Education
A lot more . Between now and 2004, there will be 650 replacement schools and substantial repairs will be ordered for 7000 others. You can expect battle-hardened main contractors to mop up the big projects. Jarvis stands head and shoulders above the rest in this arena.
But the less glamorous bits, like repairs to floors, stairs and roofs, will likely mean work for SMEs. There's already a £7bn backlog of such repairs.
Health
Don't be fixated on new hospitals, which are likely to be PFI, and even if not, then likely to come under Procure 21 (anything over £1m), which shunts SMEs way down the supply chain.
The good news is that smaller contractors may be able to get a slice of the healthcare pie through NHS Lift — which deals with non-hospital projects such as cottage hospitals, GP surgeries, and other facilities under the broad category of primary care. Tony Blair promised 500 new primary care centres by 2004. SMEs can get in on the action, but traditional procurement methods will be a thing of the past.
Each region will have its own primary care trust, which will bundle its building requirements for the next 25 to 30 years into one package. That final package could total as much as £300m. Private companies will be invited to bid for that package. SMEs may balk at the £300m figure, but it will be broken up into bite-sized chunks over three decades. And it's PFI, Jim, but not as we know it. It will probably work like this. Your local primary care trust will call for private partners on one of these 30-year packages. If a team bids successfully, and begins the first project, it will have first rights on subsequent work. The initial project is likely to be for three or four primary care centres totalling around £20m. Now here is what may turn off the big boys. Over 30 years there will be big jobs and small jobs. It might be a group of primary care centres in one go, or it may be refurbishing GPs' surgeries in another. Big ticket and small ticket, all lumped together.
Next potential turnoff for the major contractors is that unlike traditional PFI, the partner that delivers the first project will be expected to stick with the package until the end of 30 years, and not sell its interest once the building is up, which is a common practice with major PFI schemes now. If you like the sound of this, be warned. Much will be required of you.
Mike Thorogood of Partnership for Health, a new agency that will support and feed money to regional primary care trusts to help set up the packages, says contractors will have to form a joint company with the primary care trust to last the lifetime of the package. And unlike the special purpose vehicle in PFI, this company will meet regularly and decide how its buildings and facilities are going to deliver health services to people.
"We want the building expertise of potential private partners, but you've also got to know where primary care is going," says Thorogood. "We're looking for someone who'll be interested in the long-term development of the trust, not sell out and go for another scheme as soon as one is finished."
If you're still interested in pursuing this type of work, keep an eye on what primary care trusts or health authorities are doing in your region. By the end of the year there will be 18 regional packages throughout the country. In two years there will be 40.
How can regional contractors get a piece of the action? (Plus a real example)
He did it: Max Cope, director Benson (Midlands)
Because of PFI and Procure 21, a lot of the increased building work in health and education will go to main contractors, and then trickle down to smaller contractors. Here are the two main things you could do now to get your piece of the pie:
- 1. Think ahead. Start your business development now if you want to be winning contracts before 2004. You have to get on local tender lists and you'll have to have a track record.
2. Get your head around the Rethinking Construction jargon. Partnering, continuous improvement, collaboration, etc. Take it seriously. Government clients do; main contractors are being forced to; and you'll have to if you want to play.
Around 1997 Max Cope and a colleague bought AE Thompson after leaving Morgan Sindall. AE Thompson had a few hospital projects under its belt. More importantly, it had a modest rating with the Estates Business Agency, the body that approves contractors in the West Midlands. Add to this Tony Blair's romp to power and a definite business development strategy crystallised. Cope spotted healthcare as a growth area back in 1997 when Morgan Sindall was involved in an interior refurbishment of three wards.
"How many times do you have to hear 'Education, education, education', and other promises on public sector spending, for the message to sink in?" Cope says.
That's when the hard work began. Cope, a quantity surveyor by training, went full time into sales and marketing. He got hold of a copy of a West Midlands NHS directory, which he could only get by advertising in it. Then he started the soul-destroying process of cold-calling. "You have to be pretty thick-skinned," Cope says. "I had no sales and marketing training, and people could be downright rude.
"You have to get face to face with people," he adds. "They get so many flyers you won't make any impact unless you see them." You also have to believe strongly in your own product, he says. People may be rude but at some point, a particular trust is going to be ticked off with its contractor and will want new relationships.
There are more than 40 NHS trusts in the West Midlands and Benson (AE Thompson amalgamated with Benson in 1999) has worked with eight of them. The projects are typically under £4m. But Cope has big plans. Benson plans to increase turnover by 30% to 50% (from £10m now) next year on the back of hospital work.
