Markets: your best bets

Stable doors and absent horses spring to mind when firms talk about trying to enter new markets in a recession. But in the current scramble for work, many are having to look outside their usual sectors to keep order books stocked. And although there might not be a glut of work, there are still opportunities out there – the education sector, for one, is renewing frameworks, while other sectors are looking at one-off tenders in an attempt to save cash.

Many firms are setting aside funds to chase new work – one major contractor says it has allocated £15m this year for bids. But with money tight and bid costs sky-high, where should firms look to place their bets? On the eve of the Grand National, here’s Building’s form guide to five key markets, complete with tips on maximising profit once you’ve staked your claim.

Schools

The form

The government’s main schools project is the £45bn Building Schools for the Future (BSF) programme, which is scheduled to run until 2020. This is of particular interest to new entrants because Partnerships for Schools (PfS), the body responsible for delivering the programme, has just released a tender notice for a new £4bn framework that will give up to 12 contractors a chance to win academies work under the scheme.

BSF accounts for £9bn of the £22bn being spent on education construction in this spending review period, which runs until April 2011. Other programmes include the primary capital programme (worth £7bn overall and £1.75bn before 2011) and £2.9bn for improvements to council-maintained schools.

The stables

PfS is on the verge of being appointed to oversee the bulk of education spending, including the primary capital programme. The details are still being thrashed out, but it is likely that most, if not all, schools programmes will be transferred to PfS during the next financial year.

The body’s preferred method of delivery is increasingly the local education partnership (LEP) model, where council and consortium form a partnership to deliver a range of projects over a lengthy period. It is likely that this structure will be used where possible, but the ultimate decision will rest with the local authority.

The contractors who are appointed to the national academies framework, used for smaller schemes, will set up their own regional supply chains.

The odds of winning

Large contractors 3-2 odds on
The increasing use of LEPs means there is greater demand than ever for firms with large project expertise – and projects may also involve regeneration or healthcare elements, which means clients may look for more than schools experience.

Small contractors 2-1
PfS is splitting its academies framework into two regions, so firms no longer have to have a national presence to win work. If smaller projects such as primary schools are included in LEPs, much of that work will go to larger contractors, but many regions will still procure outside LEPs (for example, if their BSF projects are not scheduled to happen in the near future). These projects should favour smaller, local contractors.

Specialists 2-1
Although many contractors already have favoured suppliers, the sheer volume of work means that there are opportunities aplenty for specialists, particularly as more major contractors seek to enter the market. Also, much of the work is refurbishment, in which specialists can be employed directly.

Consultants 25-1
PfS operates four consultants frameworks for BSF, the main one of which is not due to expire until 2010. But for firms not on frameworks there are still smaller one-off projects about.

Architects 20-1
Firms bidding for the new national academies framework need to include an architect in their bid team. Many of these have already been selected, but there are opportunities to work directly for local authorities on other programmes, particularly primary schools.

Universities

The form

Universities are being urged by the government to bring forward spending plans. The Higher Education Funding Council for England is advancing £200m before next April to help get £280m worth of projects off the ground. In addition, cheaper construction costs mean universities are likely to spend more of their own funds during the next two years. The number of undergraduates increased 10.4% in 2008/09, but according to Savills, there were only 9,200 new bed spaces provided – meaning student accommodation is in demand.

The stables

Individual universities are responsible for their own procurement, and although some have frameworks, these are frequently open to new entrants. Some universities will tender on a one-off basis; others are using council frameworks to procure schemes.

Cambridge, Oxford and Nottingham universities are among those with a steady stream of construction work. Others who have secured a slice of the advanced government funding include Durham, Birkbeck, Manchester Metropolitan, Manchester and Warwick.

The odds of winning

Large contractors 2-1
Most projects are in the £3-25m range, but many universities, particularly those that use frameworks, will tender packages of work.

Smaller contractors 10-1
The smaller scale of projects, plus an emphasis on refurbishment, means small contractors are in with a chance.

Specialists 2-1
Supply chains are fairly open, especially for smaller refurbishment and maintenance jobs.

Consultants and architects 15-1
Many universities have consultants frameworks, but these are renewed often and some projects are tendered on a one-off basis.

Budget hotels

The form

Demand for cheap hotel rooms is increasing in the recession. Two chains worth looking at are Premier Inn and Travelodge. Whitbread, the owner of Premier Inn, announced at the beginning of last month that it would cut capital spending in half this year to £170m, but the hotel group is still the fastest growing budget operator in the UK. Although this year’s work is sewn up, the group is planning to deliver 2,000 rooms in 20 locations between February 2010 and 2011. It has not yet appointed contractors or consultants for this work. Whitbread is also putting £16m into the refurbishment of 8,000 rooms over the next three years.

Travelodge announced a £77m expansion plan in March. Twelve hotels will be built up and down the country by 2012, and 575 rooms are planned for the London Olympics. Again, these projects are still up for grabs.

The stables

Alex Flach, the construction and maintenance director of Whitbread, says the first step in assembling a supply chain is to pass a list of companies it has good relationships with to development partners. Nevertheless, there is still plenty of room for newcomers as developers are not obligated to stick to the list. He adds that this is common practice in the budget hotel sector and that companies looking to get a foot in the door should approach the developers of individual projects direct.

