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Contractors fear tough 2013 as output and order slide continues

Contractors fear a devastating 2013 after official figures showed that construction output had fallen to its lowest level since the summer of 1999.

“It’s terrible. There’s just no work out there,” the chief executive of one of Britain’s biggest contractors told NCE.

Office of National Statistic figures released last week show that the estimated total volume of construction output in the third quarter of 2012 fell by 2.6% compared with the second quarter of 2012. The fall continues the decline first seen in the third quarter of 2011.

It means the estimated total volume of construction output in the third quarter of 2012 was the lowest since the second quarter of 1999.

There were falls in seven of the nine sectors measured. New infrastructure bucked the trend, showing a quarter on quarter increase of 9.9%. But this quarteron- quarter growth has not brought the output of this sector back to levels recorded in late 2011. Compared with the same quarter a year ago, new infrastructure work fell by 11.3%.

The gloomy figures came a day after Balfour Beatty, Britain’s biggest contractor, issued a profit warning and less than a week after Morgan Sindall’s chief executive resigned as both firms braced for a tough 2013.

Balfour Beatty said its 2012 profits would be lower than expected in a gloomy trading statement covering the period 30 June to 7 November.

It also revealed that its order book had fallen £600M from £15bn at the end of June to £14.4bn by the end of September.


It said that 2013 would be a “difficult year” for its construction services business, with a “further decline” in activity levels and continued pressure on margins.

It added that its business was continuing to migrate towards smaller contracts in a market with “very few” major projects. The firm recently restructured its construction division, cutting 650 jobs, and said more changes may be necessary.

“We have been managing our business on the basis that market conditions would be tough, and this has been an effective strategy,” said Balfour Beatty’s statement.

“We will take further action, both operationally and strategically where necessary, to mitigate any adverse impacts on our business,” it said.

Meanwhile Morgan Sindall chief executive Paul Smith has left the company as it too faces up to “difficult” trading conditions. Its order book has fallen £400M since the start of the year to £3bn.

Morgan Sindall is also restructuring to focus delivery through regional hub offices, with a number of smaller regional offices being closed.

Engineers warned that, with bigger contractors now hunting smaller projects, SMEs will be squeezed out.

“As the big players are being forced to pitch for smaller projects, those in the squeezed middle are having to slash margins to negligible levels - and in the most extreme cases, some firms are pitching for work at below cost, simply to keep cash-flow coming in,” said Turner & Townsend UK managing director Steve McGuckin.

“Such desperate measures are clearly unsustainable,” he said.

Falling order books are now affecting 20% of civil engineering contractors, according to figures from the Civil Engineering Contractors Association (Ceca).

Its workload trends survey for the third quarter of 2013, published this week, showed that workload had declined for the second consecutive quarter, with 17% of firms, on balance, reporting falls in activity year-on-year.

According to a fifth of firms, civils order books were lower yearon- year, with roads contractors worst hit.

Cost inflation continues to press contractors’ margins, with 69% of companies, on balance, reporting annual cost inflation of up to 5%.

Ahead of December’s Autumn Statement Ceca has written to chancellor George Osborne setting out steps to tackle the slump and rebuild growth in the sector.

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