2015 was harder to call than most thought. And with the looming possibility of Brexit, the new National Infrastructure Commission and the ongoing skills shortage, 2016 looks just as tricky
There is more to this Mystic Meg stuff than meets the eye. The clairvoyant message-stream spectacularly let me down again in January 2015 when I predicted – albeit cautiously – that things would calm down with fewer new starts and that the government would wake up to the cost of bad practice and corruption in the construction industry. How wrong was I?
On the industry calming down, at least, I wasn’t entirely wrong. Output ended up lower than expected in 2015 with many of the major contractors including Balfour Beatty, Sir Robert McAlpine, ISG and Vinci all posting disappointing trading updates on the back of the last recession. But, perhaps in part because of this, the industry’s clients are now reporting difficulties in exciting any contractor interest in even the most high-profile projects. Six figure “losing fees” (fees offered to contractors by clients for a particularly complicated or large job which they might otherwise not tender for) have reportedly been paid to contractors on large jobs, and other clients, particularly those without a pipeline of future work and no solid long-term relationships with contractors, are reporting having to “sell” their projects to the industry in order to get a contractor at all. An Aecom survey found that London’s largest contractors are turning down one in every two bidding opportunities in the commercial sector.
Meanwhile, contractors are complaining of headaches caused by skill shortages resulting in wage inflation (particularly acute in the fitting-out of prime London residential and office space where wages are reported to have risen by over 15% last year).
The spectre of Brexit looms over the UK and, particularly, over London commercial and residential sectors. anxieties about its effects are already dogging some major projects and reportedly affecting residential sales
Does all this sound astonishingly familiar - even if many old hands are saying they have never seen London as busy as it is now? It does not take a crystal ball to predict where it will all end. It is just the “when” which is more tricky …
So what are the mystic messengers saying about that? The spectre of Brexit looms over the UK and, particularly, over the London commercial and residential sectors. Anxieties about its effects are already dogging some major projects and reportedly affecting residential sales. Any threat to London’s position as the world’s leading financial centre will savagely affect the commercial property market and will have ripple effects throughout the industry. I can’t bring myself to predict it will happen, but it is more likely than it was.
George Osborne has donned his hard hat many times in 2015 and repeated his favourite phrase that “we are the builders” but is it all just words? Can we predict with confidence that he will turn words into cash? Will the National Infrastructure Commission deliver on its brief so that some coherence is added to the chancellor’s promises? Will Howard Davies’s recommendations on a third runway at Heathrow be delivered? Will high-speed rail connectivity be co-ordinated to avoid gridlock and unsustainable environmental conditions for those living nearby?
If the past is a guide to future, pessimism rules the cosmic waves. And the housing crisis and need for new substantial energy provision are decade-old problems - why would we imagine that they will be solved in 2016?
On top of this, as a Mini driver, what has happened to the promises on potholes? This one is a rant not a prediction that things will improve…
But who do the mystic voices suggest will actually deliver these projects? China links investment in nuclear and regeneration to construction contracts for Chinese contractors (at the moment in partnership with UK firms). Not risky to predict an increasing trend.
Meanwhile, trust and fairness seem to have been totally abandoned. Bring back Sir Michael Latham - or his daughter? Discounts of percentages in the high teens and trying to transfer risk by drowning sub-contractors in irrelevant paper seem to have been the themes of 2015 and we can confidently predict they will continue into 2016. The messages were all delivered in 1994, we have not learned since.
And finally, to end on a high note, in the month after the Supreme Court rejected a bid by Donald Trump to block the building of an offshore wind farm close to the Trump organisation’s Aberdeenshire golf course, the runes tell us that the US voters will reject the man himself …
Ann Minogue is a partner in Macfarlanes