Private sector investment drives UK construction contractor growth

In 2014, contractors saw construction demand pick up and remain strong throughout the year, with positive growth rates for new work recorded in each successive month. Total non-domestic construction output in 2014 is estimated to have reached around £79.1bn, an increase of around 5% on the previous year.

The contracting industry has undergone a period of considerable change as construction was one of the hardest hit sectors in the UK economic downturn, with a substantial deterioration in output and activity levels. A decline in the supply of contracts forced many contractors to reduce the size of their businesses, cut costs and consider smaller sized contracts, with lower margins. With larger contractors bidding for smaller-scale and lower value work in order to maintain their pipelines, there has been intense competition with smaller, regional companies, who have struggled to compete.

Those firms that have done well, such as Amey, Carillion, Galliford Try and Interserve, all with a turnover in excess of £1bn, are all highly diversified and have large FM operations. Companies with a particular focus on the utilities sector have also done comparatively well, as have smaller, regional companies with a particular focus on sectors such as housing.

An increase in market activity has led to a rise in the levels of enquiries and requests by clients to submit tenders. However, this recent uplift in workload is putting particular pressure on main contractors who have had to secure work at low prices and many contractors are now struggling with capacity issues in order to meet increased output requirements. There is also a shortage of skilled tradesmen working in the sector, such as carpenters, joiners, glazing contractors and building services engineers. However, the upturn in workloads is providing specialist contractors with more secure workloads as main contractors improve conditions and payment periods in order to secure their services.

With forecasts indicating that non-domestic construction output will grow by around 5% in 2015, the outlook for the contracting industry remains good. The outlook for the short-medium term also indicates a steady recovery for key sectors such as offices, industrial and retail, though balanced by more muted performance from key public sectors such as health and education.

“Going forward, growth in the contracting industry is likely to be underpinned by investment by the private sector which will probably offset cuts in public spending – and also housebuilding is set to maintain steady underlying growth“ said Andrew Hartley, Director of AMA Research. “In addition, Government plans for infrastructure investment after 2015 will provide a significant boost to the construction industry, although this could be tempered by interest rate rises, material price increases, the availability and cost of labour, as well as tender prices.”

The ‘Construction Contractors Market Report – Focus on Sector Capability and Strategy – UK 2015-2019 Analysis’ is published by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.