The state of the subcontracting industry: How can Bibby Financial Services help?

According to Bibby Financial Services’ expert data, published in their subcontractor growth report, the subcontracting industry in 2019 has suffered from the average contract pipeline shrinking by nearly a third.

What is the current state of the subcontracting industry?

At this moment in time, in the subcontracting industry, the amount of work which subcontractors normally receive through contracts per year has drastically decreased, with the average amount of work per year measuring at just 19 weeks in 2019 after having decreased from 27 weeks in 2018, displaying a radical eight week decline.

In fact, many companies have stated that the available contracts are shrinking, meaning that firms can no longer risk refusing certain contracts and thus potentially lose business which, in turn, gives subcontractor businesses less freedom to select the projects which best fit their company objectives.

The Managing Director of Construction Finance at Bibby Finance Services, Helen Wheeler stated: “There are many ongoing problems currently facing the subcontracting industry. A growing number of businesses are finding themselves with little room to manoeuvre when it comes to choosing contracts, with small businesses being the worst affected.”

Since the collapse of Carillion in January, the subcontracting industry has been experiencing volatility which has only been worsened by the continued uncertainties surrounding Brexit, only serving to increase the lack of confidence in the industry and while making subcontracts, themselves, more short-term.

What this has, essentially, caused within the industry as whole, is the hindrance of cash flow, business savings, and hiring, with almost one fifth of subcontractors choosing to deprioritise hiring and building up cash reserves.

How can Bibby Financial Services assist with contracts and finance?

Furthermore, expert data from Bibby Financial Services revealed that, in 2019, 48% of subcontractor companies found the actual contracts themselves ‘difficult to understand’, having risen from 44% in 2018 and dramatically increasing from the 38% proportion of companies which found this to be the case in 2016.

MD Wheeler commented: “Many subcontractors are now relying upon the support of construction finance firms such as Bibby Financial Services who are committed to helping subcontractors feel more secure and supported so that they may build solid foundations for their futures.

“Bibby Financial Services have been working with the industry for over ten years and have become one of the leading providers of financial solutions.”

Specifically, the company can provide subcontractors with the vital knowledge and support that is required on the financial side of the industry, including services such as invoice financing for SMEs, clarifying the complex jargon and clauses within contracts for clients, and can also pursue the necessary payments that subcontractors need to keep payments turning over.

MD Wheeler added: “BFS aims to provide the necessary support to subcontracting businesses through every step of the process.”

How can the state of the industry be improved?

Potential solutions, proposed by some subcontractors, include the necessity for stricter regulations, a more active input from the government to aid in the stabilisation of the subcontractor market, and priority being given to the delivery of larger contracts to the subcontractor industry.

Bibby Financial Services also revealed that 89% of subcontractors, nearly a unanimous verdict, agreed that the government should intervene in the state of the subcontractor market. However, there is a considerable degree of disagreement over the most effective method to stabilise the industry in the wake of all its current issues.

Perhaps the most popular suggested solution, quoted by subcontractors, was compulsory adherence to the Prompt Payment Code, which 74% of subcontractors recommended, whereas the second most popular solution was a greater distribution of large contracts to subcontractors, quoted by 62%, while the third most popular solution was the avoidance of EU tariffs, recommended by 55%.

If you want to learn more about the challenges facing the subcontracting industry in 2019, and beyond, read Bibby Financial Services’ subcontractor growth report here.

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Building homes that are fit for the future

As floods swept eastern England earlier this year while temperatures in France reached an all-time high of 45.6 degrees Celsius, and the UK experiencing some of its highest recorded temperatures in history, humans’ impact on climate change is very much at the top of the national and international agenda. Earlier this year, energy-inefficient homes were identified as damaging efforts to tackle climate change. With the goal of making Britain carbon neutral by 2050, the ‘Future Homes Standard’, due in 2025, is set to enforce minimum environmental standards for all new housing.

At the time of the report’s publication in February 2019, reductions in emissions from the UK’s 29 million homes appeared to have stalled, while energy use in homes – which accounts for 14% of total UK emissions – had increased between 2016 and 2017.

In already unstable political and economic times, these changes are set to have a marked impact on the construction industry’s future approach, so how can the industry ensure that the next generation of UK housing ticks all the environmental boxes?

