Bank
Loses Its Confidence With Project 95% Complete
It is a sign of how little confidence some lenders have in smaller contractors.
A bank recently forced a medium-sized general contractor to terminate
its work on a new building at Western Kentucky University’s Bowling
Green campus even though the project was 95% complete and proceeding on
schedule. Planter’s Bank of Hopkinsville, Ky., used a $419,000 deposit
by Star Construction to pay off most
of that contractor’s $500,000 revolving line of credit.
Bank officials could not be reached for comment, but Star’s financial
statement showed a loss. The bank 'obviously felt its loan was in jeopardy,'
says Tracey Durham, the contractor’s bookkeeper, who adds that Star
has been trying to convince the bank to release funds so it can pay subcontractors.
Madisonville, Ky.-based Star had a $14.6-million contract for a media
and technology centre at the university that included a number of change
orders. Formed in 1984, the contractor now employs 16 people and had $10
million in revenue last year. It has built jails, post offices and hospitals.
Acuity, a Sheboygan, Wis., surety bond firm on some Star projects, gives
the contractor a vote of confidence. Greg Olsen, Acuity director of surety
claims, says Star has a good reputation and has not experienced problems
on any jobs for which the surety firm provided bonds. 'The work on this
particular project has been done extremely well,' he says.
Rising bank foreclosures against contractors are a symptom of the tighter
economy, Olsen notes. 'Unfortunately, this is becoming a more common occurrence
in these days. In the go-go 90s, this didn’t happen because the next
project was always there,' he says.
Although Star lost the project and is now suffering financially, the company’s
owners are continuing to search for work and are bidding 'to keep the
doors open,' says Durham. 'This is the hardest thing. We’ve never
defaulted on a note. We’re going to make it through this. It’s
in the Lord’s hands now.'
Acuity has hired Merit Construction, a larger contractor based in Knoxville,
Tenn., to finish the state-financed job. A punch-list of finish work will
be completed by late July.
A state official involved in the project says delays have been minimal.
By Jonathan Barnes (Photo courtesy of Sheryl Hagan-Booth/WKU)
Private Sector puts Brakes on Construction Growth
Private
sector growth is forecast to fall sharply over the next three years according
to the Construction Products Association's latest Construction Industry
Forecasts, with output in 2003 forecast to grow by just 1.9%, dropping
to 1% in 2004, with a slight rise in 2005 to 1.1%.
Commenting on the figures, Michael Ankers, the Association's Chief Executive,
said: 'Last year saw buoyant private sector activity which, combined
with increased Government investment, generated an 8% increase, the largest
annual increase since 1988. However, weaker private sector activity
is now forecast to cut back overall industry growth over the next three
years. A cooling in the general housing market and slower house
price inflation is set to pull back private housing starts from 167,000
this year to 155,000 in 2005, and slow the growth in home improvement
works.
'Private commercial output is also forecast to slow over the next two
years. Falling uptake and increased availability in the key office
markets, following retrenchment in the media and financial services sectors,
has depressed the flow of new orders for office projects.As a result,
office construction activity is forecast to turn down sharply as existing
projects are completed, with some schemes awaiting tenants before proceeding
to fit-out. Furthermore, weaker consumer spending growth is forecast
to dampen retail and leisure construction activity, causing commercial
activity to fall by 6.5% in 2003, and 4.0% in 2004.
'Our Forecasts show that the construction industry will be very much dependent
upon the Government's investment plans for its growth over the next three
years, with public sector growth (including PFI) forecast to increase
by 6.3% this year, slowing to 5.7% in 2004 and 4.3% in 2005. However,
Government has failed to meet its own targets over the last two years,
and the recent decision to allow schools to use their capital funding
to meet shortfalls in their revenue budgets, has set a worrying precedent
that has dented industry confidence in Government's commitment to deliver.'
New
Ministerial Team at the Department of Trade and Industry
Trade
and Industry Secretary Patricia Hewitt recently announced the responsibilities
of the new Ministerial team at the DTI.
She said: 'This is a very strong team to drive our agenda of achieving
prosperity for all by creating the best environment for business success.
'I am delighted to welcome Jacqui Smith, Mike O'Brien and Gerry Sutcliffe
to the DTI. They bring a wealth of experience and skills to the team.
'I would also like to pay tribute to the work of Brian Wilson who retired
from Government last week to live a more normal life.
'He leaves behind a strong legacy - an energy policy based on low carbon
and energy from sustainable sources. The strengthened oil and gas industries
owe much to his support and work.'
