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Constructing a brighter future

PUBLISHED: 16:35 23 January 2013 | UPDATED: 22:38 20 February 2013

Constructing a brighter future

Constructing a brighter future

Jon Close, Partner and Head of Construction and Engineering at BPE Solicitors

Constructing a brighter future

Jon Close, Partner and Head of Construction and Engineering at BPE Solicitors

What makes or breaks a construction or engineering company in a recession?

The inconvenient truth is that businesses must adapt to survive in a leaner, more cost conscious environment. Becoming niche in particular sectors such as health, energy, infrastructure, social housing and schools has been the trend. In short, the majority of the money is and will continue to be for the foreseeable future, in fundamentally necessary projects for the UK domestic market. Later we can expect Government backed innovation projects to come to fruition in all areas of technology. The seeds have already been sown and fast-growing (so-called, catapult companies) are starting to build, develop and generate facilities.

The general mood in both the construction and engineering industries is that things have improved, though cash is tight. The feeling is that the Government could be doing more to support such businesses. One example involves changes to the catchily-entitled Housing Grants Construction and Regeneration Act 1996 by the equally long-winded Local Democracy Economic Development and Construction Act 2009 (in force as from 1 October 2011). Neither Acts arguably went far enough to enhance cashflow. Not wishing to be too disingenuous, there are few industries out there where the mind-set is that you start off agreeing a price for a scope of work or services and then pay less as a matter of course.

The future of energy security is another. The Green Deal, launched on 1 October 2012, is welcomed for registered installers and customers who may benefit from cash-back incentives as from early 2013. However, the vagaries of politics do not offer much comfort, as the Government u-turn on PV schemes has demonstrated all too well.

For those currently in the construction sector, double-figure profit margins are seldom the norm, with many projects finely priced at tender stage. You can almost forgive clients for choosing lowest tender bids to win in the current climate; if only they were attuned to the risks associated with so-called suicide bids from contractors who price under cost in the misguided view that turnover is king.

One factor for any construction business is to ensure internal processes are checked and function properly, and contractual risk levels are considered well in advance of starting on site. More sophisticated businesses will invest in robust monitoring to act as an early warning mechanism for rough seas on the horizon.

Real expertise and the ability to deliver are very important factors in success, and we are not short of either in the Cotswolds, from tensile fabric specialists, eco-house builders, electro-IT engineers, civil and structural engineers engaged in complex tunnelling projects across the UK and a plethora of precision engineers based on our doorstep. The depth and breadth of experience is quite staggering.

Looking further afield, we are seeing an increasing number of international inward investments for projects in excess of 10 million. This has injected a much needed level of liquidity in to the market and ensured an additional layer of funding available for the building of schools, hospitals and social housing schemes.

The problem with this is that the UK is not awash with 10 million construction schemes.

Conversely, the reticence of UK contractors to pursue tenders overseas is a peculiarity of the UK market These opportunities are being missed. French, German, Spanish and Italian contractors are more likely to be seen on construction sites in the Middle East and South East Asia. Issues surrounding nervousness about regulation and payment mechanisms, as well as the distance of supply chains, put many UK contractors off unless they know the client. As confidence levels improve, we could see more and more UK based contractors taking up that challenge with international clients who are clamouring(to quote the UKTI) to put them on their tender lists.

If there is any message that needs to be more widely publicised, it is that UK construction and engineering is alive and kicking. People are working hard, albeit for less money, and there is much to be positive about despite over-regulation in some areas and some inconsistencies in the application of those regulations at times.

Both industries are poised for building their way to a bright future. It just takes some brave souls to get the ball rolling and we have a number of such solution-driven characters in The Cotswolds who deserve our full support along the way.

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