Construction Industry Demand Assesment

8/9/2019 Construction Industry Demand Assesment

1/27

Anassessmentofdemandfor

ConstructionIndustry

resources

GarethJones

SeniorPolicyOfficer

CommerceandEmploymentDepartment

January2009


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2

Contents

1. Introduction........................................................................................... Page3

2 Executivesummarymainpointsarising

fromthesurvey...................................................................................... Page4

3. Theneedforanassessmentofdemandfor

Construction

Industry

resources

the

Capital

PrioritisationDebate.............................................................................. Page5

4. Surveyaimsandmethodologyused.......................................................Page6

5. OverviewoftheConstructionIndustry..................................................Page8

6. Surveyresults........................................................................................ Page11

Quantitativedata:

Workunderwaycomparedtooneyearago..............................Page11

Turnoverin2009comparedto2008.........................................Page12

Workunderwayinnext18months...........................................Page12

Predictedfutureconstructionprojects......................................Page13

Qualitativeresults:

Opinionsofdevelopers.............................................................Page17

Opinionsofprofessionalservicesarchitects

andsurveyors........................................................................... Page18

Opinionsofbuildingcontractorsandsuppliers

ofbuildingmaterials.................................................................Page20

7. Summaryandconclusions...................................................................... Page22

8. APPENDIX1:DynamicsoftheConstructionIndustry..............................Page23

9. APPENDIX2:Acknowledgmentsandfurtherinformation......................Page27


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3

1. Introduction

1.1 ThisreportpresentstheresultsofanassessmentofdemandforConstructionIndustry

resources.The

survey

was

conducted

by

the

Commerce

and

Employment

Department

inJanuary,2009.ItprovidesasnapshotofthecurrentstateoftheIndustryobtained

throughaseriesofinterviewswithkeyplayersintheindustry.

1.2 Thereportonthesurveyisdividedintoanumberofsectionscomprising:

Therationaleforthesurvey; AnoverviewofthelocalConstructionIndustryandhowitoperates; Quantitativeandqualitativeresultsofthesurvey.

1.3

Thereport

has

been

endorsed

by

the

industry

representatives

of

the

Construction

SectorGroupasgivingareasonablequalitativeassessmentofcurrent

circumstancesintheconstructionsector.Withthecurrenteconomicuncertaintiesit

isnotpossibletogetamorequantitativeassessmentforanythingmorethanthe

next6monthsorso.

1.4 However,itisrecognisedthatthereportpresentsonesnapshotintimeandtherefore

thereportwillbefurthervalidatedthroughcontinuedliaisonwiththeIndustry

throughboththeConstructionIndustryForumandtheConstructionSectorGroup.


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2. ExecutiveSummarymainpointsarisingfromsurvey

TheConstructionIndustrygeneratedincomeof131.4min2007andemploysover3,000people.ItisGuernseysfourthlargesteconomicsector,andanimportant

opportunityforselfemploymentformanyislanders

AvibrantandsuccessfulindigenousConstructionIndustryisanessentialingredientofaprosperouseconomy.

Thenatureoftheindustryissuchthatlongtermpredicationsonfutureactivityarenotgenerallyknown,butmanykeyplayersintheindustryareexpressingcautionand

planningfordifficulttradingconditions.

Therehasbeenareductioninthenumberandprojectvalueoflargescalecommercialprojectsasignthatthedifficulteconomicconditionsbeingexperiencedworldwide

maybestartingtobefeltwithinthelocalConstructionIndustry.

Proposalsforresidentialbuildingprojectsseemtobeholdingupwell,butanobviousconcernexistsiftheseprojectsarenottranslatedintobuildingprojects.

Asaconsequenceofthereductioninlargescalecommercialprojects,thereisnowmorecompetitionamongstbuildingcontractorsformediumtolargescaleresidential

projects.

Subcontractorsandsmallgeneralbuildersarelikelytobeaffectedworsebyanycontractionoftheindustry,asmediumtolargecontractorsseekworkinthemedium

buildresidentialarea.

Thecostofmaterials,labourandbusinessoverheadsremainlargelyfixed,andinsomecasesarestillrising.

Thereissignificantlylessconfidenceofcurrentworkloadsbeingmaintainedinthe12to

18

month

period.

This

view

is

particularly

true

amongst

building

contractors,

who

arenotseeingthesamelevelofcommercialcontractsthatexisted12monthsago.


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3. TheneedforanassessmentofdemandforConstructionIndustry

resourcestheCapitalPrioritisationDebate

3.1

Atits

meeting

in

March

2008,

the

States

debated

the

Government

Business

Plan,

and

agreedinteralia:

toapprovetheintendedrestructuringoftheGovernmentBusinessPlantoenablea

fivephaseprocessforcorporateplanningandresourceprioritization

3.2 TheCapitalPrioritisationdebateisscheduledtotakeplaceinMarch2009,atwhich

theprioritiesforStatescapitalspendingwillbedebated.

3.3 TheCommerceandEmploymentDepartmentandtheConstructionSectorGroup

(CSG)1

,considered

that

the

Capital

Prioritisation

debate

will

need

to

be

debated

in

thecontextofabiggerpicturewhichincludestheneedsoftheeconomyasawhole.

