Skills shortages drive up UK construction prices
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A growing skills shortage in the construction sector is causing London’s biggest building contractors to turn down one in two bidding opportunities in the capital.
According to a poll of UK contractors by Aecom, an infrastructure and support services group, labour shortages are driving up costs so much that contractors are putting up prices and turning down work from projects and clients they perceive to be high risk.
A shortage of concrete, brickwork, joinery and other specialists is driving up construction contract prices by 10 per cent in London in 2015 compared with last year, the poll found.
“The industry is taking a far more strategic approach, targeting schemes that will deliver planned margins,” said Brian Smith, a director at Aecom. “Risk appetite among contractors is low, with a desire for certainty meaning that projects may be taken on a smaller margin if the return is guaranteed.”
Aecom said that parts of the industry are already cutting their exposure to the residential market because of fears the capital’s house price boom may be starting to falter.
Noble Francis, economics director of the Construction Products Association, said that contractors were going back to clients to renegotiate office projects agreed 18 months ago.
Although the CPA is forecasting significant growth in building over the next two years, “the skills shortage raises questions about how achievable this is,” he said.
The government has promised to tackle housing shortages with measures aimed at accelerating building, but housebuilders are already beginning to slow production in areas where prices are not rising quickly enough to offset labour costs for bricklayers, carpenters, joiners, plasterers and site managers.
The number of new homes registered in the three months to the end of September was 2 per cent lower than a year ago, according to the National House Building Council.
Barratt, Britain’s biggest housebuilder, launched 49 developments — down from 80 at this stage last year — and operates from 380 sites, compared with 395 last year. It said there were still shortages of skilled labour in some trades and locations.
Bovis, another large housebuilder, has also warned that profit margins would suffer because of planning delays and rising costs caused by labour shortages.
According to the Construction Products Association, 42 per cent of building contractors reported recruitment difficulties in the past few months. Bricklayers are earning 20 per cent more than two years ago and are still in short supply, as are carpenters.
Britain’s largest construction companies are already struggling with squeezed profit margins and unpredictable costs. Balfour Beatty, Morgan Sindall and ISG all issued profit warnings this year because of contracts negotiated at “suicidal” prices during the fiercely competitive period at the height of the recession when labour, energy and materials costs were much lower.
An estimated 300,000 left the building trade in the 2008-10 downturn. The number of construction qualifications awarded through apprenticeships, colleges and universities has also fallen by 10,000 in the past two years, according to research by the Local Government Association.
Aecom’s annual London contractors’ survey was completed by companies including Sir Robert McAlpine, Skanska, ISG, Wates, Mace, Galliford Try and Brookfield Multiplex.
Based on the responses provided, London contractors have already secured more than 75 per cent of their turnover for 2016, showing the strength of the capital’s construction boom.
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