Geotechnics work on Crossrail may be drawing to a close but prospects for the industry look good across almost every sector. GE takes a look at the results of this year’s Geotechnical Services File.
Growing confidence is a phrase that has been widely used during the research for this year’s Geotechnical Services File (GSF) and recession effects are becoming a memory for the ground engineering sector. However, this does not mean that it is plain sailing for the market as there has been a change in the scale of schemes providing this prosperity which creates its own issues.
Given the widespread optimism you’d expect the turnover for the top 35 companies to exceed the £1.018bn seen in 2014, which matched the industry’s 2009 pre-recession peak. The actual result is £38M lower at £980M but the overall turnover for the top 100 has stayed steady between the 2014 GSF and this year’s edition.
“While the sector is still buoyant and there is cause for some general optimism going forward, the nature of the size and type of projects out there has shifted”
Martin Blower, FPS
The combined results for all respondents, along with the amount of consolidation in the sector, points to the fact that the market performed better than the figures suggest. As a result of Arcadis’ acquisition of Hyder, the latter was not able to submit figures for this year’s GSF and Aecom, which bought out URS, only submitted global figures. Using past figures as an indicator of performance over the last 12 months suggests that the figure should at least match the 2014 data, if not show some growth.
The acquisitions mentioned above are just a few of the restructuring Geotechnics work on Crossrail may be drawing to a close but prospects for the industry look good across almost every sector. Claire Smith takes a look at the results of this year’s Geotechnical Services File. GSF Analysis deals that have seen familiar names disappear from the industry and others strengthened.
Other acquisitions include: Amec’s merger with Foster Wheeler; the acquisition of Donaldson by Cowi; Ingerop’s buyout of High Point Rendell; Strainstalls’ takeover of Testconsult; Mott McDonald’s acquisition of Bentley Holdings; Amey’s takeover of Aquatech; Hydrock’s buyout of Nuclear Management Consultants; RSK’s takeover of Germany-based Alenco Environmental Consultants; Ramboll’s buyout of Environ; and WYG’s acquisition of Alliance Planning. Keller has also acquired a number of international businesses in the last 12 months in order to expand its geographic spread and technical capabilities.
The increased number of acquisitions and mergers is a sign of a healthy market but the changing positions and revenues recorded by the top five clearly demonstrate the change in the scale of projects. In 2012 many GSF respondents commented that while there were some major projects in progress, the smaller “bread and butter” projects were missing. Now the industry has turned the other way – there are lots of small to medium projects underway but many major projects that are in the pipeline are not yet ready to move onto site.
“The industry has been booming over the last 12 months and we have seen improvements in our margins”
Jon Fenton, Van Elle
The change has pushed Roger Bullivant and Van Elle up the league table from fourth and ninth in 2014, respectively, to second and third this year. Bachy Soletanche has retained the top position but its revenues have dropped £19M from 2014 to £87M. Balfour Beatty Ground Engineering and Fugro have also seen revenues fall in the last year with the companies moving from third and second in 2014, respectively, to fourth and fifth this year.
Federation of Piling Specialists chairman Martin Blower says: “Listening to our members as well as the general mood of the construction sector, it is clear that the market place for foundations has changed somewhat during the last 12 months or so. While the sector is still buoyant and there is cause for some general optimism going forward, the nature of the size and type of projects out there has shifted.
“Completion of the heavy foundation work on Crossrail and the current pause in large infrastructure projects – normally the preserve of the larger foundation specialist – and a buoyant private housing market shifts the emphasis to the smaller specialist companies, who are able to compete vigorously on smaller projects. As a result there will be a slow shift in the type and size of companies topping the turnover league, as the smaller specialists secure many small contracts compared to the more ‘lumpy’ big turnover infrastructure projects which is a norm for most of the larger contractors.
“This is usual in the foundations sector and, like turning a jet plane in a hangar, it will change again over time as Thames Tideway and HS2 start on site.”
However, Van Elle group CEO Jon Fenton has a more positive view on the market. “The industry has been booming over the last 12 months and we have seen improvements in our margins,” he says. “Our average job value doubled in 2014 compared to 2013 and also more work went ahead with less speculative tendering.”
