Recent years have seen an improvement in market conditions for the construction sector. In 2014 output was in real terms back to where it was in 2004 and in 2015 we’ve seen further improvements. The commercial building market is holding up particularly well and the housing market started to pick-up towards the end of 2015.
There is a skills shortage in the industry and many believe this is the number one challenge for the sector. Whilst the numbers of those employed in the construction sector remains around the 2005 levels of 2.1million, the number of construction jobs as a proportion of all jobs has been declining from 7% in 2005 to the current figure of 6.2%.
A lack of materials has been another issue. Previously the reduced construction output led to a drop in demand for materials, resulting in materials’ manufacturers slowing or halting production. As the sector recovers, the supply of materials is improving, but is yet to catch up with rising demand.
In addition to the skills shortage and lack of materials, project costs have been rising. This has, in part, been caused by the cost of materials given the issues over supply and in recent years demand for materials in the Far and Middle East.
Significant legal changes
One significant case that will have an impact on the market is ISG v Seevic College. This case held that the lack of a ‘pay less notice’ – a notice from the Employer confirming that it intended to pay less than the value of the work certified – meant the employer had agreed the value of the work the contractor claimed in an interim certificate. It is likely that parties will amend contracts to overcome the effect of this case or the point may even be challenged further.
We are also seeing numerous failures to apply the payment mechanisms set out in the contract, which again with the current market conditions, has meant that the party suffering is less willing to accommodate any failure on the part of the paying party.
The Government’s proposed investment in infrastructure and plans to encourage an increase in the construction of housing on green and brownfield sites should assist confidence within the sector.
According to the Markit/CIPS UK construction purchasing managers’ index (PMI), more than half of the survey panel anticipated a rise in business activity over the course of 2016, while only 7% forecast a reduction.
As ever, there will be challenges within different parts of the sector, although housing and infrastructure are expected to maintain the levels reached at the end of 2015. Civil engineering will undoubtedly be kept busy on flood relief and defence work.
Rising capital pressures, an increasing skills gap and a potential interest rate hike does mean that many are still cautious about 2016.
How is construction work at Hill Dickinson being affected by the market conditions?
The last 12 months have been very busy for the team. Project work is probably busier than we have ever been with many of our clients involved in large development schemes relating to student and residential accommodation or warehouses and associated infrastructure works.
Dispute work has also increased as a result of improved confidence in the market. This improved confidence has also led to contractors and professionals being less willing to absorb risk. This impacts on their negotiation of obligations in a proposed contract and the willingness to even be involved in a project.
The construction team has been growing at Hill Dickinson and we plan to grow further to enable us to continue to provide the quality of service to our clients that results in strong working relationships and repeated work.