UK constructiond

24 April 2008

Construction is Already a large sector in the UK economy, with an output of over UK£ 100 billion (€ 145 billion), representing 10% of GDP and employing around 1,5 million people. As we enter 2006, demand for construction is being driven by a buoyant economy, low interest rates and a number of government initiatives. Output is expected to increase substantially through 2006 and beyond, leading to a strain on already stretched resources. This however presents more opportunities for European companies and workers for a share of the rewards.

Olympics

Two key issues will force change in the industry as we move through 2006 and beyond – procurement methods and the inevitable skills shortage. Winning the competition to host the 2012 Olympic Games in London is clearly of global importance, but will the UK construction industry be able to deliver it on time and on budget? The eyes of Europe and the world will be on the UK to see what can be delivered.

The figures are startling. It is estimated that the Olympics will generate UK£ 8,3 billion (€ 12,1 billion) worth of construction with a further UK£ 16,5 billion (€ 24,1 billion) spent on transportation infrastructure. Preparation for the 2012 Olympics has now moved forward with the formal establishment of a company called the London Organising Committee of the Olympic Games (LOCOG), which has been set up to organise the 2012 Games and concentrate on the actual delivery of the event. The Olympic Delivery Authority, which will be established specifically to oversee the construction programme, will operate alongside LOCOG.

Procurement

If London is to host a successful Olympic Games without controversy or chaos (such as that reported in Athens for the 2004 Games), the procurement routes must be chosen with great care.

The Olympics will offer an opportunity to showcase best practice in procurement, including ensuring that small businesses are able to access the opportunities in the supply chain. This will mean that businesses have access as soon as is possible to information on the opportunities and how to access them. Businesses will need to ensure that they have the capabilities needed for bid opportunities.

As outlined in its publication Achieving Excellence in Construction, a best-practice guide for government departments on procuring public works, the Office of Government Commerce (OGC) is shying away from traditional procurement and construction management. The OGC seems to favour other forms such as design and build.

Of course, due to the nature of the works, particularly in the run up to the Olympics, which will include large-scale infrastructure remediation, more traditional procurement routes should be utilised. Initial research of the main site in Stratford, East London has identified contamination from gas works, oil refineries and experimental nuclear reactors. These are not factors that lend themselves well to a contractor assessing risk and pricing for such a job.

One thing is for sure, collaboration will be a key to the success of the Games. Experience shows that integrated teams are best placed to produce quality projects, to time, specification and cost. It is all about partnership. Further, without efficiency improvements it is unlikely that contractors will be in a position to deliver complex projects like the Olympics on time, within a reasonable budget and still be able to walk away with a profit margin.

Skills

Procurement will not be the only challenge, the industry is facing an even tougher test. The Olympics will create 150000 jobs over the next seven years, many of which will be in construction. The industry is currently estimated to be 300000 workers short of capacity and needs to recruit and train some 88000 new entrants each year for the next five years.

The shortage of skilled labour threatens to dampen both the profitability of the industry as well as its growth. Recruitment shortages and a lack of skills in the construction industry are continuing to blight companies at both senior and junior levels.

The increased demand for labour will result in people shortages and skills shortages and gaps in most construction occupations. This in turn will lead to further pressure on earnings and greater reliance on workers travelling from other parts of the country and abroad. Demand is currently being met by inward migration and use of inexperienced labour. This provides great opportunity (but also regulatory, language and cultural challenges) to contractors, sub-contractors and consultants elsewhere in Euorpe.

Clearly, construction skills are already in high demand with major ongoing projects such as Wembley Stadium, Heathrow Terminal 5, Docklands Light Rail extension and the Channel Tunnel Rail Link. These construction projects have significant impact on the labour force, making the skill-shortage even more acute.

It is clear that as we move through 2006 the UK construction industry is gathering momentum for change. Delivering large scale projects, such as the Olympics, on time and within budget will be a challenge. To do so, there needs to be change. The UK will not achieve gold without it!

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