Future workload prospects have been dealt a severe blow by the funding crisis for the Channel Tunnel Rail Link. Construction had been due to start in April, with preferred bidders for two contracts with a value of £200M announced last month and further awards totalling £400M planned for this month.
Other key dependent projects such as new stations and road widening in Kent are also jeopardised. The possibility of several years' delay will upset the expectations of consultants, contractors and suppliers already affected by the reductions in the roads programme.
Elsewhere output will continue to be boosted by mega projects such as West Coast Main Line and Thameslink 2000, whose workloads are not expected to peak until 2002. However, work on Thameslink 2000 could be affected by the CTRL problems (NCE last week).
Provisional figures for the value of new infrastructure orders for the last quarter of 1997 indicate a figure of about £900M, the same level as the third quarter. Roads orders continue to fall, providing less than 25% of new orders placed last year compared with 35% in 1996.
The utilities sector continues to be a major source of work. The value of new orders placed in 1997 is expected to be confirmed as £1,400M, a 25% increase on 1996. This growth is expected to continue for the next 12 to 18 months, when the number of new water-related contracts placed will reduce as the 1999 periodic review approaches.
Sales in construction materials showed growth throughout most of the year. But there was a slowing down as autumn approached when brick deliveries dropped to their lowest level for the year, aggregates were 2% lower than in 1996 and asphalt sales were 9% down. Yet ready mixed concrete sales continued to increase.
Overall resource costs increased by 7% to 8% in 1997 but this was mostly influenced by wage demands from skilled labour due to shortages. This caused costs to rise by as much as 14% in some areas for specific trades. Tender prices however rose by only 4% in 1997. Although contractors' prices are reflecting the costs of such labour, most contractors have a proportion of their workforce directly employed. These employees will not be receiving the level of increases that sub- contractors can demand.
Despite the reports of serious skill shortages, recent surveys show improvements in the numbers of new construction jobs. Construction pay has risen by around 5% over the last year.
Plant hire companies on the other hand are reporting a darker picture in hire rates while experiencing increases in orders, with rates for heavy plant still below levels 12 months before.
Tender prices for civil works are expected to increase in 1998 by up to 5%, fuelled by the steady improvement in workload, growing confidence and the need to pass on increased costs especially for labour. Local conditions however are likely to lead to a greater range in tender prices.
For further information contact Terry Povall at EC Harris, tel (0161) 832 2232.