Across the country, housebuilders and developers are currently grappling with the need to increase the number of homes available, while ensuring that quality remains high. The introduction of the Future Homes Standard, which emphasises the need for alternative energy installations and the use of low-carbon materials, only drives the need for organisations to continue striving for better standards across the board.

With this in mind, the industry has reached a critical point where housebuilders must decide between providing less sustainable dwellings, or good quality homes that can be adapted to suit the needs of an increasingly diverse population. This should be an easy decision; after all, the principles set out in the new standards reflect best practice. Yet, historically, budget constraints have been an issue, resulting in homes falling short of necessary standards and more money having to be spent retrofitting these short-term housing solutions for long-term use.

The Future Homes Standard presents several key challenges for the construction industry and housebuilders, principally, the need for homes that reflect the needs of a varied market. Unlike the UK’s European counterparts, who have diversified their housing stock to suit the changing requirements of the population, homes in the UK are still mostly built to suit the average 2.2-person family and leave little room for more modern family structures or living arrangements.

Times have changed and the modern-day market now requires far greater flexibility than ever before. Recent reports have highlighted the need for safe and comfortable homes for the elderly, while students and young professionals search for flexible, modern spaces that suit their immediate needs.

The Future Homes Standard offers developers and housebuilders the exciting opportunity to redefine the housing market, providing a greater spread of properties that are designed with adaptability in mind. Should the sector bring these factors together, there is huge opportunity for change.

The UK housing market is notoriously slow to adapt; therefore, these standards require a huge leap of faith from most developers, particularly for the ‘big players’ in the sector. From the supply and use of new materials – all of which will require rigorous health and safety testing – to the development of new skillsets, the changes are likely to present several initial challenges.

Yet, certain areas of the market which are being driven by increasing demand, such as the private rental sector and later living market, also present significant opportunities to embrace innovation and take a new approach to housing. This is true both in terms of the design standard and build specification.

This increase in quality will likely be reflected in the price of the homes on offer; some schemes with exceedingly tight margins, which are only just viable at the moment, may become increasingly difficult to deliver, and sell, under the new standards.

Consequently, the UK government must provide a solution that is more carrot than stick, starting with a material reduction of Stamp Duty on homes that meet the new standards. With a less-than-exemplary track record when it comes to the support of alternative energy sources, the Government must deliver consistent, balanced messages and engage in giving back in economic terms. While many in the industry may wish to change their approach to sustainable building, they are unlikely to do so very quickly.

Previously, some contractors may have perhaps shied away from building to the highest possible standards due to the costs incurred. However, the solutions proposed by the new standards and the Government must no longer just be aspirational, they must be deliverable. Critical factors such as supply chain, recognising the necessary skill sets and the costs involved must all be well considered.

Merely producing the standards and walking away will not work this time. Instead, the standards must be developed in conjunction with innovative thinking, financial incentives, and industry-wide consultation.

To ensure that UK housing is fit for the future, it mustn’t be forgotten where the industry was in the past, and what it needs to do to move forward – the days of cutting corners are long gone. The Government and housebuilders must now work together to embrace change and share the costs involved, where possible. If done well, the Future Homes Standard offers an opportunity to completely reimagine housing, from the ground up.

 

Article submitted by Martin Jones, partner and head of the projects and infrastructure group at law firm, Shakespeare Martineau.

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Scotland constructs most powerful tidal turbine

Orbital Marine Power (also known as just Orbital), an engineering company based in Scotland, has received £3.4M worth of investment from the Scottish government to aid in the construction of the most powerful tidal turbine in the world.

The funding has been allocated after Orbital were announced as the first recipient of the Scottish Parliament’s £10M Saltire Energy Challenge Fund which is targeted at increasing the generation of tidal energy in Scotland.

The turbines itself will be one of the next generation of O2 2MW Floating Tidal Energy Turbines, capable of supplying energy to over 1,700 homes each year and will be situated European Marine Energy Centre in Orkney.

Scotland’s Energy Minister, Paul Wheelhouse stated: “We have established a world lead in marine renewable technologies and this project represents a significant step forward in technological development. We are delighted this landmark turbine, designed by an innovative Scottish company, will also be built in Scotland.

