Construction performance improves despite squeeze

Construction firms’ profitability has fallen to its lowest level since 2000, the 2011 UK Industry Performance Report has found.

The research, by Constructing Excellence and research company Glenigan, for the Department for Business Innovation and Skills and the Office for National Statistics, found profits fell from 7.7 per cent in 2009 to 5 per cent last year.

But it said construction firms were managing to satisfy clients while becoming more environmentally friendly in the face of falling workloads and staff numbers.

Against harsh market conditions, companies have managed to increase predictability in the cost of construction by 12 percentage points to 59 per cent in 2010, the best performance in a decade.

Meanwhile, firms have achieved 80 per cent overall client satisfaction, albeit it more so on smaller projects than larger ones.

Projects came in on or before deadline 45 per cent of the time.

There was also strong improvement on environmental measures, with substantial improvements recorded in onsite water usage, vehicle movements and construction and more projects taking whole-life performance into account, the research found.

The results were based on data from thousands of construction projects completed in 2010.

Willmott Dixon Re-Thinking senior sustainability consultant Richard James, who was set to speak at the launch of the research today, said: “We have had a couple of large tenders come in which have particularly referenced the Constructing Excellence KPIs and as a company we can respond to these.”

Willmott Dixon, which asked for additional waste indicators to be added to the KPI process, saved £2.3m in waste disposal and associated costs last year.

“We are trying to strengthen the link between environmental and financial performance,” said Mr James.

“We are able to show quite significant savings through our transport emissions; waste in particular can show financial savings through our improved performance, which we are confident results in us winning more work.

“If we are able to demonstrate that and if we are able to reflect that in the value of a project we are giving to clients, it will benefit us in the long run.”

Interserve group finance director Tim Haywood said the company has a long-standing structured programme, Renewables, which helps ensure it delivers projects sustainably both during construction and in operation.

“We’re finding that this is playing well with clients and sometimes gives us the edge in winning contracts,” said Mr Haywood.

“With continuing pressures on volume and profitability, companies are seeking to differentiate themselves by enhancing client service, with an increasing focus on non-financial factors such as health and safety and sustainability.”

Mansell, which has used the construction industry KPIs as a template to shape its own internal model, said it finds that clients often ask for results during the tendering process.

Assurance adviser Sean Manison said using KPIs show the company is out there trying to find out what the client wants - and delivering on time and to budget with due regard to safety and environment.

“Although we are performing well in these areas, it is always about improving. With the KPIs the evidence is clear, it is visual and it is making people want to do something about it.”

He added that training may be a particular area of focus for the industry as companies come out of recession and may need to make up for lost expertise.

Morgan Sindall executive chairman John Morgan said less construction activity meant clients’ expectations could become more onerous and that completing work on time should be expected.

He predicted margins would continue to fall. “I think the people who are winning work are the people who are able to satisfy clients and the work won at relatively low prices will mean lower profits next year. We will try to mitigate it by being better than the competition.”

 

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