst other things that productivity in terms of the development of infrastructure is below the national average in almost every major city in the UK. To address this the NIC’s recommendation was to implement 5 year budget cycles covering smart technology implementation, routine maintenance and well as minor infrastructure enhancements.

While both Highways England and Network have already adopted 5 year cycles, their budgets are secured 2 years in advance which provides ample time for planning and implementation. In terms of recruitment this makes a significant difference. If the budgets only commence when the 5 year cycle starts there is a significant lag in recruitment because contractors won’t hire until the strategic planning phases are completed and this can take up to 2 years.

Could 5 year cycles disadvantage recruitment?
Much has been debated about the boom and bust cycles in construction and this has a direct impact on recruitment. While a 5 year cycle may make strategic sense in terms of finances, it needs to be considered in terms of the skills available and needed to meet the requirements of infrastructure projects.

While the delay in recruitment may be understandable because planning does need to happen first, and requirements often change, it makes getting the right skills at the right time challenging. When the go ahead happens after a year or two of planning then things often need to move fast and it sometimes only leaves only a small window of time to find the right expertise.

Change vs continuity
When moving into the final phase of the 5 year cycle uncertainty once again prevails. Will contracts be renewed? Will strategies change? And what impact will this have on the skills needed? While the pressure may be on for contractors to meet deadlines within the 5 year framework they will be reluctant to hire on new people when there’s uncertainty as to whether they’ll retain contracts for the next 5 year cycle.

A change in strategy can also impact the skills required. This is particularly relevant when a client implements new technology. For example: a digital signaling system or remote wireless monitoring will not only require the technical skills to install but also for managers strategizing and overseeing the implementation to have sufficient digital knowledge to do so effectively.
10/08/18
Despite a recent increase in investment and awarding of tenders, infrastructure output in general is still not at the level that it could or should be according to industry experts. The Essential Infrastructure Report by Scape identified that in the 20 year period between 1997 and 2017 construction output on UK infrastructure and public construction projects had only increased by £64bn which is considerably disproportionate to the increase in investment over the same period.

As infrastructure output is typically measured in relation to local populations this can skew the results as some regions populations grow faster than others. However, it is interesting to note that despite the average output being low, there are some regions that are performing impressively. Compared to London, Scotland has increased their output by 54%. And the North-East region is not far behind with 40% more output than London. So it appears a higher output is not impossible, it’s just the exception rather than the norm.

Industry hindrances
While productivity is in part to blame, there are other industry factors that make increasing output difficult. A much talked about subject recently is that of retentions and late payments. This hits the smaller contractors and sub-contractors hardest. How does one increase output if you don’t have the money to pay wages for the work that’s already been done?

Red tape still ties up many infrastructure project decisions and this is often due to differing political views. Getting different role players and decision makers to work together, supporting a devolution agenda will be beneficial for the industry and contribute to streamlining projects and output. The NIC in particular aims to help reduce the impact of politicizing decisions with regards to developing infrastructure. In addition it hopes to see more social value attributed to contracts, particularly when they exceed £10 million in value.

Output solutions
If the industry is to overcome its reputation for poor productivity and output, all industry role players need to make a commitment to collaborating better with one another. Recognizing that smaller projects can hold just as much value in the communities they serve as the larger infrastructure projects such as HS2 that cross over multiple regions. Combined these factors can help assure a continual pipeline of work in infrastructure and further secure long-term relationships in the supply chain, thereby giving the stimulus needed to improve output.

If you would like to discuss this article or have any future recruitment requirements to discuss then please give me a call on 020 7183 0255 or email: c.odonnell@ellisfox.co.uk
10/08/18
While the news carries reports of continued failure of Governments on both sides to reach agreement terms for Brexit, the deadline continues to creep closer. In just over 7 months, with or without an agreement in place, Britain will no longer be part of the EU. And exactly what this will look like in business terms remains an unanswered question.
The impact of this is evident in particular within the construction industry. As a sector that that is reliant on trade deals to secure its supply chain of resources and skills, it has the industry in limbo. A recent CITB report found that almost two thirds of construction firms do not have strategic plans formulated to deal with Brexit, largely because there are too many unknowns.

Does the UK have enough skills without the EU?
The problem is that the UK construction industry employs approximately 2.25 million workers, of which 14.8% are migrant labourers and tradesmen. The majority of UK construction firms report that migrant workers are more productive and have a better work ethic so these are not skills that the industry can afford to lose. While many migrant workers interviewed indicated they intended to remain in the UK until retirement, unless this is supported by clear legislation this may not be possible.

