Smoothing out the cycles

The industry’s longstanding calls for a more predictable flow of workload, particularly on contracts let by the public and regulated sectors, are showing signs of being heeded.

The creation of new local and regional authorities with their own budgets and procurement plans and efforts by government bodies and the utilities to let work in a more predictable style is helping to smooth some of the cycles which contractors have traditionally faced in bidding for new infrastructure work.

Unveiling its recent final results, Kier Group noted that the devolution of funding and decision-making, both locally and regionally, is starting to gather pace, particularly as new mayoral authorities – which include Birmingham and Manchester – are set up. The firm says that increased collaboration between authorities and the firm’s regional network ensures it can deliver to these new agendas.

The new West Midlands Combined Authority, which started life this Spring and covers 18 local authorities and four LEPs, has a capital investment programme of £8 billion over the next 30 years. Its programme includes metro extensions between the two HS2 stations and the regeneration of Coventry city centre, all of which contractors should be confident will go ahead free from the vagaries of government budget restraints.

Similarly, investment by the new Great Manchester Combined Authority – where the total capital budget is forecast to rise to £296.4 million in the coming financial year, from £218.7 million this year – should be more predictable in the future.

The consolidation of public construction budgets within larger authorities should also mean contractors can win some significant workloads through fewer clients. Kier for example, is seeing increased revenue of over £1bn from clients who work with two or more parts of the group; a trend it is aiming to increase.

Contractors in the water sector should also look forward to a more reliable flow of work. Although the AMP 7 bidding cycle does not come into effect until 2020 and it is expected to involve a tougher regulatory climate, utilities such as Yorkshire Water, Severn Trent Water and Welsh Water are already in talks with contractors on the new schedule.

In the roads sector, although Highways England is seeking savings from its capital spending budget, it is also aiming to be more accommodating to contractors. It has set up a Supplier Engagement Council and a joint working group to look at ways to improve efficiency “without impacting on the sustainability of suppliers’ businesses.” This approach should complement the Department of Transport’s Road Investment Strategy which envisages capital enhancements spending on the network climbing steadily from £1,509 million in the current financial year to £2,230 million by 2019/20.

The pattern of rail investment is also stabilising. Although cost over-runs have led to some cutbacks in the scale of Network Rail’s CP5 programme, Glenigan is forecasting a pick-up in starts in the sector next year, particularly as work starts on HS2. Moreover last month the government announced that it plans to spend £47.9 billion on the rail network over the CP6 period from 2019-24 (of which £34.7 billion will come in a direct grant) with more maintenance and a big uplift in renewals. Contractors, as well as passengers, should benefit from the commitment to invest.