Benson is now bidding for work on a PFI project led by a main contractor, but Cope says that in general the contractual risks being passed to subcontractors under PFI are too onerous.
He'll subcontract, but the terms must be reasonable. But he says even that position is a radical change. "Ten years ago we'd never have done it," he says. It's a shift a lot of companies may have to make if they want their share of the healthcare/ education pie.
Will PFI be the only game in town?
Education
No it won't. Less than a quarter of the £8.5bn to be spent before 2004 on school buildings will be under the Private Finance Initiative. The other main chunks include:
- 1. Traditional spending by local education authorities (£1.77bn) on new school places in high growth areas.
2. New Deal for Schools (£2.97bn). This money is earmarked for tackling the massive backlog on repair and maintenance. That means you can still cash in on local school work, even if you're a stranger to PFI.
Health
No it won't. Only £2.4bn of the £10.3bn cash injection into the NHS before 2005 will be classed as PFI.
Will the big boys share the work? (And would you want it?)
Education
They'll have to. It may be harder to break into the NHS space because hospitals are so complex the work is likely go to a smaller number of specialist contractors. But education represents a broader opportunity.
Take Jarvis, which has been wildly successful at winning big, bundled school projects. It'll need subcontractors of all different sizes to deliver a variety of projects. But the number of subbies on Jarvis' books will probably decline.
Michael Blades, supply chain manager at Jarvis, says long-term relationships will be cemented with the most suitable sub-contractors. "Put another way, we'll be using the same people more often." Blades says that subcontractor relations would be radically different under large PFI projects. Subbies will be expected to trust the contractor and talk openly about margins. They can share training resources but they'll need to adopt best practice. They'll have to talk more to other subbies and work collaboratively. Blades says this will require a huge cultural change across the entire industry and admits he hasn't seen much evidence of it yet. Smaller contractors are wary of getting involved with PFI because the contract terms are often too onerous, passing too much risk on to the subcontractor and none of the princely profits.
Jarvis' Blades suggests a fresh approach to the issue. He admits the risk is huge, but says it could be handled if parties talked about it and figured out how to reduce it, instead of passing it around like a hot potato.
Will Can the industry cope with the extra work?
Education
No, unless an economic downturn frees up a whole lot of tradesmen and managers.
Contractors are already unable to cope with demand, according to a Construction Industry Training Board report released in Spring. It found that 24% of employers were unable to tender for or gain contracts because of skills shortages. Its training forecast predicts that 10,000 extra recruits are needed in the industry each year to 2005, to cope with the extra work.
The Construction Confederation's trends survey reported in May that 61% of its members were running at between 90% and full capacity. And a Construction Forecasting Research survey found that more than 80% of employers report difficulty in recruiting, particularly bricklayers, carpenters, joiners and plasterers.
But with more construction management degree courses closing every year, a big shortfall in management skills is also looming. Prefabrication and state-of-the-art equipment may help you get round a trades shortage, but how can you carry out a project without a site manager?
CITB estimates that 7250 extra managers will be needed between 2001-2005, the largest requirement among the non-manual occupations in construction.
Jacquie Cannon, a director at Construction Forecasting Research, is worried that the management skills needed to carry out the government's projects will not be there. "More university courses for engineering and construction management are closing every year which is causing a genuine professional skills shortage."
She adds that hospital building may suffer particularly. "The government wants to build 100 new hospitals by 2010, and there are a relatively small number of contractors that can carry out that type of project. Very skilled project managers are needed to cope with the complicated mechanical and electrical requirements."
What's it like to work on hospitals and schools?
Education
Education
Paul Fish, contracts manager, Wheatley Construction
"The main concern for contractors undertaking work on a 'live' school site is health and safety. With curious children and potentially dangerous structures and machinery present, it's vital that pupils are educated about the dangers. We find that getting pupils involved in health and safety activities is an effective way of attracting their attention. For example, running competitions where pupils are asked to design posters to promote site safety, with the winning posters being displayed around the site. The use of familiar characters such as Bob the Builder help to highlight health and safety issues on a level children understand.
"Another major issue is the security of the school. Site staff are encouraged not to speak to pupils too much, and the pupils in turn are taught to regard site staff as strangers, in order to encourage the children to maintain their guard against people they don't know.
"Problems such as noise and pollution must also be carefully co-ordinated so that minimal disruption is caused to the running of the school. Noisy or dusty jobs are performed out of school hours. And particular consideration has to be paid when exams are on. Noise must be kept to an absolute minimum or avoided wherever possible.