WhilsttheStateshaslimitedfunds,itwasfeltthatthecurrentdifficulteconomic

conditionsmayresultinareductioninthenumberofprivatesectorconstruction

projectscausinganoveralldropindemandforConstructionIndustryresources.This

mayaffectthelongtermsustainabilityoftheConstructionIndustry.

3.4 TheConstructingtheFutureReport(BoardofIndustry,April2002),arguedthata

vibrantandsuccessfulindigenousConstructionIndustryisanessentialingredientofa

prosperouseconomyandmakespossible:

theprovisionofschools,clinics,hospitals,houses,roadsandsewers; aninfrastructureforthegrowthanddevelopmentofsocietyandencourages

investmentinitsfuture;

highqualitybuildingsrequiredbythefinanceindustry; thedevelopmentofothersectorssuchasebusiness,retailingandtourismby

providingthespecialistbuildingstheyrequire.

3.5 ThelossofasubstantialpartofthelocalConstructionIndustrycouldbedamagingtotheeconomyinthelongterm,especiallywhenthecurrenteconomicconditions

improveand

there

is

increased

demand

for

Construction

Industry

resources.

3.6 Manyinterviewedintheprocessofthecurrent(2009)surveyfeltthatasakeyclientoftheindustry,theStatesofGuernseyhadakeyroletoplayinensuringthelong

termviabilityoftheindustry,byensuringthatanumberofcapitalprojectsoccurred

duringthecurrentdifficulteconomicclimate.ItwashopedthattheCapital

Prioritisationprocesswouldbebeneficialinthisregard,andenabletheindustryto

betterplanitsworkload

1TheCSGisagroupcontainingpoliticalrepresentativesfromCommerceandEmployment,andTreasuryand

ResourcesaswellasrepresentativesfromtheConstructionIndustry.


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4. Surveyaimsandmethodologyused

Surveyaims

4.1 TheaimofthesurveywastoprovideanassessmentofthedemandforConstruction

IndustryresourceswithintheIslandoverthenext12to18months.Inparticular,the

surveyaskedinformationon:

Currentworkloadsbeingexperiencedbytheindustry Indicationsoffutureworkloadsoverthenext12to18months Indicationsoffuturelabourrequirementsoverthenext12to18months Basicdetailsofconstructionprojectseitherunderwayorintheplanningprocess

overthenext18months.

4.2 Anopportunitywasalsotaken,bytalkingtokeyplayersintheindustry,togainan

understandingofhowtheyfelttheindustrywasfaring,andinparticularanyconcerns

thatwereemergingwhichmightaffectthefutureviabilityoftheindustryonthe

Island.

4.3 Theoverallpurposeofthesurveywastogain,throughaseriesofinformaland

confidentialinterviewswithkeyplayersintheindustryafeelforthecurrent

vibrancyoftheindustry.Whatdidbusinessesfeelthefuturelookedlike?Didthey

haveconcerns,andwhatdifficultieswerefacingtheindustryintheimmediate

future?The

project

brief

did

not

include

adetailed

analysis

of

the

use

of

labour

(and

particularlytheuseofimportedoroffislandlabour).

Surveymethodology

4.4 Forthepurposesofthisstudy,itwasconsideredthataseriesofshortinterviewswith

keyplayersintheindustrywouldbethebestwayoffindingouthowtheindustrywas

currentlyfaring.

4.5

A

series

of

interviews

with

key

players

in

the

industry

was

held

over

the

course

of

two

weeks.Theseinterviewswerelargelyqualitativeinnature,althoughsome

quantitativedatawascollected(forinstanceontheworkunderwayatpresent

comparedtooneyearpreviouslyandalsopredictionsoffutureactivityupto18

monthsintothefuture).

4.6 ThetotalturnoverofthoseBuildingContractorswhowereinterviewedduringthesurveyamountedto85m,asignificantproportionoftheestimatedfactorincomeof

theindustryofaround131m(seeTable1onpage9).Thereforetheresultsfromthe

surveycanbeseenasbeingrepresentativeoftheIndustryasawhole.


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4.7 Detailsofmajorconstructionprojects(withavalueofover200,000)werealsocollectedinordertogainanunderstandingofthevolumeofconstructionactivity,and

thetypeofprojectsthatwereunderway.Thesetypesofprojectsaccountfora

significantportion

of

Construction

Sector

activity,

and

act

as

abarometer

for

the

industryasawhole

4.8 Detailsofprojectsofavalueunder200,000werenotcollectedduringthissurvey,becauseanyattempttocollectinformationoneverytypeofdomesticconstruction

activityfromconservatoriestoroutinemaintenancewouldhavebeenunrealistic

giventhetimeframeandtheresourcesavailablefortheproject.However,usingdata

collectedinthe2005/6GuernseyHouseholdExpenditureSurvey,itisestimatedthat

householdspendingonmajorhouseholdimprovementsandrepairsandmaintenance

wasapproximately85m.

4.9 Thesignificanceofthedatacollectedonmajorprojectsover200,000invalueis,howeverlimited.Withoutapriorsurveyitisnotpossibletobenchmarkthedatato

ascertainwhetherthedemandforresourceshasincreasedordecreased.Thedata

hasbeencollectedatthisstageinanticipationoffuturesurveys,whichwouldenable

comparisonstobemade,andfortrendsinthedemandforConstructionIndustry

resourcestobemoreaccuratelymeasured.