“We believe tidal energy technology can not only play an important role in our own future energy system, but it has substantial export potential and this fund will help move tidal technologies closer to commercial deployment.

“However, the large scale roll out of both tidal and wave energy technologies has been harmed by the UK Government’s decision in 2016 to abandon its commitment to provide ring-fenced funding support.

“UK ministers must act quickly to provide the revenue support this exciting and innovative sector requires to achieve its economic potential.”

The Chief Executive Officer of Orbital, Andrew Scott added: “We greatly appreciate the Scottish Government’s ongoing commitment and support for tidal stream energy, and this award will enable us to deliver a truly exciting and transformational project and continue the proud tradition of Scottish innovation and engineering.

“The O2 project will demonstrate how this emerging industrial sector has the ability to deliver new jobs and open up diversification opportunities for the UK’s supply chain in a growing global market whilst pioneering solutions for a zero carbon future.”

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Kier fits interior of cell research facility

Kier has been contracted for the internal fit out of the new blood donation centre in Capitol Park, Dodworth which is near Barnsley, at a cost of £13.9M, on behalf of the NHS and Blood Transplant.

The new facility will be completed, by Kier, with four laboratories, three of which will be situated on the ground floor, an open plan office space, meeting rooms, and catering facilities, in addition to the in corporation of environmentally controlled laboratories which will be utilised in the study of advanced cell therapies. The centre will be two-storeys high and will cover approximately 6,750sq m.

Construction of the new facility has been commissioned under the Department of Health and Social Care’s ProCure 22 (P22) Framework and is scheduled for completion by the second quarter of 2020 and, once completed, the facility will be recognised as one of the most advanced cell research centres in the world.

Kier’s involvement will fall under the second phase of the centre’s development, while the first phase was composed of building the facility structure and installation of the exterior fittings.

The Managing Director for Kier Regional Buildings Northern, John O’Callaghan stated: “I am pleased we have been appointed to deliver phase two of this state-of-the-art facility. It is a crucial development for the people of North of England and hospitals in the region.

“Throughout our works Kier will be providing a number of employment opportunities to local people. We will have apprentices on site and work experience opportunities, as well as engaging with local schools through educational activities.”

The NHS and Blood Transplant Project Manager, John Hutchinson added: “Happy with site both progress and Health and Safety standards to date being exemplary and looking forward to the project completion in the second quarter of 2020.”

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Private housing increases in Northern Ireland

The private housing subsector in Northern Ireland has become the sole subsector within the overarching construction sector to be on the increase, in spite of there being no Northern Irish government following two years of political confusion.

While public sector construction work has been falling on account of deferred project start dates, again attributed to political stagnation, private sector housebuilding has been the only subsector with a registered rise, inclining at its fastest rate for 20 years.

Evidence of this can be seen in the recent upsurge in private residential work, where planning approvals have increased and the underlying value of projects gaining approval over the seven month period building to July 2019 was 38% higher than that over the same period in 2018.

Project starts have also risen by 22% and the value of private residential work gaining approval has sky-rocketed by 110%.

The Northern Ireland Construction Spokesman for RICS, Jim Sammon stated: “The new build private housing market continues to perform well. However, construction activity is no doubt affected by on-going political instability, which has had a considerably negative impact on public works in particular.”

The latest Construction and Infrastructure Market Survey from RICS and Tughans solicitors, has displayed a net balance of 58% of Northern Irish surveyors recording a rise in workloads in private housing activity in the second quarter of 2019, the highest rate that the region has experienced since 1999.

The NHBC Regional Director for Northern Ireland & Isle of Man, Padraig Venney stated: “2018 was a very positive year for the industry in Northern Ireland. House prices have grown at the highest rate in the UK at approximately 6% showing that there is a real confidence within the sector and those people looking to buy a new, quality home.

“Belfast and the surrounding commuter belt continue to be an in-demand region and we have also seen an upturn in housing association activity over the course of the year.”

Tughans’ Head of Real Estate, David Jones added: “Undoubtedly, one of the main external factors affecting the construction sector is the current political landscape.

“Projects and works that require the allocation of funding cannot be progressed, and the situation has a knock-on effect on other areas, leading to increased caution when it comes to investment decisions.”