Currently industry reports highlight that the skills shortage in the construction industry will be a major stumbling block unless stimulated by targeted training programs to upskill workers. Additionally, concerted efforts will need to be made to woo more senior skilled entrants into the industry to maintain the expertise needed.

Will new trade tariffs trip up the industry?
While the government would like to minimise the impacts of Brexit, if the negotiations are anything to go by, this is unlikely. Which means that companies taking a sit back and wait approach are likely to find themselves in hot water down the line.

While there is currently no detail on what post Brexit trade deals and tariffs will look like, this much is clear, costs are likely to increase and there will be impacts on the supply chain which will impact both bidding on new projects and the ability to deliver on existing contracts.

Contractors that have contingencies in place will be leaps ahead of their counterparts, mostly because they will have options available to them rather than being on the back foot
10/08/18

For the past few years may local councils have found themselves under pressure to the point where budget cuts and other austerity measures have been implemented to try reduce budget deficits. While financially this may seem to be the most prudent course of action, it is not without implications.

The demand for infrastructure and related public services doesn’t simply go away or reduce because there’s no funding available. In fact the opposite is true. Road traffic estimates from 2017 show that the total number of vehicle miles travelled was already exceeding 323.7 billion - up 1.3% from the previous year. Traffic on minor roads has increased by 1.4% and ‘A’ roads by 1.1%. While this may not seem like a lot, when compared to motorways statistics it reflects that local roads carry 66% of all traffic.

Are motorways more important than local roads?
The majority of funding (52%) being made available for road infrastructure upgrades and maintenance is being channeled into developing smart motorways. While this is important, local roads are equally so. The problem is that funding for local roads falls under local councils, who currently don’t have the money for routine maintenance, never mind the much needed upgrades. Many local councils have taken the approach of only carrying out emergency repairs. However, this retroactive approach is likely to compound the problem.

The Department for Transport statistics reflect that decades of underinvestment have resulted in a 9.3 billion backlog on pothole repairs. With no hope of finding the funding needed to make up for that deficit, the situation for road users is likely to worsen in the foreseeable future.

Who will pay the price for deteriorating roads?
The latest Local Authority Road Maintenance report highlights that the rate of road deterioration is increasing. No doubt due to the increased traffic volumes which are set to grow exponentially. Given the current 9.3 billion maintenance budget deficit, it is estimated it will take at least 14 years to get the local road networks up to an acceptable standard. Furthermore, the report states that at least 20% of local roads will need to be resurfaced within the next 5 years.

It is clear that austerity measures are not a solution with regards to infrastructure development. Local councils need to rethink their strategies and actively work to source funding that can be channeled into essential infrastructure development.
30/07/18

The issue of retentions and late payments has been in the spotlight more recently following the Carrillion collapse. But the reality is that this practice has been ongoing for years and it’s having a major impact on SME’s who make up an important sector of the construction industry. The tough current economic times are making things even harder and this is putting greater pressure on small businesses who are struggling to maintain a positive cash flow. The impact of late payments is often the last straw breaking the camel’s back.

Alarming statistics
A recent report by the Prompt Payment Directory reflects that the number of SME business owners affected has increased from 27% in 2017 to 48% in 2018, with many of them admitting to suffering from extreme anxiety and stress due to cash flow issues. At least 67% have gone without a personal salary in order to keep the business afloat. More than a third are struggling to make mortgage payments and a quarter have had to sell their personal properties and downgrade their lifestyle or rent a home.

This is alarming, especially considering it’s a situation that could be avoided if prompt payments were instituted. When following up on payments from clients, the majority of SME’s are told that the clients are awaiting payments, or an even more feeble excuse: “The accounts person is away.”

Government reform needed
There are calls from the industry on government to institute reform to address retentions and have them completely scrapped by 2025. The Aldous Bill which is currently being read in parliament is set to institute retentions reform, but some are of the belief that its impact will not be enough to help the small contractors that are at the end of the supply chain and most affected by late payments.

Late payments as a practice needs to be abolished if the industry is to enjoy positive growth. Collaborative and mutually beneficial working relationships are the way forward.

But will the industry respond? Since January industry sector groups have been collectively lobbying for retentions reform and recently several tier one main contractors announced they would be scrapping retentions. This is certainly a step in the right direction. Now what’s needed is for government to do their part to ensure protection is put in place for everyone, including the small contractors in the industry.