4.10 Inassessingwhatdatasourceswereavailableforthesurvey,astudyofapplications

totheEnvironmentDepartmentwasconsidered,andinparticularanassessmentof

thePermitTrackersystemwasundertaken.Itwasconsideredthatthiswouldgive

someusefulinformationonconstructionprojectsunderwayontheIsland.Whilstitisanticipatedthatthesystemcouldprovideusefulstatisticsinthefuture,furtherwork

wasbeingundertakenbytheEnvironmentDepartmenttoenablethatdatatobe

moreaccessible.Forthissurvey,dataonmajorconstructionprojectshasbeen

obtaineddirectlyfromkeyplayersintheindustry.


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5 OverviewoftheConstructionIndustry

Sizeof

the

industry

income

earned,

numbers

employed,

size

of

businesses

5.1 TheConstructionIndustryisasignificantpartofthelocaleconomy,rankingfourthoutofeighteeneconomicsectors,bothintermsofincomeearnedandnumbers

employed.

IncomeearnedbytheConstructionIndustry

5.2 In2007,theConstructionIndustrygeneratedincome2of131.4million.Itisthe

fourthlargest

economic

sector,

accounting

for

8.8%

income

in

the

Island

(see

Table

1).Table1:Factorincomesoftopfiveeconomicsectorsat2007values

Economic

Sector

2003

2004

2005

2006

2007

%ofwhole

economy

(2007

figures)

1 Finance 460,510 466,834 491,814 519,281 527,537 35.2

2 PublicAdmin 97,572 100,985 104,795 166,403 181,162 12.1

3

Business

Services 119,646 141,809 143,187 150,181 168,200

11.2

4 Construction 129,321 131,411 127,201 125,612 131,430 8.8

5 Retail 118,376 122,366 120,626 124,853 118,022 7.9

Whole

Economy

1,398,927 1,433,708 1,424,534 1,464,689 1,497,600 100.0

Source:GuernseyFactsandFigures2008,PolicyCouncil

Numbersemployed

5.3

Interms

of

employment,

as

at

September,

2008,

there

were

3,068

persons

employed

intheindustry,ofwhich2,223wereemployeesand845wereselfemployed(see

Table2).Thisrepresents9.3%oftheIslandslabourforce,

2 Income comprises of wages paid to employees (remuneration) and income earned in the form of net assessable

profits by businesses and the self employed. Together these are known as Factor Incomes.


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Table2:Employmentnumbersoftopfiveeconomicsectors(September,2008)EconomicSector Employees Selfemployed Total %ofworkforce

1 Finance 7,857 231 8,088 24.5

2 PublicAdmin 5,256 23 5,279 16.0

3 Retail 3,391 353 3,744 11.4

4 Construction 2,223 845 3,068 9.3

5 Hostelry 2,150 154 2,304 7.0

WholeEconomy 29,839 3,136 32,975 100.0

Source:GuernseyLabourMarketBulletin,September2008:PolicyCouncil

5.4 ItisofnotethattheConstructionIndustryhasovertwiceasmanyselfemployed

persons(845)asanyothersector.Thenextlargestsectorintermsofthenumberof

selfemployed

persons

is

the

Retail

sector

at

353.

The

Construction

Industry

therefore

providesimportantopportunitieswithintheeconomyforpersonstoruntheirown

business.

5.5 Intermsofemploymentbygender,theindustryispredominantlymale,with2,949of

theworkforceof3,068beingofthisgender.

SizeofbusinessesintheConstructionIndustry

5.6 Ofthe2,354businessesintheIsland,403,or17.1%werebasedintheConstruction

Industry(Table

3),

the

highest

number

of

all

18

economic

sectors.

However,

most

businesseswithintheindustryaresmallinscale,thatisemployingonly1to5

persons.Therewere290businessesinthiscategory72%ofallbusinessesinthe

ConstructionIndustry.Only6businessesemployedmorethan51people.

5.7 Thereforetheprofileoftheindustryisonethatisdominatedbysmalltomedium

sizedbusinesses,withafewlargerplayers.

Table3:Sizeoforganisationbyeconomicsector(top5)asatSeptember,2008

Numberofpersonsemployedbyorganisation

EconomicSector 15 625 2650 51+ Total %ofTotal

1 Construction 290 97 10 6 403 17.1

2 Finance 144 127 34 47 352 15.0

3 Retail 201 94 18 10 323 13.7

4 BusinessServices 128 58 7 8 201 8.5

5 PersonalServices 165 28 2 2 197 8.4

WholeEconomy 1,438 672 126 118 2,354 100.0

Source:GuernseyLabourMarketBulletin,September2008:PolicyCouncil


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MakeupoftheGuernseyConstructionIndustry

5.8 GuernseysConstructionIndustrycanbedividedintothreetiers:

1stTierLargeConstructionCompanies(generallyemployingover50permanentstaffandabletobidforcontractsover2minvalue)

2ndTierSmalltoMediumsizedcontractors(generallyemploying10to50permanentstaffandbiddingforcontractsupto2m)

3rdTierSmallgeneralbuildersandspecialistcontractors(subcontractors)(generallyemployinglessthan10staff)

