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News archive - November 2015

Projects shelved as construction market takes a hit

Projects shelved as construction market takes a hit

The Government needs to do more to stabilise the construction market, experts have warned, as it is revealed that a high number of building projects are being shelved due to increasing tender prices and concern over future public-sector spending.

KPMG research, entitled UK Government Construction Pipeline: KPMG Analysis, shows that more than a quarter of projects have disappeared from the Government’s construction pipeline since December 2014, sending ‘ripples of uncertainty’ through the industry.

Commenting on the findings, Richard Threlfall, KPMG’s UK head of infrastructure for building and construction, said: “It is clear that more needs to be done to improve the consistency and accuracy of the Government’s construction pipeline.

“A stable pipeline would give the construction industry good visibility of future demand and the ability to plan and invest for that demand. It would lead to efficiencies for the Government and for the taxpayer.

“Instead we have a pipeline whose data is so incomplete, and which fluctuates so wildly and erratically, that the industry can place no detailed reliance on it.”

Most of the reported decrease in project starts relates to the defence and justice and police sectors, but healthcare spend is also being affected.

The report states that the value of healthcare construction projects for the health market in England is £4.8billion to 2020 and beyond. This is made up of 116 projects, but none have a specified start date. These include 12 large NHS-led capital estate programme, totalling £2.5billion; and 104 small works procured via the Procure21+ framework, worth a further £2.2billion.

The majority of these projects are in the South of England, including a £384m investment at Brighton and Sussex University NHS Trust.

Threlfall said the market was waiting intently for the Chancellor’s Spending Review, which is expected on 25 November.

“I hope that we will get a clearer picture when the review is published,” he said. “But, in the meantime, the huge 28% drop in the number of projects included suggests some Government departments are putting projects on hold in the expectation that they get culled.

“I don’t expect we will see anything like the scale of cutback in capital programmes that the industry experienced in 2010, after the last election, but there is clearly cause for nervousness about the potential squeeze in spending.”

This concern is echoed in a second new report compiled by construction analysts, Barbour ABI, for Building magazine. It puts the downturn in construction activity, and the growing number of projects being put on hold, partly down to an increase in tender prices, which are thought to have risen by 15-20% in the past year alone.

It states that the value of projects being put on hold has increased by 30% in the last 12 months from September 2014 to August 2015 - worth around £12billion to the sector. This is despite the growth the construction industry has experienced over the last two years.

Joey Gardiner, deputy editor of Building magazine, said of the research: “Many construction clients, particularly those in the public sector, have been put in a huge dilemma with tender prices coming back from contractors that are far higher than they’ve budgeted for. The result is that many projects are being put on hold or taking months and months to agree a price with what are suddenly risk-averse builders.

“Contractors and clients need to engage openly and honestly about these current market dynamics to avoid this becoming a major problem for the recovering construction economy.”

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