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What can construction companies do to improve gender equality?

Gender inequality is a long-standing issue that has crept into every industry, and construction is no different. Though many industries have a fairly even ratio of male to female employees at entry level, there are almost always fewer women at the top.

A report from the Directory for Social Change takes a comprehensive look at how imbalanced the gender ratio is in the UK. Using company CSR policies and annual reports, the study was able to determine the gender statistics for 399 corporate boards. An analysis of the data shows that the overall percentage of women on boards was around 22%.

Although small, this number is actually higher than, it was in 2013, where similar reports found that only 13% of board members were women. However, of the remaining 78% of companies, 16% still confess to having purely male board members – excluding women entirely.

Addressing gender inequality and calling for more women in the workplace is more than just trying to fill a quota, it could be the key to a company’s success.

Gender inequality in construction

Much like the tech, science and other STEM industries, the construction industry is still lacking in gender equality and is dominated by men. In 2007, 12.1% of workers in construction was represented by female workers, whereas reports in 2016 showed that statistic only increased slightly to 12.8%.

In fact, a more recent study in 2018 by Wise found that the number of female employees in construction numbered just 11%, meaning the industry could actually be taking a step backwards.

Even in 2019 as a training provider, 3B Training hasn’t seen a huge percentage of women walk through the door for training courses when compared to men. Of nearly 10,000 delegates we have booked on courses so far, only 15% of those are women.

Overlooking female talent

When looking closer at the causes of gender imbalance in construction, a common issue seems to be that female employees aren’t given the same opportunities as their male coworkers.

Randstad interviewed 1,200 people who experienced gender discrimination in the construction industry, 60% of whom were women. Of the women surveyed, three-quarters say they feel overlooked for promotions because of their gender, not their skills.

It’s not just progression where women feel like they’re missing out, either. Eight in ten women surveyed have felt left out of social events and conversations by their coworkers. This feeling of exclusion risks creating a toxic culture of bias throughout the industry.

Women leaders in construction

Due to the lower number of female workers in construction in general, it’s unsurprising to find that the industry is lacking in women at an executive level or higher. Nearly half of workers went so far as to say that they had never worked with a female manager.

However, that doesn’t mean that the industry would react badly to more female leaders. In fact, Randstad’s study found that 93% of construction workers felt that being managed by a woman would have the same effect as a male manager, or even improve things.

And, according to the data, they’d be right. All 169 companies in the FTSE 350 with at least one woman on their executive board saw a higher return on capital than companies with none.

Hiring from the top down is also a way to create a more inclusive work environment for women at all levels. By having a senior female leader, it sends a message to other female workers that progression is achievable. Companies that opt for a woman as their chief executive are, on average, likely to have more than twice as many women on their executive board than companies run by a man.

As an industry currently suffering from a severe skills shortage, opening the door to talented women in senior roles could be the answer construction is looking for.

Raising awareness

When it comes to women in construction being overlooked, unconscious bias and ignorance play a huge part in the issue.

There are only six construction companies in the UK that have an equal number of male to female directors or are female-led. One of those companies, Renishaw plc, has a board of 70% women and regularly runs engagement programmes with schools, universities and the government to help raise awareness of gender imbalance and overcome stereotypes. If more companies in construction follow suit, the industry can knock down barriers that would otherwise deter potential female candidates.

Multinational human resource consulting firm Randstad has reached out to organisations to find out how they are currently supporting their female staff to help remove gender bias in the workplace:

Addressing the pay gap

Due to the overwhelming male to female ratio until now, the construction industry has been guilty of a wide gender pay gap.

A recent survey conducted by RICS, however, has found that the industry has acted and is making strides to address the issue. Whereas the construction industry had a gender pay gap of 36% in 2018 (one of the worst industries for pay disparity), it has since narrowed to 20.43%.

Although this is a positive result for the industry, more steps are needed before the pay gap is a thing of the past. Nearly half of construction companies not monitoring their gender pay gaps, so it’s difficult to accurately determine how well the industry is dealing with the issue.

By properly analysing and understanding exactly how men and women are paid, as well as being transparent about their pay policies, construction companies can work towards total equality of pay for their workers.

