December 6, 2021

Expanding into new sectors – diversifying to maximise industry recovery

By Penny Godfrey, General Manager, Millstream

The UK construction industry has seen notable improvement in recent years and a positive start to 2017 however there is absolutely no room for complacency. While the industry appears to be in a state of recovery, growing uncertainty due to the changing political and economic landscape means firms remain cautiously optimistic and perhaps tackle the desire to both expand and protect their assets.

Expanding into the public sector, and perhaps to other regions across the UK, presents a huge opportunity for construction firms to not only maintain profitability, but also retain specialist workforces and investment in training. It offers greater security and allows firms to be more competitive, flexible and able to maximise productivity.

According to Scape’s Sustainability in the Supply Chain report, the public sector funds more than a quarter of the business of two thirds of construction professionals that they surveyed. Worth £44bn to the economy, 40 per cent of construction output in the UK is public sector[1]. This effectively represents ripe opportunities for firms not already exploiting public sector projects. Doing so could add greater security should private investment falter in these uncertain times. Those firms not considering or bidding for public sector tenders are significantly limiting their prospects.

Confidence in the public sector construction sector is growing. Our research reveals that in the last three years there have been significant pockets of growth in public sector construction contracts available in Yorkshire, East Midlands and the South West in particular. In Yorkshire alone there’s been a 42 per cent rise in tenders available to private firms, most likely as a result of continued investment in the ‘Northern Powerhouse’. Similarly the ‘Midlands Engine’ has seen tenders in East Midlands rise by a fifth.

Public sector infrastructure projects such as the HS2 project as well as the announcement of new City Deals are likely to be key factors in continued growth. Increased devolution and public spending in infrastructure will continue to support ongoing recovery and so it is important that private firms recognise this opportunity. It’s not just about high budget projects for main contractors. Potential contracts are available for firms providing site clearance services, groundworks, feasibility studies, and lighting to name but a few.

Other industries such as Oil and Gas have seen ancillary firms throughout the supply chain expand into the public sector to satisfy the need to expand and protect profit margins. The likes of Health & Safety specialists and structural engineers have adapted their services and offering to allow them to capitalise on public infrastructure growth and reduce the impact that the fluctuating oil price can have on their long term success. In fact some of these firms will be competing for construction sector contracts.

Of course, a move into the public sector brings new rules and regulations to abide by and challenges to overcome with the perception of bureaucracy discouraging firms from considering potential opportunities. These factors can often have a positive impact on the market, removing barriers to SMEs and those new to the sector especially, creating a more competitive marketplace.

Transparency, efficiency, quality of supply chain and competitive pricing are just some of the issues concerning public sector buyers. It requires a huge culture shift – pricing isn’t up for negotiation, courting buyers is frowned upon and expensive marketing materials don’t count. Understanding the rules of engagement within the public sector are key to making a good first impression. There are firm regulations over communications, timeframes and even bid submission word counts which can be challenging at first. The role of procurement grows significantly and is conducive to winning tenders.

If a local authority or public sector body was to issue a tender, would you know or know where to find it? The concept of disciplined tendering processes can be difficult to understand and so the value of being signed up to a tender alerts service and knowing where to go for guidance and support proves vital in knowing about opportunities, being able to react in time to meet deadlines and submitting successful bids.

The Social Value Act in particular is something private firms must consider. Public sector buying bodies are now paying greater attention to how they can benefit the local community indirectly through their suppliers. While it is difficult to define, implement and measure, one of the positive impacts of this greater focus on social value is that it gives smaller firms an opportunity to edge into the market.

In the past, local authority procurement officers would invest time in getting to know their top ten suppliers. Even the most competitive of processes could mean a supplier would hold the contract for a service or product based on price or experience for a number of years. With up to 20 per cent of criteria now awarded to social value, understanding what this means to the buyer and how you can demonstrate community benefit will be key to succeeding in the public sector.

Taking the first step and moving into a new sector has its risks, particularly when profit margins are already shrinking, but in the long term can pave the way towards increased new opportunities as the industry continues to recover.

Despite tightening budgets, UK public sector spending at the end of this fiscal year is expected to be over £784bn[2] which means for companies with the right skills sets, experience and willingness to try, the potential to access a share of this spend can be a reality.

[1] Government Construction Strategy