5.9

The

contractors

form

the

core

of

the

industry,

but

allied

to

this

is

the

provision

of

specialistprofessionalservicesfortheindustryincluding:

Architects(Charteredandarchitecturaltechnologists) Quantitysurveyors Buildingsurveyors Engineeringservices

5.10 Theindustryalsohasanumberofmaterialsupplierswhoprovidebuildingmaterials

andspecialistfittingsincludinginteralia:

Concrete,sand,cement Plasterboard Timber Electricalfittings Plumbingandheatingfittings


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6 Surveyresults

Reportingofsurveyresults

6.1 Thereportingoftheresultsfromthesurveyisdividedintotwosections:

Quantitativedataanswerstospecificquestionsaskedofallsurveyparticipants. Qualitativedatageneralopinionsandexpressionsofpointsofviewgained

throughinterviewingbusinesses.

Quantitativedata

Workunderwaycomparedtooneyearago

6.2 Businessestakingpartinthesurveywereaskedhowtheircurrentworkload

comparedtothistimelastyear(thatis2009comparedto2008).Fortheindustryasa

whole,59.1%ofbusinessesfeltthattheworkloadwasaboutthesameas2008,and

27.3%reportedthattheirworkloadwasover5%higherthaninJanuary2008(Table

4).

6.3 However,13.6%reportedthattheirworkloadhadfallencomparedtothistimelast

year,with

9.1%

reporting

that

work

had

fallen

by

over

5%.

Table4:Currentworkloadcomparedtooneyearago

IndustryTotal

Upover5% 27.3%

Up0to5% 0.0%

Aboutthesameasnow 59.1%

Down0to5% 4.5%

Downover5% 9.1%

Total 100.0%

6.4 ItshouldbenotedthatTable4reflectstheviewsoftheindustryasawhole,includingthoseofdevelopers,architectsandsurveyorsaswellasbuildingcontractors.The

feedbackfrombuildingcontractorswasmorepessimisticthantheindustryasawhole

(seeparagraphs6.39to6.48forqualitativeresponses),with71.4%reportingthat

theirworkloadwasthesameaslastyear,14.3%reportedithadfallenand14.3%

reportedthatithadrisen.Ofthosewhoreportedanincreaseintheirworkload,one

contractorreported

that

their

current

workload

would

be

considerably

lower,

were

it

notforthepresenceofonelargeproject.


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Turnoverin2009comparedto2008

6.5 Businesseswereaskedwhattheyfelttheirbusinessturnoverwouldbein2009comparedto2008.45.5%feltthattheirturnoverwouldbethesameas2008,whist31.8%feltthattheirturnoverwouldincreasein2009(Table5).

6.6 However,22.7%ofbusinessesfeltthattheirturnoverwouldbelowerin2009,with13.6%indicatingthattheirturnoverwouldbeover5%lower.Contrastingthiswith

thefiguresinTable4indicatesthatwhilstsomebusinessesfeltthattheirworkloads

wouldbesimilarin2009to2008,theywouldbegeneratinglessturnoverfromthis

workload,andwouldthereforebeinvolvedinsmallerscaleprojects.

Table

5:

Turnover

in

2009

compared

to

January

2008

IndustryTotal

Upover5% 18.2%

Up0to5% 13.6%

Aboutthesameasnow 45.5%

Down0to5% 9.1%

Downover5% 13.6%

Total

100.0%

Workunderwayinnext18months

6.7 Businesseswereaskedtoestimatewhattheyconsideredtheirfutureworkloads

wouldbeinthenext:

1to3months 3to6months 6to12months,and 12to18months

6.8 Figure1showsthatconfidenceofmaintainingthecurrentworkloadfallsawayastimeprogresses,sothatthereissignificantlylessconfidenceinthe12to18month

period.Whenconsideringtheseresults,itshouldbeunderstoodthatthenatureof

theConstructionIndustryissuchthatlongtermpredictionsoffutureactivityarehard

tomake,especiallyforbuildingcontractorswhotendtoworktoshortertimeframes

thandodevelopersorarchitects.Nevertheless,itisapparentfromthereported

resultsinFigure1thatthereisincreasinglylessconfidencefurtherintothefuture,

particularlybeyond12months.Thereasonsforthisfallinconfidenceareexaminedin

moredetail

elsewhere

within

this

report

when

the

qualitative

responses

are

analysed

(seesection6.16onwardsonpage17).


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Figure1:Predictedchangesinworkload allindustrysectorincludingprofessional

services

Predicted changes in workload - All Industry sectors

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1to 3 3 to 6 6 to 12 12 to 18

Months into the future

%ofindustry

Up over 5%

Up 0 to 5%

About the same as now

Down 0 to 5%

Down over 5%

Predictedfutureconstructionprojects

6.9 Duringthesurveybusinesseswereaskedtoprovidedetailsoflargeconstruction

projects(withavalueofover200,000)inwhichtheywereeither:

Currentlyinvolved;or Likelytobeinvolvedwithinthenext12to18months.

Adescription

and

basic

details

of

each

project

were

obtained

in

order

to

avoid

double

countingofprojects.

6.10 Thereareanumberofimportantpointsthatshouldbeconsideredwhenlookingat

thisdata.Thedatahasbeenincludedinthisreporttoillustrateanumberof

importantpointsinordertoplacethequalitativeinformationpresentedelsewherein

thisreportintocontext.Itisextremelyimportantthatthefollowingpointsshouldbe

borneinmindwhenlookingatthisdata.