The odds of winning

Large contractors 20-1
Their higher overheads mean these firms can struggle to make schemes stack up.

Small contractors 3-2 odds on
This is where smaller outfits could pick up a lot of work. They are in a position to offer competitive terms and both Travelodge and Premier Inn say there will be chances for these firms this year and next – particularly if they have programme management skills.

Consultants 5-1
Both regional and national consultants could be well placed to get onto budget hotel frameworks as supplier and consultant lists are reviewed regularly.

Specialists 10-1
Specialists are more likely than consultants to be part of the in-house teams.

Architects 100-1
Budget hotels have in-house architects, so it’s a tough market to break into.

Defence

The form

There are several types of work up for grabs in this sector. About £800m a year is being invested in Project SLAM, a £1bn, 10-year scheme to upgrade housing for single personnel. The Ministry of Defence (MoD) hopes to deliver 6,500 units in 2009 and 60,000 by 2013.

Then there is Project Aquatrine, a 25-year PPP/PFI water and wastewater project, which also involves PFI contracts to maintain housing in England and Wales and rural training estates.

Although Defence Estates uses a large in-house consultancy team, there is work still available on these schemes as the MoD has traditionally struggled to recruit a supply chain. It is also looking more and more to external firms, even in consultancy. A 2007 Public Accounts Committee report said the MoD only had 57% of the QSs it needed.

The stables

Defence Estates controls all of the MoD’s land (about 1% of the UK’s land mass) and all of the construction work planned for it. Its portfolio currently stands at £20bn. Vice Admiral Tim Laurence, its chief executive, is reportedly accessible and gets out and about to bases and offices twice a week.

The odds of winning

Large contractors 5-1
Bovis Lend Lease won work building the British Forces post office under the MoD’s London (MoDEL) project, but Defence Estates tends to stick to developers for delivery roles on the bigger schemes. The group is currently reviewing future contracting plans and has not decided between a framework or standalone contracts from 2010, so either opportunity could arise.

Small contractors 25-1
The scale of the projects means that SMEs are unlikely to get much of a look in.

Consultants 3-2 odds on
Work is available across the board, owing to the MoD’s shortage of QSs and other consultants. There is a particular need for PFI expertise on Project Aquatrine.

Specialists 15-1
Contracts tend to be awarded to only the larger specialist firms, such as Emcor on the M&E side, due to the scale of the work involved.

Architects 77-1
The MoD uses in-house architects which makes this sector quite tough to enter

Budget supermarkets

The form

The increased popularity of budget supermarkets means chains in this sector are looking to build more stores up and down the country. The German discount chain Lidl has not set a limit on its growth plans for 2009 and beyond, but says it aims to expand at a rate of 8-12% a year for up to 15 years. This would mean the opening of more than 50 new stores a year.

Construction work on a standard Lidl involves building a one-storey structure with a monopitch roof, and an internal area of about 1,300m2. Aldi, another German group, has 400 stores in the UK but is looking to increase that to 1,500 in the next two to three years. Asda intends to create 3,700 jobs this year after opening 14 stores and extending 15 existing outlets.

The stables

These supermarkets tend to work with a list of contractors they already know, but the property divisions of all three say they need to find new companies.

The odds of winning

Large contractors 3-1
Projects are usually tendered to main contractors on a site-specific basis. Chains do not always work with the same contractors and are often looking for new firms when tendering buildings or fit-outs.

Small contractors 3-1
There are opportunities to work for larger contractors in a delivery role on a particular aspect of the project or to get involved with some of the smaller, regional stores.

Consultants 3-2 odds on
Again, there are no fixed supply chains for consultants, so plenty of work.

Specialists 2-1
Retail projects and large supermarket buildings are complex, with lots of different components, so there is lots of work available.

Architects 75-1
Like budget hotels, these supermarkets are usually built to an existing template so there aren't many opportunities for architects to enter the market.

Crossrail

The form

The main construction work on this £15.9bn project is set to begin in 2010. As well as the rail line itself, it will involve seven new stations and improvements to others and work on tunnels, shafts and rail systems. A design framework of 12 teams has been appointed for the engineering work, and the Transcend consortium of AECOM, CH2M Hill and Nichols Group is the strategic programme partner. The delivery partner is due to be appointed imminently. But the supply chains for the individual elements are still up for grabs.

The stables

The delivery partner and programme partner will be responsible for a large raft of appointments. The companies on the design framework will select their own supply chains for stations and rail design. They are: Aedas, Atkins, Building Design Partnership, Capita Symonds, Halcrow, Hyder Consulting, Jacobs Engineering, Mott MacDonald, Arup, Parsons Brinckerhoff, Scott Wilson and WSP.

The odds of winning

Large contractors 7-1
The main roles of delivery and programme partner may be virtually sorted, but there will still be tenders for large chunks of the building work, including individual stations.

Small contractors 33-1
Most of the work will be in large packages that would be unsuitable for smaller firms.

Specialists 2-1 odds on
M&E firms will be in high demand.

Consultants 20-1
The delivery and programme partners will be responsible for subcontracting consultancy services they do not have in-house. There are also specialist frameworks coming up.

Architects 50-1
Most areas of design will go through the design frameworks, which have already been appointed. However, there are some sections of the project, particularly refurbishments, that will be handled by Network Rail, where there may be opportunities.

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