The surge in workload in London has seen the balance of power shift in favour of contractors who’re able to select contracts with the right ‘profile’, according to Aecom’s 2014 London Contractors Survey.
The firm polled main contractors with a combined UK turnover of almost £7bn, plus 16 major subcontractors, concluding that contractors are turning down work from projects and clients they perceive to carry higher risk.
Contractors including Laing O’Rourke, Mace, Kier, Brookfield Multiplex, Skanska and Willmott Dixon took part in the survey, which found that contractors are turning down one in three invitations to tender.
Aecom director Brian Smith told Construction Manager: “Contractors are being more selective – the projects need to have the right profile to commit to them. It depends on the type of project, who the client is, the risk of the project, the contractual realtionship and the procurement route.” These factors are increasingly being given as reasons to tender or not to tender, he said, with many contractors now only willing to accept work on a negotiated basis.
“Contractors are being more selective – the projects need to have the right profile to commit to them. It depends on the type of project, who the client is, project risk, the contractual realtionship and the procurement route.”
Brian Smith, Aecom
“Clients are now aligning their procurement routes to suit the market – they’re engaging with contractors early, and sharing risks and rewards more equitably. Some contractors are still prepared to do lump sum, single stage tender, but the client will pay for it – the return will be higher for a riskier project.”
Refurbishments or work on complex projects which entail substantial risk for contractors are also becoming increasingly difficult to invite contractors to bid for, the firm said.
Smith also added that onerous contract conditions, such as hefty liquidated damages for the late delivery of projects, had been a feature of the market in 2013 but these had now largely been negated. “Now, contrators have more ability to negotiate, or reflect the risk they’re asked to take on in the returns they get back. Clients have to be a bit more equitable about their processes to get the best bid.”
The global consultancy is also forecasting that 2014 will record 5-6% tender price inflation in London, and is predicting inflation of 5.1% in 2015 and 5.3% in 2016. This contrasts with previous years where price levels were falling.
Labour shortages are now the primary driver for price rises, with specialists in concrete and brickwork continuing to be in demand, and growing demand for joinery and dry lining. Aecom is predicting that electrical engineers will be the next specialists to see strong pick-up in demand.
Smith said: “Clients are seeing sustained and increased tender prices – what we forecast a year ago has become a reality. However, it is important to remember that overall price levels are still lower than they were in 2008, and even at the rates of inflation we forecast they will not get back to their previous peak until 2017.”
He said there were some indicatiosn that main contractors were looking further afield for subcontractors, including overseas, especially if they had exisiting relationships with companies aborad.
The Aecom survey also found that London contractors have on average already secured 71% of their turnover for 2015, which is higher than the 67% secured for 2014 at the same time last year.
However, there are early signs that after 18 months of strong activity the market may be adjusting to a lower rate of annual growth, with contractors having only secured 26% of their work for 2016 and 9% for 2017 – with the two year pipeline figure being lower than in 2013’s poll but the three year figure marginally higher.
The full list of contractors taking part in the Aecom 2014 London Contractors Survey is Ardmore, Bam, Brookfield Multiplex, Galliford Try, Kier, Laing O’Rourke, Mace, Midgard, Skanska, Walter Lilly, Wates Construction and Willmott Dixon. An additional 16 specialist subcontractors also completed the survey.