Thefirstpointisthatastheseareanticipatedbuildingprojects,itisextremelyunlikely

that

all

of

these

projects

will

mature

into

live

building

projects

(especiallygivencurrenteconomicconditions).


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Anotherpointtobearinmindisthatbecauseasurveyofthewholeindustrywasnotconducted,notallprojectswillbelisted,andnotthoseofavalueless

than200,000

(see

paragraph

4.8).

Nevertheless,

it

is

likely

to

cover

the

majorityofmajorbuildingprojects,andisindicativeofthetypesofprojects

beingbuilt.

Athirdpointtonoteisthatthevolumeofconstructionprojectsdropsawayovertime.ThisisanormalfacetoftheConstructionIndustry,because

knowledgeofwhichprojectswillbeconstructedislesscertainwhenlooking

furtherintothefuture.Astimeprogressesanditbecomesmorecertainthata

projectisgoingaheadintotheconstructionphase,thepeakofprojectsshown

asoccurringin2009islikelytomovetotherightastimeprogresses.Inother

words,

the

next

6

to

12

months

will

always

indicate

more

projects

underway

thanwillbeapparentin12to18monthstime.

Thereiscurrentlynocomparativedataavailable,soitisnotpossibletoplacethesefiguresintocontext.Itisnotknownwhetherthenumberofanticipated

projectsisnormalfortheindustry,representsarise,orisshowinga

decreaseinactivity.Similarsurveystothisatregularintervalswouldneedto

becarriedouttobringthedataintocontext.Withjustonesamplepointin

time,thegraphsshouldthereforeNOTbeusedasadefinitivegaugefor

futuredemandtrendsintheindustry.

6.11 Withtheseimportantcaveatsinmind,thegraphinFigure2showsthat:

Themajorityofbuildingprojectsareresidentialinnature;and Therearerelativelyfewcommercialprojects.


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Figure2:Numberofanticipatedbuildingprojects

Number of anticipated construction projects

0

10

20

30

40

50

60

70

80

90

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Month

Numberofprojects

Mixed Development

Commercial

Residential

6.12

Figure3shows

the

same

data

but

in

terms

of

the

value

of

the

construction

activity

takingplace.Thisshowsthatcommercialbuildingprojectstypicallyrepresenta

higherbuildvaluethandoresidentialprojects.Thisisbecausethemajorityof

residentialprojectsinvolvejustonedwelling,whereascommercialprojectstend

tobeofalargerscale.


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16

Figure3:Anticipatedvalueofbuildingprojects

Anticipated value of large (over 200k) construction projects

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Month

Valueofbuildingwork()

Mixed Development

Commercial

Residential

6.13 Thelargerprojectvaluesofcommercialprojectsisimportant,sincethehighervalue

of

these

projects

means

that

there

are

relatively

few

building

contractors

on

theIslandwhoareinapositiontobidforthesecontracts.Overthelastfewyears

thishasmeantthatithasbeenthelargercontractorsintheIslandwhohave

undertakenthistypeofwork,leavingtheresidentialbuildingprojectstothesmall

tomediumsizedbuildingcontractors.

6.14 Ifalltheseprojectstakeplace,thenbuildingactivityonlargescaleprojects(definedasthoseover200,000invalue)willrunatavalueofbetween7mand

8mamonthin2009andinto2010.

6.15

However,

there

are

a

number

of

factors

that

may

affect

this

anticipated

demand,

andtheseareexaminedinthesectionanalysingthequalitativefeedbackfrom

thosespokentoduringthesurvey.Itisimportanttoconsiderthatthesefactors

mayhaveanimportantinfluenceonwhethertheanticipatedprojectsshownin

Figures2and3actuallymaterialise. Thesequalitativefactorsareexaminedinthe

nextsection.


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17

Qualitativeresults

6.16 Asignificantpartofthesurveyprocesswastogainthroughaseriesofinformalinterviews,

the

opinions

of

key

players

in

the

industry,

how

they

felt

the

industry

was

faring,andwhatdifficulties(ifany)theyanticipatedinthecomingmonths.Interviews

wereheldwithanumberofdistinctindustryareas:

Developers ProfessionalservicesArchitectsandSurveyors BuildingContractorsandsuppliers

6.17 Thefollowingisananalysisoftheopinionsexpressedbythoseinterviewed.Opinions

of

Developers

6.18 Developersarethestartofthechaininthelifecycleofaconstructionproject.Theyprovidetheinitialimpetusforaproject,generateideas,andarrangethecapital

fundingfortheproject.

6.19 Developersmayrangeinsizeandscalefromlargescalebusinesseswithanextensivepropertyportfolio,toindividualswiththeabilitytofundasmallscaledevelopment.In

Guernseybothendsofthespectrumarerepresented.Anumberofbuilding

contractorsalsoactasdevelopersonanumberofsitesaroundtheIsland.

6.20 Projecttypesfordevelopersmayvaryfromlargescalecommercialpropertydevelopment(forexampletheAdmiralParksite)tothedevelopmentofindividual

residentialdwellings,tobiggerscalesocialhousingprojects.

