In this 1st post in a new series on market tensions, our Expert Practitioner Paul Hepworth looks at how limited supply in a now growing sector is emphasising the growing need for a focus on efficiency and productivity.
The current Construction market is considered to be ‘over heating’ - supply simply cannot meet demand. The industry is projected to grow by 23% by 2018 and should generate £12Bn during the next two years (Construction Products Association Autumn Forecasts 2014).
The Construction Products Association Autumn Forecasts include:
- Construction output to grow by 5.3% in 2015;
- Private housing starts up 10.0% in 2015;
- The private commercial sector is set to increase spend by 6.1% in 2015;
- Roads construction will rise 46.1% by 2018
- Energy infrastructure is anticipated to reach 118.2% by 2018.
This demonstrates that, as projected, the construction industry’s emergence from the recession. However, there is still the real risk of in-progress projects making a loss, as a result of over-competitive bids made at a time of contract frugality during the recession. Combine the potential financial impact of current projects with the need to ramp up capacity in the face of growing demand and it is easy to see how there are serious and immediate problems now facing the construction industry.
Looking to the future, the prognosis is a buoyant view of the market, with potential to retain the ‘overheating’ status into the immediate future, if not longer. From the Global perspective, overseas investment is also increasing; the future of the 3rd Hinkley Point Nuclear Power Station has recently been given a lift by the British Government who have agreed assurances for £2Bn in loans. The construction cost of ‘Hinkley C’ currently stands at £18Bn (wikipedia).
In summary, predicted market growth and limited delivery capacity suggest an inevitable increase in contract costs, due to the demand-supply relationship. This raises a need within the sector for improvements to be made to productivity; in order to take off some of the pressure, more work must be completed in shorter time periods and within current resource levels. Of critical concern are those projects potentially running at a loss that could benefit from application of a new, more efficient way of working that will improve productivity and introduce efficiency.