Ministerial responsibilities:
The Rt Hon Patricia Hewitt, Secretary of State for Trade and Industry
and Minister for Women and Equality.
Overall responsibility for the department.
Ministers of State:
Stephen Timms, Minister for Energy, E-Commerce and Postal Services
Energy and Sustainable Development
E-Commerce
Communications and Information Industries
Postal Services
Corporate Social Responsibility
Jacqui Smith, Minister for Industry and the Regions and Deputy
Minister for Women and Equality
Industry
Regions
Women and Equality
Corporate Governance (incl. company law and investigations)
European Policy
Mike O'Brien, (joint DTI/FCO Minister), Minister for Trade and
Investment
British Trade International
Trade Policy
ECGD
South Asia, South East Asia, Afghanistan, North America
Spokesman on Middle East in the House of Commons
Parliamentary Under Secretaries of State:
Nigel Griffiths, Minister for Small Business and Enterprise
Small Business Service
Social Enterprise
Export Control and Non-Proliferation
Construction Industry
Consumer Goods and Services
GM Foods
Support to Stephen Timms on Energy and Sustainable Development
Lord David Sainsbury, Minister for Science and Innovation
Office of Science and Technology
Innovation Policy
DTI interest in education and skills
British National Space Centre
National Weights and Measures Laboratory
Bioscience and Chemicals (except GM foods)
Patent Office
Gerry Sutcliffe, Minister for Employment Relations, Competition
and
Consumers
Employment Relations (including Employment Tribunal Service,
ACAS, Low Pay Commission)
Competition Policy
Consumer Policy
Insolvency Service
Companies House
Support to Jacqui Smith on European Policy
Support to Jacqui Smith on Corporate Governance (including company
law and investigations)
UK Construction and Housebuilding Sector one of the Best Performers in the FTSE All-Share
Despite
the slowdown in the housing market, the UK Construction and Housebuilding
sector has been one of the best performers in the FTSE All-Share so far
this year.
The sector is ranked third out of the All-Share's sub-indices, with a
total return of 28.08% from the start of the year to 10th June.
Martin Cholwill, UK equity income fund manager at Axa Investment Managers,
believes the construction industry is favoured by current conditions as
it benefits from interest rates.
However, Keith Burdon, UK investment manager at Britannic Asset Management,
says there is a higher likelihood interest rates will increase early next
year following Chancellor Gordon Brown's announcement the UK will not
join the euro in the short term. Because Europe has lower interest rates
than the UK, the Bank of England (BoE) will be expected to keep rates
low prior to any referendum on the euro. Now that the possibility of a
referendum this year has been eliminated, Burdon feels the market is expecting
rates to be increased.
Another factor facilitating the increase in interest rates is the Chancellor's
announcement the housing market will no longer form part of the official
inflation measure. Burdon says: 'This will create less fluctuation in
inflation and enable the Government to better measure underlying inflation.'
This will relieve pressure on the BoE to change interest rates without
having a big rise or decrease in inflation, he adds.
Cholwill believes the BoE will not raise rates this year because it wants
to avoid a recession and curb deflationary pressures.
The managers agree recent declines in housing prices are of no concern
to the construction sector. Cholwill says affordability ratios are not
high, meaning there is still room for prices to stretch further.
Burdon says although growth in the housing market is slowing, its projected
growth remains high, at 5%-10% this year. Moreover, government-mandated
construction projects such as a new terminal at Heathrow Airport will
continue to lend support to the sector.
According to Burdon, valuations in the sector are somewhat low because
of concerns over the cyclical boom-bust nature of the industry. 'In the
past, the sector has been susceptible to booms and busts but despite the
market doing so well, there are no signs of a bust,' he says. 'This is
because interest rates and unemployment are not going to increase drastically.
'Unemployment has increased in the private sector but extra labour has
been absorbed by the public sector.'
Construction companies' low valuations have attracted investors who were
reluctant to spend during the Iraq war, according to Cholwill.
He says: 'Investors in the market are becoming less risk averse because
the uncertainties at the beginning of the year are starting to clear.
'During the Iraq war, some investors were sitting on cash and now the
war is over they are starting to invest again, so we are seeing a boost
in sectors such as mid and small-caps, as well as housing.'
Both Cholwill and Burdon favour companies like construction firm Wolseley
because of what they describe as good management and exposure to both
the UK and US markets.
