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It's a sellers' market if spending plans are realised

CONSTRUCTION CLIENTS will have to compete for the best consultants and contractors over the next five years if the government lives up to its promise to pour an extra £33bn into the health, housing and education sectors, industry leaders warned this week.

And in the face of spiralling public investment, there are already fears that the industry will not have the capacity to meet the short-term demands of this level of workload.

Gordon Brown's community infrastructure spending spree was trumpeted in his comprehensive spending review published last week (NCE last week).

'As resources get pulled into the health, housing and schools markets, competition between clients will heat up as demand increases, ' warned EC Harris' public sector division partner Graham Matthews.

The investment boost in homes, hospitals and schools is set to coincide with a big jump in work planned for the railways and the water sector. Even in markets where there is no major new investment such as roads, suppliers already claim to be comfortably busy and there is little slack to pick up the increased demand.

Matthews added that suppliers would in future be able to pick and choose work based on best rate of return or the value of the relationship with the client as demand for their skills soars.

The turnover of UK consulting engineers has increased 36.7% since 2002, from £4.9bn to £6.7bn. Civils contractors have seen turnover rise 28% from £7.5bn to £9.6bn according to research for the NCE Consultants and Contractors Files.

'There is a lot of growth and a lot of money being talked about, ' said Capita Symonds managing director Richard Marchant.

'We are looking to be able to decide what type of organisation we want to partner with, and which ones we don't want to work with. We can be more selective.'

Consultants will feel the impact of increased demand first as much of the new work will be procured through public-private partnerships, prime contracting and the private finance initiative, all of which involve extensive up-front design and planning.

Investment in health, housing and schools is expected to demand specialist services and will require a high level of strategic planning - work that only a small number of specialist individuals are capable of delivering.

Marchant warned that the consulting sector could find itself stretched to capacity and beyond as early as 2005. 'We are all gearing up but if everything comes at once something will have to give.'

Companies will have to choose what sectors to be in and what to give up, said another leading consultant. This could create openings for European and US companies.

This intense demand for consultants' services could also drive up salaries, particularly in specialist areas. 'If you are a civil engineer with project management experience anywhere you will be like gold dust, ' said one commentator.

However, the drawn-out bidding process for PFI projects is expected to push back the start date of new work on site by three or four years and at the moment contractors are confident they will be able to respond to new demands.

'Until now workload hasn't grown by more than 15% a year and I can't see it jumping, ' said Costain chief executive Stuart Doughty. 'Obviously securing resources is essential, but that rate of growth doesn't worry me particularly.'

HBG director Chris Gilmour added: 'Our major concern is whether industry as a whole can deliver. It's not so much the construction side of things but there is a resource issue with specialist designers in health or education.

'If the market increases as much as the government says it is going to, their skills will be in short supply.'

And contractors could find themselves having to choose carefully what work to take on if the currently quiet private property sector was suddenly re-invigorated.

'If there's competition from private housing or property development then that will generate capacity problems, ' said Galliford Try managing director Andy Sturgess.


NHS CAPITAL investment in England is set to rocket by 20% a year, from £3bn to £6bn a year by 2008 - a combined spend of £22.3bn. Spending in Wales and Scotland is managed separately by the Welsh and Scottish Assemblies. The Department of Health says this bonanza will deliver some 100 new hospitals by 2010. There is also a huge refurbishment programme to modernise doctors' surgeries.

Details of exactly how the money will be spent remain scant, however. Peter Wooliscroft, director responsible for client NHS Estates' Procure 21 prime contracting procurement route, says no decisions have yet been made by the Treasury or Department of Health on 'the kinds of facilities needed to care for the UK's ailing population.'

Injection of the additional funds could begin within weeks, or it could be held up for months running to a couple of years, depending on how quickly priorities are agreed in Whitehall, Wooliscroft believes.

'The only certainty is that, when a decision is taken, it's going to create a situation where the construction industry has to deliver quickly. The NHS procurement strategy has been geared to rapid project implementation and realisation.'

Wooliscroft reckons NHS suppliers already have the capacity to undertake the work let through prime contracts and the private finance initiative - the £22.3bn will be split roughly 50/50. But NHS Estates will be forced to find new design and supervision staff.


INVESTMENT OF a total of £38bn in creating John Prescott's sustainable communities is going to create some fantastic opportunities for the industry, engineers said this week.

Constructing 200,000 new homes in the South East will allow engineers to develop creative solutions to providing sustainable water, energy and transport infrastructure.

'For engineers this is brilliant as it will allow us to look at innovations and imaginative solutions. It is exactly what engineering is all about. It will give us a chance to be more creative, ' said Scott Wilson principal sustainability consultant, Matt Grace.

'Sustainable building requirements that have traditionally been seen as a nice add-on are becoming part of contract specifications. For engineers this means we have to act as integrated members of the team and the community, ' he said.

Back in 2003 John Prescott launched the sustainable communities plan and pledged to invest £22bn between 2003 and 2006. In last week's spending review, Chancellor Gordon Brown extended this to £38bn by 2008.

However, before design and construction can begin, government policies and aspirations have to be translated into realistic targets that councils and developers can work towards.

Consultants such as Atkins, Buro Happold, Steer Davies Gleeve and Scott Wilson are already working on this fundamental planning.

'Consultants that are just gearing up to get involved in this have really missed the boat, ' said Scott Wilson business development manager Stuart Robson.

According to these consultants, two major challenges in building these new developments will be bridging the gap between policy and hard engineering, and encouraging stakeholders to support the schemes.

'There is a massive amount of infrastructure required but not enough incentive for companies to put it in. Lots of consultation and discussion is needed between government and industry to transfer the strategy into reality, ' said a leading consultant.

To try and combat this Brown has allocated £200M to a community infrastructure fund, which will be used to provide transport infrastructure in the South East.


ENGINEERS WILL find themselves in the thick of ambitious plans to rebuild or refurbish every secondary school in England in the next 15 years.

Their project management and technical skills will be needed by the local authorities, banks, project managers, designers and contractors who are expected to deliver the government's Building Schools for the Future programme as public private partnerships.

The government says it will pour £30bn at a rate of £2bn a year into the scheme, which links better school facilities with better educational results.

Local education authorities and the private sector are being asked to form themselves into Local Education Partnerships (LEP) to manage the reconstruction of all the schools within each local authority. Eighty percent of the LEP funding will come from the private sector partner, 10% from the local education authority and 10% from government agency Partnerships UK.

LEPs can either run the work themselves or let private finance contracts to deliver new school building. They will also be responsible for managing the supply chain delivering on refurbishment and maintenance contracts. PFI deals could cover all new build schools in an area or be on a project by project basis.

LEPs and PFI consortia will recover their costs and earn returns through the contracts they deliver successfully.

'The way we are being asked to work is not in a straightforward client/supplier arrangement, ' said Capita Symonds managing director Richard Marchant. 'This is not about a building agenda but improving performance at schools'.

First calls for bidders wanting to be private sector partners on four Pathfinder LEPs are expected this autumn. Another 10 'first wave' LEPs will go out in the spring.

The government hopes building work will start as early as 2005 but the industry is already warning of delays (NCE last week).

Pathfinder LEPs Bristol Bradford Sheffield Greenwich/Southwark/Lewisham First wave LEPs Gateshead & South Tyneside Sunderland Newham Knowsley Leeds Manchester Newcastle Waltham Forest Solihull Stoke

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