ESG infrastructure services managing director Jim Murphy adds: “Now that we’ve come out of recession, a lot of projects that have sat on the shelf for the last few years have now been given the green light and that is definitely starting to have an impact.”
Nonetheless, projects priced during leaner times are continuing to affect some of the larger contractors in the sector and this legacy issue is at the root of the profit warnings recently issued by Balfour Beatty. Main concerns As with previous years, the skills shortage (see box) topped the poll of the respondents’ main concerns about the industry but small margins, risk transfer onto subcontractors and the impact of the general election were also highlighted as major issues.
Aecom director of ground engineering and mining John Holden believes that the election result is helping to improve prospects. “In the run up to the election there were pressures on spending but the ring fencing of funding for HE seems robust and the benefits from this should bear fruit in the next 12 months and beyond,” he says.
Whether you like it or not, Building Information Modelling (BIM) is increasingly being used on the geotechnical elements of projects with 60% of respondents reporting an increase in the use of BIM in the last 12 months. Nonetheless, a quarter of respondents believe that they will meet the government’s mandate of Level 2 BIM compliance by the start of 2016 for all government-funded schemes. A further 45% said that they were working on reaching compliance but would not meet the deadline. Almost a third of the industry has said that BIM is not applicable to their business.
Fenton reports a surprising aspect to the increase in BIM seen by Van Elle. “We expected the demand for BIM to be mostly on larger projects but we have seen an interest for it in the residential market,” he says. “I believe that it could optimise future reuse of existing foundations.”
Although geotechnics work on major projects such as Crossrail, the Queensferry Crossing and London Power Tunnels is drawing to a close, there are a lot of schemes with a large ground engineering requirement in the pipeline.
“Over the next 12 months, I expect the market to continue growing”
John Holden, Aecom
Holden believes that the ground engineering market is now on an upward trend. “Over the next 12 months, I expect the market to continue growing,” he says. “Transport is buoyant with HS2, HE and Network Rail work. We hope that the CP5 review is just a pause rather than a scaling back from major investment. In the power sector, nuclear new build, gas fired stations, renewable energy – particularly offshore – and transmission offer significant opportunities.”
News that Thames Tideway’s infrastructure provider was appointed in July means that construction should start in 2016. Thames Tideway programme director Peter Shipley confirmed that preliminary construction is due to start next year with tunnelling getting underway in 2017. He confirmed that the contracts will be formally awarded this summer. “We are well positioned to transfer skills from Crossrail and the Lee Tunnel,” he says.
Murphy also believes there will be further growth: “Continued confidence in the economy is creating a market place and investment opportunities for large infrastructure projects. We’re hearing lots about airport expansion, rail and road upgrades, as well as new power stations. “None of this would be happening without an improved economic situation and also the continued support and investment from central government.”
As demand in the ground engineering industry improves, the skills shortage seems to be deepening with 62% of respondents rating the issue as their primary concern. With 57% reporting issues recruiting in the last 12 months, the challenge is real and not improving.
“Recruitment has been a challenge and it is not easy to find good people, and we have had to raise salaries in order to secure staff in some circumstances,” says Fenton. “Main contractors also have the same issues around staff and dealing with under-qualified people has complicated some of our work.”
Some have taken the same approach as Van Elle with 47% of firms reporting using salary increases in order to retain key staff. This trend and the levels at which shortages are most acute can be seen in the salary survey with the greatest rise at 15% seen in the geotechnical specialist (Rogep) category. Average salaries for geotechnical advisors also rose by 7% whereas rises in graduate and geotechnical professional salaries were more in line with inflation.
“It’s great to see an abundance of graduates and trainees in the market, but this needs to be balanced with more senior engineers,” says Murphy. The skills problem does not look set to be resolved in the near future with 55% of respondents planning to increase staff numbers in the next 12 months, with no one planning to downsize.
Data on salaries and staffing issues has proved to be critically important to meeting the industry’s future recruitment needs with some of the information supplied to government. This has been used by Ground Forum to justify the position of ground engineering professionals on the Home Office’s Shortage Occupation List which eases the work permit process of recruiting overseas employees. Ground engineering has been on the list for over 10 years and is regularly scrutinised to ensure it continues to have priority for work permits over non-shortage occupations.