Barbour Report 2003: Influencing Clients - the Importance of the Client in Product Selection
The
annual Barbour Report research programme, now in its eleventh year, seeks
to investigate industry issues pertinent to Manufacturers and derives
the subject of the study through focus groups with a cross-section of
leading building material suppliers.
The Barbour focus groups, held in conjunction with the Construction Products
Association, highlighted that rather than simply marketing to Specifiers,
Manufacturers increasingly need to influence Clients to ensure their products
become and remain specified. It was felt that the Client's growing influence
has been compounded by the Government's focus on Clients to 'accelerate
change' in the Industry. Innovative products are increasingly demanded,
but it often proves difficult to get these adopted and Manufacturers are
keen to ensure their investment can be recouped over time.
This year's research sought to examine and quantify the growing influence
of Clients in product and brand specification. The research, based on
a series of in-depth interviews with Clients across the construction spectrum
whose projects account for 30% of the entire industry by value, sought
to answer the following critical questions:
*Who within the Client makes product decisions?
*Which types of Client favour partnering agreements with Manufacturers?
*How many Clients have approved lists and how do you get on them?
*How often do Clients make the final decision on brand?
*What are the key factors in product selection?
*How likely are Clients to try new and innovative products?
*How should Clients be approached?
Highlights include:
Client control:
*Design is undertaken in-house by 44% of all Clients, or 59% of Housebuilders
- Clients are assuming a high degree of control over the specification
process for their buildings.
*Where third party professionals such as Architects are used, they are
typically drawn from a Client's approved list, again emphasising the control
that Clients are exercising over their buildings.
Client brand decisions:
*One-third of Clients include product preferences in their initial brief.
*Clients make 37% of all brand decisions, which has significantly increased
since Barbour's last Client study in 1995. Now, 7 out of 10 of all Clients
have some involvement in brand recommendation.
*The percentage of Clients with approved product lists has increased from
46% in 1995 to 58% - most brands recommended by Clients originate from
their approved lists.
*Either the Architect or the Contractor challenges 40% of Clients' brand
specifications, although Clients do not always agree with their suggestions.
Influencing factors:
*In order of importance, the key criteria affecting product selection
are health and safety, lifecycle costs, initial price, sustainability
and the relationship with the supplier.
*Around one-third expect sustainability, health and safety and lifecycle
costs to become even more important. 40% would like to see the sustainability
of products improved.
*20% of leading Client organisations have established partnering relationships
with manufacturers.
*Prefabrication is now used by 47% of Clients.
*Refurbishment accounts for 51% of all Clients' construction expenditure
and 62% of Clients have planned refurbishment programmes, offering repeat
purchase opportunities for manufacturers.
*Clients are resistant to using innovative products - only 23% are willing
to try products new to the market and only 4% frequently do so. Housebuilders
are most prepared to consider new products.
Reaching Clients:
*Manufacturers will be pleased to hear that 74% of Clients would like
to be contacted by them, however, they would prefer this to be initially
in the form of hard copy literature.
*46% of Clients use product directories as their first reference point
when sourcing products.
Conclusions
Building Product Manufacturers need to be aware of the increasingly influential
role of Clients across all construction sectors, in brand specification
and recommendation. While 40% of specifications made by Clients are subsequently
challenged, Clients remain responsible for 37% of all brand decisions,
particularly in Fit Out and Finish and M&E Services. In addition,
the products selected are increasingly drawn from their approved lists.
The research highlights significant variances in approach across the eleven
Client sectors studied, with Housebuilders exerting the greatest influence
in product and brand selection, followed by Local Government and the Retail
Sector.
Those least involved are Housing Associations and Central Government.
However, they continue to operate approved lists of products, and the
majority of their product decisions are made from these lists.
Although Clients remain risk averse with only 4% frequently specifying
innovative products, the Client audience researched demonstrated a strong
desire for product information. 74% want to be contacted directly by Manufacturers
on product developments and enhancements.
In communicating with Clients, there is a marked preference for tailored
hard copy information with clear reasons and benefits for individual product
consideration.
While the weighting of priorities varies across product type and Client
organisation, the key factors for Manufacturer differentiation and competitive
advantage were identified as health and safety, lifecycle costs and sustainability,
in addition to the inevitable issue of price.
In terms of marketing channels, while individual Client groups have vastly
differing requirements, product directories are the primary destination
across all sectors when sourcing product and supplier information.
Clients value their relationships with product Manufacturers in a market
where product differentiation is finite; these relationships are a critical
factor in brand selection.