6.21 Projectviabilityisanimportantconsiderationforadeveloper,andatpresentanumberofconcernsfacepotentialdevelopments.

6.22 Thedevelopersinterviewedinthesurveyallconsideredthatthereweredifficulttimesahead.Theviabilityofanumberofprojectswerebeingaffectedby:

Thecurrenteconomicclimate;and Theavailabilityoffinance.

Effectofthedifficulteconomicclimate

6.23 Thecurrentdifficulteconomicclimatehasmeantthatanumberofprojectsarebeingreassessedfortheirviability.Whilstnotnecessarilyresultinginthecurtailmentofthe

project,developersindicatedthatprojectsmayhavetochangeinnature(thatisthe

mixofcommercialtoresidential,andthetypeofcommercialactivity),orbedelayed,

untiltheeconomicconditionsimprove.


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18

6.24 Developmentsincertaincommercialareassuchasretailarelikelytobeputonhold,orreexamined.

6.25 ThereisaperceptionthatthereisstillademandforqualityhousingintheIsland,althoughtheavailabilityofsitesfordevelopmentisafactorpreventingsomedevelopersfromtakingforwardfurtherresidentialdevelopmentprojects.

Availabilityoffinance

6.26 Developersoflargescaleprojectsdidnotflagupthelackoffinanceasbeingaparticularproblemforlargescaledevelopments.Projectviabilitywasmorelikelyto

putaprojectonhold.

6.27

However,

it

was

apparent

that

sources

of

finance

were

hard

to

come

by,

and

that

if

secured,thentheinterestrateschargedwerelikelytobeconsiderablyovertheBank

ofEnglandbaserate.Thiswouldhaveabearingonprojectviability.

6.28 Theopinionwasalsoexpressedthatmortgagelenderswererestrictingtheirlendingtoeitherexistingcustomers,ortothosewithconsiderableequityintheirproperty

portfolio.Somebankshadclosedtheirmortgagebookscompletely.

6.29 ItwasfeltthatthecurrentdifficulteconomicconditionswashavinganeffectonbusinessesintheIsland,inthattheywerenowmoreriskaverseandlesslikelyto

considerinvestmentprojectsinthecurrenteconomicclimate.Smallercommercial

jobs(suchasofficerefurbishment)werebeingplacedonholdbysomecompanies.

6.30 Ontheothersideofthecoin,itwasreportedthatsomedevelopersandlandlordswithpropertyportfolioswereconsideringthattheymightbeabletogetkeenpricesfrom

buildersfordevelopmentandrefurbishmentwork.

OpinionsofProfessionalServicesarchitectsandsurveyors

6.31 Architectsandsurveyorsarethefirsttobeinvolvedindrawingupplansforprojects.Surveyorsmaybeinvolvedinfeasibilitystudiesandestablishingbudgetsforaproject.

6.32 Opinionsweremixedinthesector,withthosewhosecoreworkinvolvedresidentialprojectsfaringbetterthanthosewhoseusualworkarealayinthecommercialsector.

Residentialbuilds

6.33 Architectsindicatedthattheywerereceivinganincreaseddemandfortheirservicesfromtheresidentialsector.Therewereasignificantnumberofprojectsinvolvingthe

developmentof

residential

property

ranging

from

200,000

to

1m

in

value.

A


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19

numberofthesewereintheearlyplanningphase,althoughitwasanticipatedthat

theywouldgoaheadbythesummerof2009.

6.34 However,therewassomeuncertaintyandadegreeofcautionaboutthelongtermfutureoftheresidentialsector.Concernswereraisedabouttheavailabilityofcreditforindividualsandwhetherthiswouldhaveanimpactonthenumberofprojects

comingforwardinthefuture.

CommercialProjects

6.35 Areductioninthevolumeandprojectvalueofcommercialprojectswasreported.Thiswasparticularlynoticeableforlargescalecommercialprojects,andwasaffecting

architecturalpracticeswithmoreexposuretothecommercialsector.

Planningapprovals

6.36 Concernwasexpressedaboutthelengthoftimeittookforprojectstogainplanningapproval.Whilstitisnecessaryanddesirabletohaveplanningcontrolofdevelopment

ontheIsland,somearchitecturalpracticescommentedthatthesituationseemedto

haveworsenedwithinthelast18months,withsomereportingthatittookover13

monthstoprogressaresidentialprojectthroughtheplanningprocess.Forcommercial

projects,theprocesscouldtakeevenlonger.

6.37 Therewassignificantconcernthatthiswasresultinginthecurtailmentofanumberofprojects.Anumberofexampleswerecitedwhereprojectshadbeencancelledbyclientswhowerefrustratedwithlongplanningdelays.Oneprojectthathadbeen

cancelledinvolvedamultimillionpoundcommercialbuildingproject.

6.38 ItisnotwithinthescopeofthisreporttoexaminewhetheranyunnecessarydelaysinreceivingplanningpermissionarisefromprocesseswithintheEnvironment

Departmentorbecauseofanyshortcomingsintheapplicationssubmitted.Inrecent

discussionswiththeCommerceandEmploymentDepartment,however,the

EnvironmentMinisterconfirmedthathisDepartmentwasfullycommittedto

expeditingthedeterminationofallplanningapplicationsandparticularlyrecognised

thenecessity

to

do

so

on

business

related

applications

in

current

economic

circumstances.


