Challenging conditions remain for Jersey’s construction industry

| December 13, 2012 | 0 Comments
Simon Matthews of HLG Associates Limited

So, what can be done? asks Simon Matthews, managing director of HLG Associates Limited.

The decision by Deerglen to call in the administrators signifies the loss of another locally-based main contractor with recent experience of delivering medium to large-sized construction projects.

Other recent announcements have also hit the construction industry hard. The decision by Le Masurier, for example, to cancel their Bath Street project comes on the back of the decision to refer the proposed new Police Headquarters to Scrutiny, the continuing negotiations for tenants on The Esplanade Quarter, and the planning issues stopping the immediate advancement of the Co-op’s Charing Cross development. All of these projects would have led to investment in the local construction industry, and resulted in a much-needed boost for the Island’s fourth largest industry.

These examples also demonstrate what those inside the industry have been saying for some time: the lack of work for our builders is having a seriously detrimental effect on the numbers of those employed. Redundancy, and support for those that become unemployed, costs the Island, and results in a loss of capacity within the industry (which could prove damaging when demand picks up again).

But why should people be bothered about Jersey’s construction industry?

The simple answer is that craft and trade industries like construction typically benefit their local environment through reinvestment in local suppliers and workers. The profits of construction companies are also, more often than not, reinvested at local level, to help businesses remain competitive. Furthermore, they employ people who are available (i.e. live local) to the area or place of work. This is referred to by economists as the ‘multiplier effect’ of direct investment.

Construction is ‘demand-led’, which means that demand is normally on an as-needed basis (as opposed to a speculative industry, where investment can often lead to the creation of a future demand). Therefore, a depletion in resource and expertise only really gets noticed when you start needing the services of that industry.

Construction is also countercyclical to normal economic cycles of boom and bust, as there is a period of time between deciding to stop or start investment, and the effect that this has on actual spend. The more complex and larger the project, the greater this time-lag becomes. Therefore, the local construction industry is experiencing the effects of decisions taken over the last 3-4 years.

More worryingly, decisions taken now to invest in major projects will only really see actual spend arising in the future. Which means that, right now, the industry is at a crucial juncture, and many businesses which benefit from construction spend (including shipping / transport, finance, insurance, vehicles, and professional services) will all be watching for “what happens next?”.

And what should happen?

Well there are several ways that the Island can assist and deliver real benefit to the construction industry:

1. Kick-start spending – now is a fantastic time to get good value for money proposals from local builders, and to take advantage of the low rate finance deals available, whatever the size of project. Clients who are thinking of spending (whether they be domestic or commercial customers) should actively start shopping around for quotations and estimates from builders. Those clients with lots of projects planned should concentrate on those smaller / medium-sized projects that require less procurement and / or mobilisation, thereby resulting in a quicker appointment of their preferred builder.

2. Ease planning restrictions – on those projects that represent a low planning risk in particular. This will act as an incentive to the private sector to consider ‘pushing the button’ on their projects, easing the burden on the public sector to ‘rescue’ the industry. The onus is also on the States to ensure that the planning process is supporting construction activity, and not, as seen recently, hindering those clients with money to spend (and a commitment to doing so).

3. Back the builder! – the local industry is a world away from the type of ‘cowboy’ builder so often seen on TV or represented in the media. The local builder is a committed, conscientious employer of local resources, who relies on local demand. They want to plan for the future, and aren’t interested in ‘quick wins’ and ‘fast bucks’.

4. Support the Medium Term Financial Plan – which contains significant capital and revenue investment across a range of projects that will form the lifeblood of the local industry in the foreseeable future. It is also important that people realise this spending is planned, and linked to planned tax revenue. It will not result in the States having to borrow to fund the projects contained within it.

5. Ease ‘red tape’ – the future public sector reforms, announced by States chief executive John Richardson to the Chamber of Commerce last week, will be hugely welcomed by all, not least the construction industry. However, they will take some time to materialise. Concentration on simplifying the mandatory interaction between the States and industry would be a great start.

6. Sustain demand – larger clients (in particular the public sector) should seek to plan their spending to ensure an even flow of work, thereby benefitting from the competitive nature of the current market. This will also enable avoidance of high peaks in demand.

7. Take an interest – the Island’s construction industry is staffed by well qualified, professional and extremely smart people. The solutions adopted by builders, engineers and designers are often highly innovative, and tailored to suit the nuances of Jersey as an island. The range of projects undertaken (and able to be undertaken) by local firms would really surprise people.

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Category: Construction, Finance & Business

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