Wednesday, February 17, 2016

Great, but tough, times ahead

Malcolm Thomson, BESA President

This is going to be a big year – in fact the next three years will be pretty ‘full on’.

The technical and financial market drivers we have faced up to now will be magnified by a factor of 10 as workloads and the type of work really picks up and we will do well just to keep pace with what is about to happen between now and 2018.

Skills shortages, labour costs, movement of resources, modern methods of design, project risk, procurement and quality control will all become even more significant in the coming months.

We are facing our second ‘perfect storm’ in recent years with the growth in workloads coinciding with significant skills shortages and pressure on cash flow. Coming hot on the heels of the deepest recession in modern times, contractors will have to step up to the challenge again.

It is a very exciting time and the next three years will be full of opportunity, but we will have to ask ourselves if we are ready and willing to invest and take the opportunity to grow and prosper. Excitement can also, very quickly, turn to fear if we get this wrong.

A recent survey by the recruitment specialists Hays published in the CIBSE Journal showed how the skills shortage is having an impact on wages. Engineers pay is up by 5% in 2016, across construction as a whole, wages rose by 6% last year, which was three times faster than the average across the rest of the economy.

Pressure
The Royal Institution of Chartered Surveyors (RICS) warned that shortages could hamper the industry’s ability to deliver projects and lack of skilled labour was putting particular pressure on major projects, including the government’s housing and infrastructure schemes.

It is great that skilled workers in our sector are getting the financial rewards they deserve, but wage growth is also an unhealthy symptom of the skills gap.

This is having an impact on profit margins, but so is the fact that many Tier One contractors reverted to type and went back to awarding contracts based on lowest price during the recession. However, I think most now realise their mistake and are beginning to recognise how important the supply chain is and that good companies deserve to make a good margin in return for quality work.

A profitable supply chain is a healthy supply chain.

The Association is addressing this topic on several fronts at the moment – not least by tackling fair payment. Payment retentions remain a concern, but our close relationship with many campaigning MPs is really coming to fruition now – as you can see from our article about the recent Westminster Hall debate on the issue.

 

We are leading a campaign for wider use of digital payment processes and for retention payments to be placed ‘in trust’ to guard against unfair practices and insolvencies. And, as our legal and commercial director Rob Driscoll said, we are as close as we have ever been to solving the retentions and unfair payment problem.

Cash flow is also good for business growth and so is process efficiency. This is going to be a big year for Building Information Modelling (BIM) with the government’s deadline for Level 2 arriving in April. BIM is a great opportunity to simplify and streamline project and business processes, avoiding the continual re-designs and changes that add cost and delays. With BIM, we have a better chance of actually giving the client what they want and expect from a project.

It is also a great way for contractors to improve the efficiency of their own processes and, therefore, improve their margins.

The growth in ‘digital’ methods also gives a new dimension to the skills shortage. Our needs are changing in line with technological shifts and so the direction taken by the new Trailblazer apprenticeships will be crucial. The Association intends to be right at the forefront by influencing the direction and content of the scheme that aims to deliver three million new apprentices in the next four years.

As well as taking a long-term view to bringing in more school leavers and graduates, we also have an opportunity to plug some of the skills gaps in the short-term by encouraging existing workers to ‘upskill’ by taking additional training.

The wider use of BIM, along with greater adoption of off-site manufacturing of building engineering services packages, means we will need new kinds of skills. Our teams will be spending less time on site, but that doesn’t mean we will need a smaller workforce – we need a smarter one.

Read the President’s latest press statement here.

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