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Executive Summary

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EXECUTIVE SUMMARY

Building contracting refers to work undertaken within the construction market and covers both the commercial and residential sectors. As a process it can involve design, project management, site preparation, the procurement of materials, erection of structures and fitting out of the building. Under the Private Finance Initiative (PFI), it also deals with raising finance, as well as the long-term management of the building for the public sector. Civil engineering normally refers specifically to work on infrastructure and other specialised areas such as process plants, although many of the larger building contractors do incorporate civil engineering arms and this area is therefore included within total figures used throughout this report.
The output of the construction market in 1999, at current prices, was £65.26bn with new work representing 54 percent of this total, and repair, maintenance and improvement (RMI) the remaining 46 percent. Private commercial is the largest sector within new work, accounting for 33.7 percent of output, followed by housing at 24 percent, infrastructure at 17.5 percent, private industrial at 11.1 percent and other public work at 13.6 percent. In the RMI sector, housing accounts for 54.3 percent of output, with the remainder comprised of other public, and private, sector work at 17.9 percent and 27.8 percent respectively.
British construction companies secured new overseas contracts worth £4.26bn in 1998, with Britain being one of the five leading countries involved in international contracting. There were 163,236 firms employed in private contracting in 1998, 24.6 percent of which were general builders, 12.1 percent civil engineers and 2.2 percent building and civil engineering contractors, with the remainder widely spread. The majority of firms are small, with 65 percent of industry employees in firms of fewer than 80 employees in total. The number of building and civil engineering contractors fell from 4,984 in 1996 to 3,600 in 1998, with the value of work done by them increasing from £1.48bn to £1.72bn, indicating that fewer firms are handling larger contracts. Firms of more than 1,200 employees accounted for 32.7 percent of this value.
The industry has traditionally accepted poor margins but, due to rationalisation and a more focused approach, is generally experiencing a steady increase in turnover and profits. Key issues for building contractors include the implementation of best practice schemes following the Egan report, an increase in partnering rather than competitive tendering, a widespread skills shortage and a tendency to utilise more factory-finished products in order to reduce on–site labour requirements. There has also been an increase in foreign ownership in the building materials sector. There is likely to be ongoing streamlining of businesses, in a bid to increase margins.
The construction market as a whole is forecast to show growth through to the end of 2002, dipping slightly in 2003, before rising again in 2004 to be around 2.4 percent above 2000 levels, at constant 1995 prices. Areas of growth in the initial forecast period are likely to be private housing, public housing RMI, infrastructure, public non-housing new work and other RMI, including schools, retail and leisure.

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Last updated by Duncan Nottage 5th July 2000