If you would like to discuss this article or have any future recruitment requirements to discuss then please give me a call on 020 7183 0255 or email: c.odonnell@ellisfox.co.uk
24/07/18

There’s been a lot of talk about the benefits of technology and BIM and how various digital solutions can help make construction safer and more efficient. But the number of companies forging ahead and actually implementing this technology seem to be in the minority.

When asking industry role players why, the answer that is consistently given is cost. However, the early adopters dismiss this as a good enough reason to not implement digital transformation, citing that the technology ultimately pays for itself because of the cost savings it produces.

Real time information and collaboration
One example of technology at work as explained by Topcon is: “We have systems where the exact position of the final pass of the cutting edge of a machine can be recorded, loaded to a web portal, and fed back to the engineering surveying team for reporting as-built information for operational and asset management purposes.” (i)
It is this type of information sharing that facilitates better collaboration of expertise and results in project cost savings. Errors can be picked up on in real time and corrected immediately, rather than after the fact when sections of the construction have already been built. This helps facilitate not only on time delivery but also on time delivery.

Breaking the barriers of traditional work silos
The other challenge that technology helps to overcome is the disconnect that occurs between the design and engineering teams and the operations teams on the ground. Historically these divisions operated in silos, each concentrating on their own areas of expertise.

However, it is this divide that is often the cause of errors and delays as information is not communicated accurately. There’s also often a lack of understanding on the ground as to why engineers want certain information in a particular format. BIM pulls together information connecting and managing it in a way that can make projects more efficient and when people see this play out in real terms, there’s greater buy in.

Even after a construction project has been completed, the information can be pulled through for maintenance schedules and safety checks. This too can be linked up with technology to make operations more efficient. Such as using drones to survey structures or robots to establish safety parameters for further underground work. The question is: Will the only limitation to technology be those unwilling to adopt it?

(i) http://www.infrastructure-intelligence.com/article/jan-2016/digital-technology-are-we-missing-trick
23/07/18
It was reported in June that construction output and new orders were finally on the up with new projects being awarded hitting a high for 2018. The question was asked, is the construction industry finally climbing out of its slump?

2018 has been a tough year in construction. Aside from the Carillion collapse many main contractors have posted major losses and project delivery has been slow. This has been exacerbated by the ongoing uncertainty of the impacts of Brexit.

In the first half of the year, main contractors reported slower job creation and that many corporate clients seem to be holding back on decision making causing delays in breaking ground on major construction projects. Additionally many local budgets have been cut, reducing the funding available for infrastructure maintenance and development.

Is there sunshine on the horizon?
However, there are some sectors where progress is being ushered in by a demand that cannot be ignored. Highways England are forging ahead with their plans to upgrade several high traffic routes into smart motorways in an effort to ease congestion. The recent government announcement approving the Heathrow Airport expansion is more positive news for the industry.

While the construction sector as a whole is still struggling, there are regional areas reporting positive growth. As business, trade and exports increase in these areas, so do the opportunities for construction. To support the workforce and the burgeoning businesses there will need to be an expansion to networks of road and rail, as well as housing and other related commercial developments.

Regional development hot spots
Two regions reported as hotspots for development in the NatWest business survey are the East Midlands and the North West. The East Midlands is receiving a boost from the ongoing HS2 rail project, ushering in job creation in regional cities such as Sheffield. Once completed it is estimated to bring 6 million passengers to the region a year, supporting development and local economic growth. HS2 is also playing an important role in supporting development in the Northwest. The region recently hosted an awards evening recognizing excellence in construction for developments and infrastructure that have been completed in the area.
It seems that the best opportunities for contractors exist in these regional hotspots as it is there that growth is currently outperforming the national average. It’s positive news for an industry that is still plagued with negative headlines.
23/07/18
Recent news reports highlighted great excitement over the government vote of approval to expand Heathrow Airport by adding an additional runway. When completed it will add much needed capacity for both cargo and passengers. More interesting though is that the construction process may just usher in a new way of doing things.

The infrastructure industry has a legacy of poor delivery, undercutting margins and failing to complete projects on time, on budget or even to the right standard. It’s unsustainable – as was highlighted by the collapse of Carillion and the number of main contractors posting major losses on projects this year.

The news headlines alone have made everyone more aware, now more than ever, that low cost tendering is a slippery slope to disaster. Reports are that government role players are now working closely with industry leaders to create more efficient and sustainable ways of managing major infrastructure projects to ensure better delivery.

