Lead times

Lead times
The lead time for mechanical packages stands at about 16 weeks for general installations, whereas electrical installations have seen their lead time grow by three weeks over the past quarter, to stand at 20 weeks.

Moreover, lead times for electrical installations are expected to lengthen to 22 weeks this year, before shortening again in 2002.

The main reasons for these lengthening lead times are increasing order levels coupled with labour shortages, particularly a lack of qualified electricians.

Fire-detection systems, generators, VAV units and UPS systems are also registering increases in lead times this quarter.

Enquiry levels
The mechanical and electrical market place continues to experience plenty of good-quality enquiries; notable hot-spots include not only the South-east but also the Midlands and the South-west.

Although the market could not be described as overheating, present enquiry levels are enabling M&E contractors to be selective in the projects they tender for. The trend is for them to favour partnered or negotiated contracts over competitive lump-sum bids. Direct contracts with clients or end-users are also preferred to domestic subcontract bids, where there may be a great many M&E specialists involved in the final selection process.

The selective approach being employed by M&E contractors allows them to make the most of each enquiry they pursue. One large M&E contractor comments: "We are turning away traditional competitive projects and are targeting specific jobs, with the result that we are successful in about one in two contracts that we tender for, particularly in the Midlands and the South." A few years ago, this firm was tendering traditionally, and winning one project in six.

Greater success in the bidding process leads to lower overheads, helps to keep costs down. However, not all M&E contractors are as positive about enquiry levels as the firm just quoted. One remarks: "Enquiry levels are still very busy, but the quality of the projects is not quite as good as last year." Another says: "Over the past two or three weeks, we have noticed a number of tender enquiries drifting, with some being put on hold." However, most of those who feel that enquiries are on the wane see it as a short-term effect of the impending general election, rather than a downturn in the market. Most firms say they expect enquiry levels to continue growing steadily over the next two years or so.

Orders and workload
M&E contractors have enjoyed a steady increase in order levels and workload over the past few years. The sector is strong on office headquarters and speculative developments.

An important area has been switch sites for internet service providers. This is a small proportion of national M&E turnover, but these facilities are heavily serviced and growing rapidly.

Workload seems likely to continue increasing over the next two years. Many M&E contractors report that existing projects will last until 2003. Many report a that they are booked up in 2001, and getting on for half of 2002 – a notable increase on previous years. One large M&E contractor comments: "We see growth in the market continuing, and are planning to expand the business significantly over the next two years." Others echo this.

Partnering has made it commonplace for contractors to using designs that can be adapted and reused on different projects for the same client. Together with standardisation and prefabrication, this has helped keep costs down.

IT has become essential, with all large contractors relying fully on CAD and electronic data management systems.

Labour is a continuing problem, with contractors reporting that a lack of training in the past decade is causing skills shortages and, possibly, wage inflation. One contractor says: "There is a lack of loyalty with site operatives – they will go to where the money is". Others say good project managers are in short supply.

Historical data from Gardiner & Theobald tender price survey; forecasts from Construction Products Association.

Tender prices
A north-south divide seems to have developed with tender prices; this is nothing to do with activity levels, rather with types of procurement. Traditional lump-sum competitive tenders are still the norm in the north of England and Scotland but further south, contractors say an increasing proportion of their work is obtained through partnering, negotiation, or PFI-style contracts.

Ray Johnson of Hadens says that 55-60% of his business is in the form of such contracts, adding that the firm is hoping to hit even higher targets. Other big M&E contractors quote similar figures. One in the South-west says that nearly 70% of its tenders are partnered or negotiated. Design-and-build contracts are increasing in popularity as clients seek to shift risk onto their construction teams, and two-stage tendering is also popular.

It's different up north. One big M&E contractor's North-west office claims that it is unable to get negotiated or partnered projects. It says tender prices in the region remain low and even refers to main contractors conducting Dutch auctions.

M&E contractors have noted greater stability in the market. Those in the Midlands and the south of England mostly agree that margins have improved, with one suggesting: "It is better for all parties concerned to increase margins and generate profit by driving costs down rather than pushing prices up." Tender prices for are expected to rise over the next three years owing to several factors, including healthy order books, enabling contractors to be selective in what they tendered for. Other reasons are increases in the costs of materials and labour and a slight reduction in the strength of sterling, making imported equipment more costly. Tender price rises are forecast to be between 3% and 5% for each of the years 2001 to 2003.