Changing perception and reducing stigma

One of the biggest problems with creating a diverse workforce in construction is that it has developed such a strong perception of what the industry is like, making it hard for people to see past the stereotypes.

Keepmoat conducted a survey on 1,000 adults between the ages of 16-25, looking at the differences in perception of the construction industry. The survey showed that 21% of men interviewed would consider a career in construction, but only 13% of women would do the same.

The prevailing narrative about construction is that it is physically demanding, creating a stigma for employment in construction. Roles in health and safety, construction management, procurement, surveying, estimating and site inspection are all potential routes that are available, yet people may not be aware of them. Only 22% of construction companies work in schools to help to answer questions about the industry and encourage people to consider it as a potential career path.

Strategy for change

To really tackle the issue, a clear strategy needs to be put in place for all construction companies to follow. There are two major steps that companies should take to ensure gender equality in construction:

1. Create more opportunities for women

74% of women in Randstad’s survey were not part of any ‘women in construction’ initiatives that will help them progress to senior positions. This highlights the need for more programmes to help encourage women to get involved, as well as greater advertising that current programmes are available.

Balfour Beatty has taken gender equality into their own hands and has recently introduced an initiative that supports women through career breaks for childcare, urging other companies to work together as an industry to do a similar thing.

2. Provide education early

As we can see from Keepmoat’s survey, education is a real issue in the industry. Some 29% of female respondents feel like they’d be limited to on-site work and 56% were surprised to find out that a significant number of women in construction are hired at an executive level or higher.

With so many stereotypes around the construction industry, it’s important to educate people early about the potential career opportunities that are available. Some 64% of respondents claimed they would like construction companies to work closely with schools, colleges and universities. Without the right knowledge, many women will continue to believe that the construction is limited to working on a building site.

Addressing the problems with gender balance in construction may appear like a huge undertaking, but by companies adopting some of the methods we’ve discussed, they are chipping away slowly at the bigger picture – helping to create a pathway to gender equality.

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Global infrastructure investment to grow by 2023

New research from GlobalData anticipates global infrastructure construction to grow by 4.8% on an annual average basis in real terms between 2019 and 2023.

The forecast comes from GlobalData’s tracking of over 14,000 large-scale infrastructure projects in both the public and private sectors that are worth a minimum value of US$25M (totalling US$14.8 trillion) worldwide at all stages from announcement to execution.

It is anticpated that the growth will be propelled by Asia, where growth is expected to average 7.0% a year in South and South East Asia, as well as 5.8% in North East Asia.

The power sector has the most projects in the pipeline with 5,681, followed by the road sector with 4,004, and railways with 1,945. Rail projects dominate valuing US$5.4 trillion, followed by power, accounting for the second-largest sector valued at US$4.7 trillion, and roads at US$2.6 trillion.

When completed, the tracked road projects will comprise a total 186,993km under construction (or expansion/renewal) in the next five years. The most notable road expansion in terms of total length is taking place in South and South East Asia, with a total of 59,835km of ongoing and upcoming road projects spread across the region. A total of 160,198km of railway track and 1,271.6GW of generating capacity will be undertaken and completed in the next five years.

Yasmine Ghozzi, Economist at GlobalData, comments: “In Sub-Sahara Africa and the Middle East and Africa (MEA), where infrastructure construction growth is expected to average 7.3% and 6.6%, respectively, there are huge infrastructure upgrades underway in roads, railways and power generation.

“The pace of growth in North America and Europe’s construction industry will perform better in the forecast period than the previous forecast, 2014–2018 – albeit slower than emerging markets. Electricity and power infrastructure will be the one of the fastest sectors in Europe as countries across the continent reaffirm their commitment to advance the implementation of the Paris Agreement and intensify their cooperation on climate change and clean energy.”

US President Donald Trump’s US$2 trillion infrastructure plan will undoubtedly provide support for the overall growth of the North America region’s industry in the next five years. However, the successful implementation of the plan will hinge on how individual states and municipalities can respond, knowing that the Federal Government is contributing just US$200Bn to this ten-year program.

Ghozzi concludes: “Whether solar, wind, or hydroelectricity, most countries in all regions are boosting their investments in green energy. Saudi Arabia’s landmark US$200Bn SoftBank deal to build the world’s largest solar farm tops the list of the power project pipeline.”

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