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20

OpinionsofBuildingcontractorsandsuppliersofbuildingmaterials

6.39 Unlikearchitects,Buildingcontractorsonlymakemoneywhenabuildingprojectgetsthegoahead.Asignificantproportionofanarchitectsworkistodrawuptheplansforaproject,forwhichtheywillhavebeenremunerated,whethertheprojectgoes

aheadornot.

Schedulingofworkloads

6.40 Planningandschedulingofbuildingworkisakeyconcernforbuildingcontractors,particularlywherelargescaleprojectsareconcerned.Inanidealworldbuilderswill

looktomovefromonelargeprojecttoanother,sothatknowledgeoflargescale

projects

in

the

pipeline

is

beneficial

to

facilitate

planning.

CommercialProjects

6.41 Buildingcontractors,particularlylargeones,reportedareductioninthenumberoflargescalecommercialprojects. Itwasalsonotedthatanumberoflargecontracts

werecomingtoanendorhadendedduring2008.Thislackof commercialprojects

wascausingseriousconcernforanumberofcontractors.Itwasfeltthatonceworkon

existingprojectswascompleted,workloadwouldfall,andthatthesituationwould

becomeworsein6to12monthstime.

ResidentialProjects

6.42 Intheshorttomediumterm,buildersreportedthattherewereanumberofresidentialbuildingprojectsinthepipeline.Somepessimismwasexpressedastohow

longthissituationwouldcontinue,andallwereawareofthepotentialthreatsofan

economicrecessionandthecreditcrunch.

Tendersforbuildingprojects

6.43 Asaresultofthenumbersofcommercialprojectsdryingup,buildersreportedthatthere

was

now

more

competition

for

medium

to

large

scale

residential

building

projects.Thetenderingprocesswasnowmorecompetitivewithmorecontractors

involvedintheprocess.Itwasbecomingmoredifficulttowintenders,although

buildersreportedthattheywerewinningsufficienttenderstokeeptheirbusiness

goingatthemoment.

6.44 ThisprocesshadoccurredasaresultofthelargerbuildingcompaniesontheIslandtenderingforprojectsthattheywouldnothavetenderedfor12monthsago.Thisis

turnwasputtinggreaterpressureonthesmalltomediumsizedbuildingcontractor.


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21

6.45 Itwasfeltthatmanycontractorswerealreadyworkingtotightmargins,andthattherewasnotmuchscopetoreducetenderprices.Materialsandlabourcosts

remainedfixed,asdidthelargeoverheadsincurredbymediumtolargebuilding

contractors.

Labour

6.46 Buildingcontractorswerekeentoretaintheircorelocallabourforce,andsoincertaincaseswerenotmakingasmuchuseofsubcontractedlabourasinthepast.This

meansthatsubcontractorstraditionallyemployedbysomeofthelargerbuilding

contractorsmaybefindingitmoredifficulttofindwork.Thisisevidencedbythefact

thatanumberofbuildersmentionedanincreaseinenquiriesforjobsfromsub

contractors.

6.47 Inthemediumterm,buildingcontractorsdidnotindicatethattheyintendedtolayofftheirstaffinlargenumbers.However,thereisevidencethatthisprocessmayhave

beganinanumberofareas(theAFMannouncementofjobcutsisoneexample).

6.48 Withinthescopeofthissurvey,itwasnotpossibletointerviewasubstantialnumberofsubcontractors.However,itislikelythatitwillbethesmall/individualsub

contractorthatwillseelessworkinthecomingmonths.


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22

7 SummaryandConclusions

UncertaintimesfortheConstructionIndustry

7.1 Thequantitativeandqualitativeanalysisofthestudyindicatesthatthereareuncertaintimesaheadforthelocalindustry.Giventhecurrentdifficulteconomic

conditionsbeingexperiencedallovertheworld,thisisnotsurprising.

7.2 ThereareanumberofspecificconcernsraisedbytheindustrywhichwillhaveabearingonthefuturedemandforConstructionIndustryresourcesintheIsland.These

are:

ReductioninlargescalecommercialprojectsThesetypesofprojectshavedriedupinrecentmonthswithanumberoflarge

scaleprojectscomingtoanendin2009orhavingendedin2008.Thelarger

contractorsarekeentowinanylargescalepublicsectorprojects.

MorecompetitionformediumtolargescaleresidentialprojectsWiththenumberofresidentialprojectsholdingup,therewillbegreater

competitionforworkinthisarea,especiallyiflargercontractorsmoveintothis

area.Thiswillputpressureonsmallsizedbuilders,andinparticularsub

contractors

EconomicconditionsThereductioninthenumberoflargescalecommercialprojectsisonesignthat

thedifficulteconomicconditionsbeingexperiencedworldwidearestartingtobe

feltwithinthelocalConstructionIndustry.Proposalsforresidentialbuilding

projectsseemtobeholdingupwell,butanobviousconcernexistsifthese

projectsarenottranslatedintobuildingprojects.Therearesignificantconcerns

amongsttheindustry thatalackofavailablecreditfacilitateswillleadtothe

curtailmentof

anumber

of

projects,

and

that

this

effect

will

only

become

apparentoverthenext6monthsorso.


