Cabinet reshuffle: The pain game

This summer, while stuck waiting at the airport, I scanned the fly leaf of the appalling Fifty Shades of Grey. Perhaps it is unfair to judge a book by its cover, but it is hard not to admire how something so seemingly vacuous can capture the headlines, while matters important and earth-shattering are all but ignored. A famous newsman, defending the preponderance of flood, famine and fighting stories that seemed to hog the headlines once declared that “if it bleeds it always leads”. To follow that analogy, the construction sector is in desperate need of a transfusion, if the latest data is to be believed. However, I am still not seeing headlines.

According to PricewaterhouseCoopers, between 2010 and 2012 more than 5,500 construction firms were declared insolvent. That is around eight contractors per day disappearing. If you add this figure to the architects, subcontractors and consultants who have vanished or been “merged” over the past two years, I suspect we are looking at the greatest contraction in the construction industry in a generation. Another survey by CR Management claimed an even larger number of organisations are going bust, with construction firms making up nearly 25% of companies in England and Wales forced into compulsory liquidation since September 2010.

A pseudo cabinet re-shuffle and some re-heated investment objectives will not provide the jump leads to jolt our sector back into growth

This decline will have an impact on the whole of the industry in both the short and long term. Youth unemployment is a ticking time bomb for the country. We have a growing section of society feeling disillusioned, disappointed and demoralised. In the past, the craft side of construction offered them a skill, a home and a way of making a living. With so few opportunities to learn now available due to the decline of the private contractor, and many more forced out of college by the cutting of both courses and of the education maintenance allowance, we could be facing a skills shortage when we come out of recession that will be a huge challenge to counter.

We have seen wage inflation in the past and looked to eastern Europe to fill the gap. New immigration rules mean we now need to look to our domestic labour force, but who will provide the training and who wants to enter an industry when roughly one contractor an hour is going bust?

One facet of this decline is that most forecasters are saying that we have hit rock bottom in terms of tender prices. The current thinking is that there has been an average tender price fall of around 1.2% in 2012 with a rise expected of just 0.1% next year and prices not expected to increase until 2014, and then by a small margin of approaching 2%. Although these forecasts don’t seem to be too steady, and change on a month-by-month basis, I do think it is true that tender prices will have to rise in the medium term as contractors have reached their limits for lower prices in the face of rising costs. It is only so long that you can live on turnover and forget about margins.

Once again the South-east is likely to see prices rise fastest, with other regions following at a slower pace. The two biggest issues stopping clients from committing have not changed and that is a lack of confidence and funding.

Morrell did his best against the backdrop of a disastrous economy and a disinterested department. His successor will have his work cut out

A pseudo Cabinet re-shuffle and some re-heated investment objectives will not provide the jump leads to jolt our sector back into growth: it is too little too late to affect serious change in the short term. Where is the new economic thinking, where is the response to changing financial circumstances? Richard Branson put it well recently during his exasperation over the railway franchise debacle when he said that repeating the same action and expecting a different result is the definition of insanity.

Along with a change in Cabinet we also have a new construction adviser, civil engineer Peter Hansford. The last incumbent, Paul Morrell, came from my own sector of construction consultancy and while he had the knowledge, maybe he did not have the political skills to effect serious change. I think he did his best against the backdrop of a disastrous economy and a disinterested department. Has anything changed? His successor will have his work cut out.

But perhaps Hansford, coming from a different background and being in post as we approach the start of an election cycle, will have more opportunity to help the sector in real terms. But a bit like my expectations for future novels in the Shades of Grey trilogy, I am not holding my breath that things will get any better any time soon.

Richard Steer is chairman of Gleeds Worldwide www.twitter.com/Richard_Steer