Client advisors play an important role, and Clients tend to work with
the same companies on repeat projects. The extent of involvement and influence
of external advisors varies according to the product type, but Clients
often take advice on products from their Specifier and Contractor team
members.
In targeting Clients, these frequently used external advisors such as
Architects and Contractors should also be identified. With the resistance
of Clients in incorporating new or innovative products, the influence
and endorsement of these external advisors assumes even greater importance.
Clients are a growing force in the construction industry, and Barbour
conclude that this trend is set to continue. For Building Product Manufacturers
there is an implicit requirement to communicate and influence these important
decision makers. It is also apparent that Clients are not homogenous and
Manufacturers need to tailor their approach based on both their product
area and their target Client customer.
That said, the attitudinal and working practice changes envisaged and
signposted by 'Re-thinking Construction' and 'Accelerating Change' are
being adopted.
Clients are assuming and exerting greater control over the choice of products
going into their buildings, and Manufacturers are well advised to ensure
effective, on-going communication with this diverse, but increasingly
influential group.
Web: http://www.barbour-index.co.uk
New
Construction Orders Produce £2.8bn in April
Orders
in the twelve months to April 2003 rose by nine per cent compared to orders
in the previous twelve months, though orders in the three months to April
2003 fell by two per cent compared to the same three months a year earlier.
Orders in the three months to April 2003 fell by seven per cent compared
to the previous three months, with falls in all sectors except infrastructure
and private industrial orders. During the twelve months to April 2003,
there were rises in all sectors except private industrial and infrastructure
New orders in April increased 25% year-on-year from £2.2bn to £2.8bn.
Public and private housing were well ahead year-on-year, increasing by
26% and 24% respectively. At £795m, the latter's total its
highest since January.
The other public sector surged ahead by 44% to £451m, driven by
58% boost in government spending on schools and colleges.
Infrastructure experienced an explosion of 140% to reach £685m.
That's the second highest total of the year, spurred on by a doubling
of water orders and the other subsector (gas, communications, air, harbours
and railways) accelerating by 440%.
Public non-housing orders (excluding infrastructure) in the twelve months
to April 2003 rose by 40 per cent when compared with the previous twelve
months. Orders in the three months to April 2003 fell by 23 per cent compared
with the previous period, but were 27 per cent higher compared to the
same three months twelve months earlier. The large increases and decreases
were due to an exceptionally high figure for the public miscellaneous
sector in December 2002 and a relatively high figure for the same sector
in February 2003.
Private commercial orders in the twelve months to April 2003 were five
per cent higher compared to the previous twelve months. Orders in the
three months to April 2003 were 25 per cent lower compared to the previous
period, and were 15 per cent lower than in the same three months twelve
months earlier.
Private industrial orders in the twelve months to April 2003 fell by nine
per cent compared with the previous twelve months. Orders in the three
months to April 2003 were 14 per cent higher than in the previous period,
but were seven per cent lower compared to the same period twelve months
earlier.
In the four months of the year-to-date, total new orders are ahead nearly
10% at £11.9bn.
Public housing £106m (2002: £84m )
Private housing £795m (£639m)
Infrastructure £685m (£285m)
Other public £451m (£313m)
Private industrial £190m (£235m)
Private commercial £637m (£730m)
Total £2,864m (£2,286m)
NHBC
- UK New House Building Statistics: May 2003
Statistics
released on 11th June by NHBC (National
House-Building Council) show UK applications to build new homes decreased
by 10 per cent in May 2003 when compared with figures for May last year.
In May 2003 15,170 applications to start new homes in the UK were made
for the combined public and private sectors, down 10 per cent on the same
month in 2002 (16,903). Private sector starts for the month fell to 13,627
showing an 11 per cent decrease on May 2002 (15,340). There were 1,543
UK housing association applications, a one per cent decrease on May of
the previous year (1,563).
Imtiaz Farookhi, chief executive of NHBC, says: 'May showed a ten per
cent drop in the number of applications to start new homes and a modest
one per cent increase in the number of completions. However, the number
of housing association starts so far this year show a thirteen per cent
increase on last year, suggesting encouraging growth in this area.'
New build completions for the combined public and private sectors totalled
13,621 in May 2003, a one per cent increase on the same month last year
(13,491).
Additional information from NHBC reveals that an average of 497 new homes
were sold each day during May 2003, a 15 per cent decrease on the same
month last year (582).
Output
increased 7% in the first quarter
Construction output increased by 7% year-on-year in the first quarter
of this year from £19.6bn to £21bn, according to the latest
data from the Department of Trade & Industry.
