After the public sector’s recent shellacking in the spending review, everyone wants work from private developers. Emily Wright talks to nine of the biggest private clients of UK construction to find out what they’ve got to offer and what they’re looking for from you
Grim though it was, George Osborne’s Comprehensive Spending Review was no bolt from the blue. For several months now the construction industry has been weighing its options and hoping that by the time the axe fell on public sector capital spending, the private sector may have begun to bounce back to take up some of the slack.
The good news is that there are signs of life. Schemes restarting on site range from small projects through to mega-developments such as Land Securities’ 20 Fenchurch Street in the City. But times are still tough and there is by no means enough work to go around - not yet anyhow. So, two years after the exodus from private sector work to what was perceived as the more reliable and solid public sector, it’s now a race in the other direction.
The key to winning private sector work is knowing what clients have to offer, and what they want. What impresses them? What will put you at the top of the pile? We talk to nine of the biggest names to find out.
The airports operator is one of the UK’s biggest and most challenging clients. Capital projects director Steven Morgan disbanded its multi-million-pound framework for major projects in his first 120 days after joining the group in February 2009. This means BAA’s work is now more accessible as all projects over £25m are opened up to competition. The group’s construction works at Heathrow go in five-year cycles, or quinquennia. The current one runs up to April 2013 and the following five years of investment are being finalised.
There is still £200m worth of work going out to tender over the next two years. This includes projects linked to terminals and around the airfields. From 2013 onwards investment is expected to be about £4.2bn, the same as the current quinquennium. Phil Wilbraham, BAA’s development director and the man responsible for planning its workload and budget up to 2020, says: “Over the next five years the likelihood is that we’ll focus on the second phase of the T2 building [phase one, worth £1.2bn, is under way and phase two is expected to be worth about the same]. We are also looking at updating T3 and T4 as well as resurfacing the two runways.”
How to impress BAA
Stephen Livingstone, BAA’s programme control director, says: “We do not focus all the time on price. We want the best people, not just the cheapest - although we do expect people to be innovative and to prove they can drive down price to deliver best value. We are looking for firms dedicated to health and safety and carbon credentials.
“In terms of past skills we need people who can integrate as well as build. A lot of our upcoming projects will involve the integration of systems. I would stress that our upcoming work is definitely not sewn up.”
Best known for commercial projects in London and retail schemes up and down the country, Land Securities’ property portfolio is worth about £8.7bn. As work resumes on major London projects such as the £500m 20 Fenchurch Street “Walkie Talkie”, all eyes are on what else the developer may have up its sleeve.
In the short term, there is the £350m Trinity Leeds project which has a construction value of £100m. Laing O’Rourke has been appointed as main contractor but opportunities for smaller firms, particularly regional contractors, are there as the development is expected to require 1,000 workers on site at peak construction.
Other upcoming schemes include major extension and refurbishment works for a number of Sainsbury’s stores; the Atlas Site (Buchanan Street) retail scheme in Glasgow with a £20m construction value; and the 400,000ft2 Buchanan Galleries retail development, also in Glasgow, which has a £120m construction cost.
Land Securities is also targeting the UK’s top 50 city centres to identify possible distressed assets or opportunities that have been abandoned by other firms. It aims to pick up three or four schemes, worth about £150m each. Most of these are expected to start on site by about 2015.
How to impress Land Securities
Andrew Dudley and Derek Baillie are project management directors at Land Securities. Dudley says: “We have committed £1bn to development in 2010 and that work is pretty sewn up. But pretty much all of the development pipeline is up for grabs.
“We are very opportunistic and we are open to working with new firms. They need a track record of relevant experience and expertise and although we have relationships with contractors, we are not tied to the supply chain. We are looking for value, stability and a good cultural fit.”
Baillie adds: “We are driven by value and quality. We use a design-and-build procurement method and work with contractors for six months or so before a scheme starts. But then we expect to transfer the construction risk to the contractor.”
British Land also focuses on London retail and commercial development. As at 30 June 2010, properties owned or under management were valued at £13.7bn, of which its share was £8.7bn. 65% of the portfolio is invested in retail and 33% in offices.
Development pipeline and work up for grabs
British Land has about 3m ft2 in the commercial development pipeline, including some refurbishment schemes on existing assets. The portfolio is worth about £750m over the next three years in terms of hard construction costs. Only a small fraction of that work has been procured. The move away from pure construction management means British Land is open to new suppliers. On the retail side there are “a number of things the group is moving forward on” but nothing has yet been committed.
How to impress British Land
Richard Elliott, head of construction, says: “We need confidence in a company’s management processes and approach to business on the construction management side and obviously things like health and safety and sustainability credentials are very important. We don’t always go on price; it’s more about quality and delivery. We are engaging with a supply chain we wouldn’t normally have done in the past so the opportunities are there.”
Hammerson is a major developer operating in the UK and France, with a specific focus on developing and managing shopping centres, retail parks and offices, including the Bullring in Birmingham, West Quay in Southampton and 99 Bishopsgate.
For information of Hammerson’s development pipeline and how to impress the firm, see page 32 for our interview with the group’s head of project management, Vinod Thakrar.