"Road safety is a further issue. Deliveries are carefully timed so that most of them take place between school opening and closing times and site staff are encouraged to park away from the site so that the area —which is usually residential — doesn't become congested. This also ensures that the crossing patrol is kept clear so that wardens have a clear view of any oncoming traffic.
"Close communication with head teachers and other staff members is the key to overcoming the complexities involved in school projects — if the contractor and client work together to plan and co-ordinate the project, most problems can be avoided."
Health
Keith Millage, project manager, Benson
"I enjoy the hassle of projects like the £3.2m design and build of an education centre at Birmingham's Heartlands Hospital. People like clerks of works in hospitals often are very definite about what has to happen and you have to work with those people. It's all about programming to a critical degree. Breaking into a steam main, for instance. You may have to fit in with the yearly scheduled stoppage and if you don't get everything done in that slot you're in trouble. The biggest lesson I've had to learn is what the client does to keep sick people alive."
Roy Sullivan, project manager, Snape Roberts, Manchester:
"The primary issue to consider when dealing with an NHS client is that most healthcare projects involve working in, or around, a 'live' hospital environment that has vital and sensitive medical equipment supporting critically ill people.
"Planning for an NHS project has to be assessed and evaluated on a daily basis with the possibility of interruption to work at any time. Construction teams must be highly patient-focused. Problems such as noise, vibration, air pollution, security precautions and health and safety have to be anticipated and constantly monitored."
What will be required of construction managers ?
Education
With the shortage in management skills becoming more acute, construction managers, especially those with professional qualifications, are a very valuable commodity. And if a recession begins to bite into commercial construction, having public sector building on your CV could mean companies scrambling for your signature. So what do you need to know to work for the government?
Education
- Best value, not lowest price. Wates Construction's business development manager Phil Burgess says there has been a marked change in local authority attitude towards procurement in the last 18 months. "They want you to be able to demonstrate in black and white how you can achieve best value instead of always going for the lowest price."
- Customer focus and awareness of school needs. "Understanding the business of education is crucial" says Burgess. "You have to be aware of the school timetable and be sensitive to the needs of the school."
- Liason with staff and pupils. Children can be inquisitive and making them and the staff understand the dangers of a building site is important, says Paul Davenport, a project manager for Wates. "Children don't necessarily see things the same way adults do. Site security is crucial as is communication with them and the staff."
Health
- Long term relationships. Gary Naylor, programme director for Morgan Sindall Healthcare says that NHS trusts are looking to form lasting partnerships with contractors. "You can't just go in there for a quick win, you have to work with trusts to understand their point of view. You have got to develop relationships and work towards best value, which is increasingly important."
- Respect and cherish the NHS. Naylor says construction managers must believe in the health service to work for it. "You have to be sure that what you are doing is important and respect all the stakeholders involved. And that means taking in everyone's point of view from nurses to patients to cleaners. So communication and liason with all those groups is important. The NHS itself is becoming more customer focused and site managers need to be also."
- Loosen up. You'll have to be flexible. Working in a 'live' hospital setting, which the majority of projects are, means realising the hospital's needs come first. "Construction managers have to be prepared for a situation where if an operation is taking place, for example, they have to stop work," says Naylor. "Sensitivity to the hospital environment is very important."
Will war on the Taliban affect public spending?
Education
Chancellor Gordon Brown made an impassioned speech to the Labour Party conference in October, swearing that the government would not renege on its public service spending promises, whatever a downturn or war brings.
After the sale of the third generation mobile licenses, tight public spending in its first term and a reduction in public debt, the government does have a few billion pounds put by for a rainy day. An emergency fund of £2.2bn was allocated for this year financial year alone. However, with £1bn spent on the foot and mouth clean up and the spiralling cost of repairing the rail network post-Hatfield, that surplus is thought to already have been used up.
Brown, and the Labour Party as a whole, have made much of the sound state of the economy. Brown would be loathe to let it slide now.
He has three options to keep the economy on track. Raise taxes, something that won't go down well among the ex-Tory voters Labour has wooed; limit future public spending, which won't go down well among Labour's traditional support; or borrow more. This seems the most likely possibility, as Labour has reduced the national debt from 44% of national income to 30%, allowing some leeway for borrowing.
However he manages it though, Brown is insisting that the government will hold to its spending plans as set out in the comprehensive spending review and that it will "put schools and hospitals first".
Source
Construction Manager
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