The figure is the highest ever recorded in the first quarter. Output from
new work was 5.1% higher year-on-year, rising from £10.5bn to £11.1bn,
while output from repair, maintenance and improvement (RMI) was up 9.2%
from £9bn to nearly £9.9bn.
In new work, both private housing and other public were ahead by more
than 20% to £2.8bn and £1.8bn respectively. Public housing
was up 6.6% to £448m, while private industrial and private commercial
were both down at £803m and £3.4bn respectively.
In fact the private industrial sector posted its lowest total in the past
four years, while private commercial's total was the lowest since the
third quarter of 2001.
Infrastructure fell by 10.6% year-on-year from £2bn to just shy
of £1.8bn, its lowest total since the second quarter of 2001.
All four RMI sectors grew, with public housing and other public reaching
all-time highs at nearly £1.8bn and £3bn respectively. Private
housing RMI was up 12.5% year-on-year to nearly £3.2bn, a record
for the first quarter, while other private RMI was up just 5.2% year-on-year
to £3bn, also a first quarter record.
UK
Construction to Net £728m if Olympic 2012 Bid Wins
The UK construction industry can look forward to work worth
at least £728m, a third of the overall cost of staging the Olympics,
if London is successful in its bid to host the 2012 Games.
The money would be spent on land assembly costs, the construction of new
sporting venues and the infrastructure required to facilitate staging
the event, which is estimated to cost some £2.3bn.
Broken down further the capital cost of infrastructure and facilities
would total £403m, while expenditure on land purchase and residual
value, including the value of remaining buildings and infrastructure,
would be £325m.
The figures are contained in a study by engineering consultant Arup in
its report 'London Olympics 2012 Costs and Benefits' prepared for the
government, the Mayor of London and the British Olympics Association.
The UK construction industry would benefit from a works bonanza as far
as developments and regeneration, transport and accommodation is concerned.
The overwhelming majority of the investment in physical facilities for
the Olympics will be located in the Olympic Zone earmarked for a derelict
site in Lower Lee Valley, east London. Work would involve the construction
of the Olympic Village, an 80,000-capacity stadium, swimming pool and
warm-up track - which could be converted to low-cost housing at a later
date.
As for accommodation, up to 100,000 hotel and hostel rooms will be required
to house competitors, the media and spectators. Arup estimates that by
2012 double that figure will have been built.
London
Leads House Price Slide
House prices have fallen for three months in a row with the
biggest drop in the south of England, according to the latest figures.
In the three months to April, 31% more surveyors reported a fall in prices
in the UK than reported a rise, the Royal Institution
of Chartered Surveyors (RICS) said.
The prospects for house sellers appear to be worsening with April's price
falls dwarfing those of February and March.
But surveyors in London reported renewed interest from house buyers after
the end of the war with Iraq.
North-south divide
In April, 51% more surveyors in the capital reported that house prices
were falling rather than rising.
'Uncertainty has been the underlying cause behind the depressed figures
of the last three months.' said Jeremy Leaf, RICS spokesman.
And the majority of surveyors in the South East, East Anglia and the South
West reported that prices were either static or falling.
But in the north of England price growth remained strong with 62% of surveyors
reporting increases.
House prices in the North West, Yorkshire and Humberside also increased
markedly.
Returning confidence?
But house sellers in the capital will be cheered by the news that surveyors
in London noted the first rise in buyer enquiries since last September,
and confidence was the highest recorded for more than four years.
'It's encouraging to see a return to confidence in the market,' said RICS
housing spokesman Jeremy Leaf.
'Uncertainty has been the underlying cause behind the depressed figures
of the last three months, but we expect stable sales conditions to return
this summer.'
Recently, a report from the Joseph Rowntree Foundation suggested that
a crisis in the supply of housing across the south of England would put
home ownership beyond the reach of public sector and low-paid workers.
Mr Leaf's comments were echoed by economists at Capital Economics.
'We doubt whether the housing market boom will come to such an abrupt
end halt as surveyors are suggesting,' said Sabina Kalyan.
But she cautioned: 'Today's numbers... are a powerful sign of the severity,
if not the correct timing, of the correction that we can expect.'
Last week RICS said it believed that prices would recover during the second
half of this year with continuing low interest rates making home ownership
attractive for many.
Overall, RICS predicted that house prices would rise by 10% during 2003
- down from close to 30% last year but still more than three times the
rate of inflation.