Health sector hit by crash in construction pipeline

High tender prices and Government spending uncertainty blamed for rise in number of construction projects being shelved

The KPMG report shows that more than a quarter of projects have disappeared from the pipeline since December 2014

More needs to be done to protect the UK construction pipeline, experts are warning, amid evidence that the number of projects being shelved due to increased tender prices and Government spending cuts is increasing rapidly.

I don’t expect we will see anything like the scale of cutback in capital programmes that the industry experienced in 2010, after the last election, but there is clearly cause for nervousness about the potential squeeze in spending

Analysis by KPMG shows that more than a quarter of projects have disappeared from the pipeline since December 2014, sending ‘ripples of uncertainty’ through the industry.

Its report - UK Government Construction Pipeline: KPMG Analysis - indicates that there has been a total decrease of 886 - 28% - in construction and infrastructure projects since the previous pipeline analysis in December 2014, dropping from 3,148 to 2,262 by August 2015.

The pipeline is a detailed list of Government-led current and planned construction and infrastructure activity. It comprises central government construction data and other public-sector national and regional data collated by Whitehall. It is designed to provide contractors, suppliers and investors with a long-term view of planned projects and programmes from 2015 to 2020 and beyond.

I hope the Government will recognise that what this industry most needs is long-term certainty and stability in demand, to provide it with the confidence to invest in technology and its workforce

The August 2015 pipeline reflects projects and programmes with committed funding. The total allocated value is £119billion categorised into three spend periods – 2015-2017, 2017-2020, and beyond 2020.

Most of the reported decrease in project starts relates to the defence and justice and police sectors, but healthcare spend is also being affected.

The report states that the value of healthcare construction projects for the health market in England is £4.8billion to 2020 and beyond. This is made up of 116 projects, but none have a specified start date. These include 12 large NHS-led capital estate programme, totalling £2.5billion; and 104 small works procured via the Procure21+ framework, worth a further £2.2billion.

The majority of the projects are in the South of England, including a £384m investment at Brighton and Sussex University NHS Trust. A further £1.5billion is earmarked for the North of England, including projects at North Tees & Hartlepool NHS Foundation Trust and the Liverpool and Broadgreen University Hospitals NHS Trust; and £1billion is being spent in the Midlands and East region, including the new Papworth Hospital development.

Our growing economy is creating a welcome uplift in private sector demand, but the Government should not use that as an excuse to cut back its own investments, create another hiatus, and send ripples of uncertainty through the industry

Elsewhere in the UK, Scotland shows a pipeline of 55 projects worth £1.4billion; Wales has 62 smaller projects worth a total of £0.5billion; and Northern Ireland has a pipeline of seven projects worth £15m. However, all three countries produce their own separate infrastructure plans, the content of which can be excluded from these figures.

Commenting on the findings, Richard Threlfall, KPMG’s UK head of infrastructure for building and construction, said: “It is clear that more needs to be done to improve the consistency and accuracy of the Government’s construction pipeline.

“A stable pipeline would give the construction industry good visibility of future demand and the ability to plan and invest for that demand. It would lead to efficiencies for the Government and for the taxpayer.

“Instead we have a pipeline whose data is so incomplete and which fluctuates so wildly and erratically that the industry can place no detailed reliance on it.”

And he said the construction industry will be eagerly awaiting the Chancellor’s Spending Review, expected on November 25.

Threlfall said: “I hope that we will get a clearer picture when the review is published. But, in the meantime, the huge 28% drop in the number of projects included suggests some Government departments are putting projects on hold in the expectation that they get culled.

“I don’t expect we will see anything like the scale of cutback in capital programmes that the industry experienced in 2010, after the last election, but there is clearly cause for nervousness about the potential squeeze in spending.

A stable pipeline would give the construction industry good visibility of future demand and the ability to plan and invest for that demand. It would lead to efficiencies for the Government and for the taxpayer

“I hope the Government will recognise that what this industry most needs is long-term certainty and stability in demand, to provide it with the confidence to invest in technology and its workforce.

“Our growing economy is creating a welcome uplift in private sector demand, but the Government should not use that as an excuse to cut back its own investments, create another hiatus, and send ripples of uncertainty through the industry.”

A second report, compiled by construction analysts, Barbour ABI, for Building magazine said the downturn in construction activity, and the growing number of projects being put on hold, was partly down to an increase in tender prices, which are thought to have risen by 15-20% in the past year alone.

It states that the value of projects being put on hold has increased by a staggering 30% in the last 12 months from September 2014 to August 2015 – worth around £12billion to the sector. This is despite the growth the construction industry has experienced over the last two years.

Contractors and clients need to engage openly and honestly about these current market dynamics to avoid this becoming a major problem for the recovering construction economy

Joey Gardiner, deputy editor of Building magazine, said of the research: “Many construction clients, particularly those in the public sector, have been put in a huge dilemma with tender prices coming back from contractors that are far higher than they’ve budgeted for. The result is that many projects are being put on hold or taking months and months to agree a price with what are suddenly risk-averse builders.

“Contractors and clients need to engage openly and honestly about these current market dynamics to avoid this becoming a major problem for the recovering construction economy.”

Papworth Hospital is one of the developments still showing on the pipeline

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