Market view
Ask most people to describe a typical demolition site and they would probably talk about a ball and chain smashing its way through a building until there is just a heap of rubble. This preconceived notion of the industry does not do it justice. In recent years, demolition contractors have shed their rough-and-ready image by developing good levels of technical skill and by investing in sophisticated equipment to become a highly mechanised operation.

But now the industry is facing an uncertain future. With huge hikes in insurance premiums and an uneasy market in London and the South-east, demolition contractors will need to undergo a major shake-up. John Hall, managing director of of John F. Hunt Demolition, says: "The demolition industry faces some challenging years ahead; many companies that have grown accustomed to year-on-year growth are now faced with a diminishing order book."

The expectation is that the next 12 months are going to be very difficult for many in the industry.

Insurance premiums
Premium increases this year on public and employer's liability insurances of 100% for demolition contractors and of between 100-150% for their subcontract scaffolders are commonplace. Furthermore, these increases are in addition to similar rises last year, and the situation is unlikely to change in the near future.

Jim O'Sullivan, contracts director of demolition contractor Cantillon, says: "The increase is out of proportion to the amount of risk; and your claims history seems to have very little bearing on your premiums".

John Hall of John F. Hunt Demolition agrees with him. "The relentless pressure from unnecessary and unjustified insurance uplifts will prove too much for many contractors, who will be faced with drastically downsizing their operations," he says.

In addition to liability insurance, increases in personal injury claims – due to asbestos-related illness – are also likely to peak in the next five years, with 50- to 60-year-olds most affected. With the cost of insurance accounting for anything up to 7% of turnover, it's not hard to see the effect on costs and profitability on firms of these large increases. Whether these increases will be passed on to employers in total or in part will depend on the competitiveness of the market, however, they could add as much as 3% to tender prices.

One way employers could help keep demolition costs down is to review the levels of insurance cover required. Is it really necessary to demand public liability cover of £10m or more – as some legal advisors, or their insurers, are recommending? On one London site, £50m public liability insurance was recently demanded, adding £50,000 to the tender price.

In London and the South-east there is a downturn in enquiries of 15-20% or more. Pricing for schemes is now very competitive and it will be very difficult to pass on these increases with both turnover and profits decreasing. In addition, many projects have been put on hold following post tender interviews. These are unlikely to progress in the next 12 months, or until there is a significant increase in economic confidence and activity.

Further north, the picture is less gloomy: turnover is stable or increasing in some instances fuelled, no doubt, by the amount of regeneration of rundown brownfield sites. This could lead to some interesting tender lists as southern contractors migrate northwards, looking for more lucrative work.

Changes in procurement
There appears to be a change in the way projects are being procured, which is affecting established procurement routes. It was often the case that the demolition contractor was procured early in a scheme, while the design was still being progressed. The demolition contractor would have been appointed as the principal contractor initially and then novated, at some later stage, to a main contractor. However, with main contractors increasingly being appointed at the beginning of the project through two-stage tendering or partnering arrangements, the demolition contractor's role is becoming more one of a domestic subcontractor – and in the process, losing their direct relationship with the client.

One effect of this is that demolition contractors are broadening their range skills by taking on the role of groundwork and enabling works contractor as well as carrying out the demolition. This diversification has been spurred on where there is a declining market for their specialist service. However, it can still prove difficult to get onto some tender lists as many main contractors already have their supply chains in place, some going back over a number of years. Demolition contractors will certainly need to cut costs, but it is unlikely that we will see many companies going out of business; getting on to new or existing supply chains will prove a time-consuming and often unrewarding business and most demolition contractors will inevitably seek to preserve and reinforce their existing contacts.

One other blip on the horizon is the likelihood of skills shortages.

With the average age of demolition operatives now at more than 40, and with insufficient new recruits entering the industry and undertaking the intensive training required for the operation of the latest equipment, there is the possibility of labour shortages affecting some contracts in the future.

Demolition safety record
To improve safety of the workforce, there is now much greater use of expensive specialised plant and equipment. This includes the increasing use of long reach machines with specialist breaking and cutting attachments which, depending on their size can cost in the region of £350,000 to buy or £3000-4000 a week to hire complete with an operator. Remote controlled machines, hydraulic breaker or pulverising machines are also being increasingly used and, depending on size, can cost anything from £80,000 to buy or £2000–3000 per week to hire with an operator. The long reach machines often have a tilting cab to improve the operator's comfort when gazing upwards for long spells and a CCTV camera mounted on the end of the boom to give a view of the work face. The remote controlled machines are fast, efficient and powerful, but they need three-phase power to operate, which introduces the risk of cables trailing across the site. However, there is less noise, dust and fumes than from a diesel machine and less risk of danger to the operator. In the future the requirement will be for more powerful machines, but with no increase in weight.

It is true that remote operation does not give the operative "feedback" through the feel of the machine controls, but it does remove the workers from potential danger areas and operation is vibration-free so there is no "white finger" problem. New rules are also expected from the EU on machines operation with a view to increased safety.

Employers can also help ensure that safety is paramount on construction sites by careful selection of the demolition contractor at prequalification stage by taking into account their safety record, training schemes and membership of the National Federation of Demolition Contractors.

Indicative costs of demolition
To the dismay of the cost consultant fraternity, there is no magic formula for the pricing of demolition, although generally this will be based on the cubic capacity of the building allied to the varying types of building and their construction; typical costs are in the range of £15–20/m3 for a city-centre office. However, when pricing a project a contractor will consider most, if not all, of the following:

  • Difficulty of access
  • Working restrictions and proximity of adjoining structures
  • Facade retention works, typically £200-250/m2 of retained wall
  • The propping of existing retaining or party walls, typically £150-200/m2 of propped wall.
    (The last two items will involve temporary works engineers and specialist steelwork contractors).
  • Any saw-cutting and drilling (this is generally by specialist companies, due to the need to keep an expensive plant fully employed and is the preferred construction method for most consulting engineers where parts of the building are to be retained). There is a range of prices depending on the methods adopted, but £370 is a typical day rate.
  • The cost of scaffolding at £15-17/m2 of elevation (most inner-city sites have to be fully scaffolded and sheeted to protect the public and reduce the effects of noise and dust).
  • Erection of acoustic screens to shield sensitive areas, typically costs £100-125/m2 of screen
  • Attendance of archaeologists
  • Protection of the public and others.

Due to the ever-increasing cost of landfill as a result of the landfill tax, which currently stands at £14 a tonne for active waste, there is a desire by demolition contractors to recycle up to 85% of demolition materials. This is a very ambitious target: although, generally, all concrete and steel are recycled, most timber still goes to landfill because of problems in removing old nails which could ruin expensive power tools if it is reused. However, with landfill tax set to rise by a further £3 a tonne in both 2005 and 2006, so the recycling of all materials will become a higher priority.

A further, although less significant, cost consideration affecting sites in inner London is the £5 per vehicle daily congestion charge. And, with the initial success of the scheme, it appears it may be extended to cover a greater area of London and it may well be rolled out to other towns and cities across the country, which could increase demolition costs further.

Lead times from order to start on site currently stand at two to three weeks.