NI construction industry laying new foundations
After a tough few years, NI’s construction industry is cautiously optimistic. However, some hurdles remain, which has seen building companies thinking outside the box and strengthening relationships with key stakeholders, reports Jenny Burnside
You only have to watch Grand Designs or look at the length of time it took to build landmarks such as the Derry Walkway or the Odyssey arena to know that construction is a tricky business. It takes expert project management and even better relationship management skills to make sure that all the diverse parts — banks or funders, contractors, architects, suppliers of the materials, and many more, come together.
So it is no surprise that in an environment where finance is tight, property prices have fallen and Government spending is slashed, the construction sector has had to weather difficult times.
“At the height of the market we engaged 84,000 employed and self-employed people across Northern Ireland, but that has now fallen to 63,000,” explained John Armstrong, managing director of the Northern Ireland Construction Employers Association (CEA).
Since the initial 2007 crash, the sector’s outlook has improved, however, particularly for maintenance and small building works. And on the residential building sites, companies are reporting plenty of interest in new homes following substantial house price falls of up to 45% in some areas of the province.
“A lot of people are calling into our sites indicating that there is demand but people are unable to secure funding to fulfil the money required,” says Pat Brannigan, the CEO of SFH Construction in Cookstown.
Yet a stumbling block remains. “There is plenty of interest in buying houses but people just can’t access mortgages and there are plenty of hurdles in the way of first-time buyers. The banks are holding back,” said the CEA’s Mr Armstrong.
And the banks are not the only component that are causing the sector concern. Government spending cuts have led to a slowdown in infrastructure investment.
In turn, the construction market has become ever tougher as companies traditionally reliant on Government work now chase the same private-sector contracts as many other competitors.
“The major challenges are cashflow and finance. There is a lack of confidence in the sector with a number of contractors heavily reliant on Government work. Some of the spending cuts have affected infrastructure investment so competition for other contracts has increased and we are seeing really low margins — crazy prices,” said Mr Brannigan.
Mr Armstrong says it is essential that the Government looks to stimulate infrastructure investment. “It is vital that the Executive continues to invest in infrastructure such as schools. We have a deficit in infrastructure investment going back to the Troubles, but we need to step this up to grow the economy, quickly create jobs and make Northern Ireland attractive to investors,” said Mr Armstrong.
Indeed, the need for infrastructure investment is the same across the UK. And in Northern Ireland, the trading conditions of small and medium-sized construction firms fell for the 15th month in a row during the third quarter of 2011; a decline that is the fastest in the UK, according to the latest State of Trade Survey from the Federation of Master Builders (FMB).
The FMB is the UK’s largest construction trade association.
Maire Nawaz, the FMB’s NI director, said: “Although these results are slightly less negative than the previous quarter and the least negative overall that we have seen since the final quarter of 2007, we are still a very long way from seeing any kind of growth in the sector and conditions here are once again the worst in the UK.”
Mr Brannigan’s firm, SFH Construction, has been operating in Northern Ireland since 2000.
He agreed with the CEA and FMB’s assessment of a few difficult years, and explained that to adapt to changing conditions, not only have SFH diversified into new markets, but they have changed their style of working with contractors, constantly seeking ways to make the tough environment easier for everyone involved.
Mr Brannigan explained: “Business is fine at the moment. We have had a difficult few years but are back into a growth situation and achieved that by looking outside of Northern Ireland and the Republic of Ireland. For example, we now do a lot of work in the north of England and Scotland.”
To fully capitalise on the new business from outside Northern Ireland, Mr Brannigan has been exploring different types of finance outside of traditional lenders such as the banks.
“If you can manage to bring an innovative package there are opportunities. For example, if a contractor can bring alternative sources of contract finance to a project.”
Mr Brannigan adds that this will be a focus for his business in the year ahead.
“For 2012, we are investigating projects funded by other means as a solution to some of the finance problems that people have been encountering.”
With the prospect of a double-dip recession looming, working relationships in the construction community, where projects involve the collaboration of many different players, will be key. Finding creative solutions to meet everyone’s needs and afford flexibility to pressured areas of the supply chain may pay off in the longer term. That may mean repackaging the finances, seeking new clients from outside Northern Ireland or some good old fashioned team work.
Good relationships may well pay dividends for construction firms in these hard times. But regardless of whether market conditions are tight or flourishing, it certainly cannot hurt to go the extra mile to get along with your stakeholders.
Mr Brannigan said: “People have to be flexible in terms of how, where and what conditions they work in. Teamwork with the client is more important now than ever with tight finance and margins.”