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23

APPENDIX1:DynamicsoftheConstructionIndustry

8.1 InthecontextofasurveyassessingthelevelofdemandintheConstructionIndustry,

itis

useful

to

examine

the

dynamics

of

the

industry

on

the

Island,

and

how

labour

is

employed.

8.2 Themajorpooloflabourwithintheindustryiscontainedwithinthe3rdtierofsmallgeneralbuildersandspecialistcontractors(seeFigure4).Someoftheseareusedby

largerbuilderstosupplementtheircorelabourforce.Specialistlabourisoftenused

bysubcontractingcertainpartsofthebuildsuchasplastering,electricsorplumbers.

8.3 ThelargebuildersintheIslandtypicallyretainacoreworkforceofaround50to100staff,butbytheuseofsubcontractingcanconsiderablyexpandthesizeofthe

workforce

on

a

particular

building

project.

Note

that

within

the

scope

of

this

report,

a

detailedanalysisoftheuseofimportedlabourhasnotbeenundertaken.

Figure4:ConstructionIndustryPyramid

Large contractors

+50 staff

Projects over 2m

Small to mediumcontractors

Less than 50 staff

Projects under 2m

Small general builders

and specialist

tradesmen /

subcontractors

Less than 10 staff

Projects under 200k

Specialists andsub-contractors

provide labour

services

Foreign labour


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24

Typesofconstructionproject

8.4 Constructionactivitycanrangefromsimplehouseholdrepairsandmaintenanceright

upto

large

scale

multi

million

pound

construction

schemes.

Generally,

construction

activitymaybesubdividedinto:

Newbuildingshouses,offices; Majorconstructionprojectse.g.schools,hospitals,energyfromwasteplant,

airportterminal;

Infrastructureroads,communicationhighways,sewers; Repairandrefurbishmentsinteriorrenewalofbuildings,painting/decorating;

and

Civilmechanicalandelectricalengineeringcoastaldefences,waterpumpingstations,

rewiring

projects.

8.5 Forthepurposesofthissurvey,constructionactivityhasbeendividedinto:

Commercialprojects Offices,shops,hotels,restaurantsetc,withno

residentialelement.Theseprojectscaninclude

newbuilds,aswellasredesigns,renovations

andrefurbishments.

Mixed

development

projects

Projects

that

include

a

mix

of

commercial

(e.g.

offices)andresidentialaccommodation.

Residentialprojects Projectsrelatedtohousing,includinglargescale

multiunitschemes,aswellassingleresidence

renovationsandrebuilds.


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25

TypicalBuildingprojectcycle

DesignBidBuild

8.6 ThetraditionalroadmapforaconstructionprojectisshowninFigure5.ThisDesign

BidBuildprocesstypicallyusestheservicesofanarchitecttoprojectmanagethe

designandbuildprocess.Thebuildingcontractorusuallybecomesinvolvedwhenthe

projectisputoutfortender,anddependingonthescaleoftheprojectmaybe

employedthroughouttheprojectbuildlifecycle.Otherprofessionalservicessuchas

quantitysurveyorsmaybecomeinvolvedinprovidingbudgetsfortheprojectand

establishingthefeasibilityofcertainschemes.

8.7 Inthisprocess,thereislessrisktransferredtothebuildingcontractor,whose

responsibility

lies

in

building

the

project

to

the

specifications

of

the

tender.

The

major

riskwiththisprocessthuslieswiththeowneroftheprojectorprojectclient.

DesignandBuild

8.8 DesignandBuildiswherethedesignandconstructionaspectsofaprojectare

contractedforwithasingleentityknownasthedesignbuilderordesignbuild

contractor.Thedesignbuilderisusuallythebuildingcontractor,employingthe

servicesofaprofessionalsuchasanarchitectorengineer.Inthissystem,thereis

moreriskforthebuildingcontractor.


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26

Figure5:

SimplifiedDesignBidBuildconstructionprojectprocess

Pre-projectIdeas, concepts,

feasibility, viabilty

Planning and

design

Project budgets

established

Archietct appointedPlans developed and

approved

Contractor

selection

Tender documentation

Bids submitted

Preferred contractor

selected

Projectmobilisation

Contractor schedules

work, approaches sub

contractors

Site preparation

Project constructionBuilding contractor starts

on site

Project closeoutCompletion andhandover

Follow up / snagging

PROJECT PHASE

Clients = Developers,

Entrepreneurs

Businesses, Households

States of Guernsey

Architect,

Quantity Surveyor,Client

Architect,

Builder, Client

Builder, Client

Architect,

Sub-contractors,

Quantity Surveyor

Builder, Client

Architect,

Sub-contractos,

Suppliers

Architect,

Builder, Client


27/27

APPENDIX2:Acknowledgmentsandfurtherinformation

9.1 Gratefulthanksisextendedtoallthosewhoparticipatedinthesurvey.Thelistofthosewhotookparthasnotbeenpublishedinordertoretainconfidentiality.9.2 Furtherinformationaboutthesurveymaybeobtainedbycontacting:

GarethJones

SeniorPolicyOfficer

CommerceandEmploymentDepartment

POBox459,LongueRue

StMartin

Guernsey

GY16AF

Telephone213028

Email:[email protected]

Documents

Construction Industry Demand Assesment