What will be different about the Heathrow expansion?
There is a massive opportunity for construction leaders to demonstrate that the industry can do better on everything from procurement through to benchmarking performance and maximizing the opportunities digital technology present to operate more efficiently. Already there are initiatives such as Project 13 aimed at achieving this, of which the airport is already a participant. Project 13 proposes an enterprise model that connects all the stakeholders and rewards based on time and cost delivery.
This approach is more collaborative and will require that relationships with suppliers and subcontractors are based on long term, mutually beneficial partnerships. If this can be achieved it promises a better working culture where information is shared with relevant stakeholders and through this, project milestones can be achieved.

Who will step up?
The Heathrow expansion has big shoes to fill if this is the expectation. However, if they do achieve it, it will be an accolade that few other major infrastructure projects worldwide have succeeded in achieving. In the UK Construction industry it is an opportunity to step up and prove that we do have the expertise, technology and management skills in order to successfully implement such a project. Maybe then we finally stop looking over our shoulders at the failures of recent months and look forward to building a more robust industry, invested in technology and sustainability while achieving on time and on budget project delivery.
23/07/18
On 5 July, business and energy secretary Greg Clark, announced a £420 million construction sector deal promising to revolutionize the industry. It’s an ambitious plan that aims to deliver 1.5 million homes by 2022 as well as supporting infrastructure, and to do this in a way that is time and cost efficient, and green.

But more importantly the deal aims to address the major skills shortage in the construction sector, setting aside £34 million to expand construction training programmes within the industry. These programmes will target the existing workforce ensuring that workers have the skills necessary to keep up with progress and technology. There is also a commitment to increase apprenticeships to 25000 by 2020 to encourage young graduates and school leavers to enter the industry.

Embracing technology
A key feature of the deal is the incorporation of technology to improve efficiency and delivery. To meet the housing demand, government proposes off-site manufacturing, digital design and embracing new manufacturing technologies. Smart construction will see the incorporation of robotics and machine builds to reduce time to delivery. Energy efficient design and construction methods are to be used to reduce energy usage bills of end users.

Smart technology is already being rolled out in many major highway upgrades and incorporated in rail scheduling to make transportation more efficient. It is promising to know that the government is open to new technologies because these hold some of the greatest potential to boost the construction industry by reducing costs and improving accuracy and efficiency.

Will this be enough?
The skills shortage in construction is a major concern for the industry especially as its being compounded by the effects of Brexit. This new deal is aimed at creating highly skilled and well paid jobs, supporting the industry and driving economic growth. But will it be enough to create the construction revolution needed to secure the future of the industry?

While the deal shares a great vision there is skepticism as to whether it will be able to achieve its goals in practice. Success will require close collaboration from various industry stakeholders, something that the industry has been hesitant to do up until now. However, this will be necessary if the industry wants to future proof itself. Collaboration, technology and smarter delivery are all key elements of what is neccessary to usher in change. Maybe this will be the revolution the construction industry needs.
23/07/18
Since the privatization of the railways, the main contractors involved in constructing rail infrastructure have been consistently plagued by boom and bust cycles due to funding inconsistencies. Projects typically start out with great momentum but as funding dries up contractors find themselves looking at smaller margins to get the project completed, on top of often having to let workers go.

It’s a far from ideal situation, driving up the costs of railways, resulting in job losses and putting a great deal of pressure on contractors and their supply chain. Up until now the only solution has been to try secure additional funding in advance so that projects don’t grind to a halt. While this may be a quick fix solution, it doesn’t address the underlying issues that are creating the boom and bust cycle in the first place.

Funds locked up in government

The Railway Industry Association has been working towards unlocking government funds in a timely manner for projects, but it appears to be a constant uphill battle that takes up a great deal of time and resources.

What is really needed is for the industry role players to develop a more collaborative approach and change their working strategy. The objective should be to find strategies to target and break the boom and bust cycle so that rail infrastructure development and maintenance can proceed at a more efficient pace. If this can be achieved it will ease cash flow burdens and create a more sustainable business environment for all infrastructure contractors, no matter their size.

Recommendations by the Transport Select Committee

Recently a report published by the Government’s Transport Select Committee made a number of recommendations for improving, in particular, the development and maintenance of railways. It specifically highlighted the issue of boom and bust cycles and the very negative effect it is having on the infrastructure sector.

In many cases SME contractors have been squeezed to the degree that they have had to close their doors. Given the important role that SME’s play in the economy, this is something that should not be allowed to continue. The Transport Select Committee’s recommendation may just be the catalyst needed to get all the concerned parties to sit down around a table and start to work towards finding a solution to support a more sustainable future for the industry.