The developer is best known for its London commercial schemes. Key projects include More London, Tate Modern, Paternoster Square and Stratford City. But it is after expertise from more firms as it moves into different sectors such as mixed-use schemes led by retail and residential as well as offices.
Stanhope has 10m ft2 under construction or in the pipeline, including more than 30 office buildings and 3,700 homes.
How to impress Stanhope
Paul Lewis, operations director at Stanhope, says: “After innovation, openness and integrity, we are looking for reliability so we can maintain the vital link between us and our customers and don’t let people down.
“We are known for office development but have moved into other areas, like retail- and residential-led projects. We will need people who have experience in these areas.”
“The best property company in the UK” according to one analyst, Tesco remains a giant among clients. The group revealed a £261m profit in the six months to 28 August 2010 from £1.2bn of sale-and-leaseback transactions from its development pipeline. It is notoriously tough, but has plenty of work to offer over the next few years.
Tesco’s development programme is worth £1.6bn. It pledged to build 2.4m ft2 this year, a rise of 41% on the below-average 1.7m ft2 in 2009. It has been known to push contractors and suppliers to very tight margins to drive down costs. But with a 40% increase in its store development programme and a move towards restructuring its supply chain and bringing new contractors on board, it could be a key source of work on projects ranging from small stores to mega schemes for the construction industry, including firms that haven’t worked with the retailer in the past.
How to impress Tesco
Always one to keep suppliers guessing, Tesco declined to comment.
The retailer enjoyed a 57% increase in pre-tax profit, from £466m in 2008/09 to £733m the following year. In the group’s last set of results, sales were up 5% to £21.4bn.
Sainsbury’s has a property programme worth about £1.6bn. In May last year it hit the headlines by announcing it would accelerate expansion in the recession. It raised its target for increased selling space from 5% to 15% by March 2011. The group raised £432m from share and bond issues to fund the growth.
The expansion required the construction industry to deliver more than 50 stores throughout 2009 and 2010 as well as 45 store extensions and 150 Sainsbury’s Local convenience stores. The aim is to continue this pace of growth from 2011.
Now that Sainsbury’s has formed a joint venture with Land Securities on certain schemes, there are plenty of extensions up and down the country in the pipeline too. Sainsbury’s does have a framework of preferred contractors but says this is “constantly under review”. It automatically tenders 10% of its work outside the framework.
How to impress Sainsbury’s
John Rogers, Sainsbury’s’ former head of property, now chief financial officer, says: “We want to meet new contractors if they think they have something to offer. From a commercial position it would be crazy not to. We also look for transparency in the commercial relationship. It’s important we develop a real partnership with the people we work with, which means moving into a more open style of business. In the past, things have not been as productive as they could have been because of a lack of transparency.”
Waitrose posted a 25% increase in profit to £268m in results for the year ending January 2010. A huge expansion programme into the convenience market is planned, in a new departure for Waitrose.
Every year for the next three at least, Waitrose will be spending £200m and building 10 supermarkets as well as convenience stores. A decade from now, it plans to have twice the number of UK shops. Schemes are worth between £1.5m and £20m and most work has yet to be tendered.
The catch is that Waitrose is famously impressed by its existing supply chain: Bowmer & Kirkland, RG Carter, RG Group and Wates. But the group’s head of property services and development, Nigel Keen, told Building earlier this year that with so much work in the pipeline, it would be looking at new firms and “new ways of creating value”.
How to impress Waitrose
Tony Jacob, head of construction and maintenance at Waitrose, says: “We are looking for new supply chain members as with the current workload and pipeline our existing supply chain will be stretched. We are looking for firms that are of an established retail pedigree or a pedigree in fast fit-out or construction.
“If they don’t have that they are wasting their time and won’t get past the front door. Then we measure against key requirements - they have to be able to deliver on budget and on time, meet our standards, and meet our safety and sustainability obligations.”
Whitbread is a global hotel, restaurant and coffee shop company with its budget hotel chain, Premier Inn, making up 80% of turnover. Other brands include Costa Coffee, Beefeater, Table Table and Brewers Fayre. The group reported profits up by 28% to £151.8m for the six months ending September 2010 and a 14.5% increase in total revenue to £805m, placing it in a strong position to expand.
The bulk of work will be related to Premier Inn. Already on site are 1,700 rooms, to be opened by February 2011. Between then and February 2012, 30 new hotels, 15 restaurants and more than 3,500 rooms are in the pipeline. Of these rooms, only about 500 are already committed - the rest will be tendered and Whitbread has confirmed it will be adding to its list of contractors to complete the work.
It is spending £330m on hotel expansion in 2011, a figure that will increase year on year for the next three years at least. There are opportunities for refurb specialists too, as Premier Inn’s 40,000 rooms are refurbished and refitted every three years.
How to impress Whitbread
Alex Flach, Whitbread’s construction and maintenance director, says: “We are currently adding to our contractor list and we’re looking for firms who have prior experience either working for us or for another hotel group.
“We are also focusing on firms with a turnover up to £150m. We don’t tend to use companies bigger than that. Small firms have more reasonable costs and, when we want to become
a big client, they give us the care and attention we deserve. Big firms can make us feel a bit like small fry.
We’re also looking for innovation and sustainablity credentials in supply chain members.”
This article appeared as Private developers: Do you fit their bill? in Buliding magazine