Looking to the future : workload trends, skill shortages and increasing costs

Last week CECA published its Workload Trends Survey for Q4 2016/2017. This is an important dataset which offers the view of civil engineering contractors on future work prospects, employment and trends in costs and tender prices. What is interesting is that across the UK 19% of firms are seeing increasing order books. However, when you delve further into the detail it shows confidence and prospects in England significantly higher than in Wales and Scotland with 60% of English firms expecting further increases over the next 12 months but 11% of companies in Wales expecting a decline (2% decline in Scotland). Alongside this almost half of UK firms are reporting higher tender prices and 88% experiencing increases in costs. And in terms of future employment 40% of UK firms are expecting increases in staff requirements and 27% in operatives. As you would expect there are many stories hidden within this data but a broad picture is emerging of an increasingly buoyant market in England, some stagnation in Scotland and some decline in Wales. The availability of skilled staff and operatives is, however, a continuing concern across the board and increasing costs, possibly as a result of a weakening sterling, may impact margins. It would be interesting to know how others view these messages – do they reflect reality in your part of Wales?

But let’s look at these issues separately : future workload, skills and costs.

When it comes to future workload in Wales we can plan as much as we like but unless we’re able to attract investment there’ll be nothing to construct and many will continue to seek opportunities across the border as we await confirmation of Wales based projects. Last week I met with Ken Skates, Cabinet Secretary for Economy, Infrastructure and Skills, along with colleagues from other trade and business federations. The main discussion points centred on the National Infrastructure Commission for Wales, a Development Bank for Wales and, the perennial issue, how can we address long standing concerns with the procurement process. It was heartening to hear that the Cabinet Secretary welcomed the input CECA Wales and others made to the consultation on the Commission and the report of the Economy, Infrastructure and Skills Committee on broadening and strengthening the remit and status of the Commission. We hope to get an announcement on this in March which will give us clarity on how we can develop an infrastructure strategy for Wales, identify a meaningful forward plan of projects and, crucially, identify the funding sources to deliver it. However, the challenge of investment remains and how we fill the anticipated gap in funding post-Brexit. I intend publishing an article on this shortly to generate greater debate on this critical issue. I will share a copy of this article via a future blog.

Another expected output from the Commission will be a skills strategy linking future needs with the provision of skilled people. The workload trends report highlights demand for skills as an ongoing issue albeit with demand varying across the UK. Nevertheless, it’s unlikely this will cease to be an issue for the foreseeable future. Which brings me on to the recent report by CITB Cymru on future employment needs and opportunities in the construction sector over the next 5 years. It paints a very rosy picture which might seem at odds with CECA’s Workload Trends survey. But, of course, it isn’t. This is all about timing. The CITB report focuses on the longer-term picture and where we could be heading if a number of major projects are given the go ahead – and we very much hope they will be. The CECA report, however, is more about “the here and now” and confidence levels over the next 12 months – and this paints a very different picture! We need to get increased investment in Welsh infrastructure in the short term. The promise of major headline projects sometime in the future is great but we need the “bread and butter” maintenance and small engineering projects which our firms depend on to sustain their businesses

So, current workload expectations in Wales are low which is why so many firms are having to find work beyond our borders to sustain their businesses. But, when the golden promise of major projects comes our way how do we get enough of the people with the right skills to deliver? We’re pleased that the Welsh Government is investing in apprenticeships. Apprenticeships are essential for achieving economic success and a stronger, fairer Wales and this couldn’t be more true than in the construction industry which supports thousands of jobs across Wales and is a major provider of apprenticeships. We’re developing our own employer led apprenticeships to meet the predicted demand for skills on projects such as Wylfa Newydd, the Tidal Lagoon and M4. We’ve been working with others, including Qualifications Wales, to develop a Civil Engineering Groundworker/Plant Operative apprenticeship to help grow a base of skilled people to meet anticipated future demands. This will sit within a career pathway for site based contractors which will support our drive to attract more new entrants to the industry from schools, colleges and other sectors. We need this to be an industry of choice rather than last resort and having a clear career pathway is key to this. It’s unfortunate that the Apprentice Levy, which is being introduced by the UK Government and is widely regarded as another tax on business, has been a distraction from the good work being done in Wales to align apprenticeships with future economic priorities. The voucher system in England (to spend on training) will not be replicated in Wales and Scotland where funding priorities will be set by the Welsh Government based on anticipated future priority sectors identified by Regional Skills and Innovation Partnerships. Arguably this is a better model from the Welsh Government as it targets those sectors where future need is expected to be greatest – rather than spreading limited funds across all sectors. Fortunately, construction is identified as a priority sector across the whole of Wales. However, we still have major concerns as to how Welsh firms operating beyond Wales will access training and apprenticeship funding and, so, we’re looking to both governments to clarify this.

And finally, the CECA Workload Trends report identifies increasing costs as a further challenge to the industry. This is undoubtedly linked to the decision to leave the EU as sterling has dropped against other currencies making materials and plant imports more expensive. This, combined with an expected increase in inflation, will put pressure on margins and increased risk when pricing for future projects – particularly the larger ones which continue across one or more financial years. Will an anticipated reduction in labour sources, if immigration controls start to bite, further inflate costs and tender prices? And are these areas where clients could/should work more proactively with the industry to jointly manage these risks? A more mature approach to public private partnership?

These are just three challenging areas highlighted by this report on workload trends which contribute to further uncertainty for the industry. But what is important in any period of uncertainty is that we continue to monitor and model these impacts and influences, as well as the “confidence levels” across the industry, as we seek to chart a less turbulent way forward!