Firms still see signs of life in the public sector

Construction company Morgan Sindall cited Government spending cuts as a reason for a reduction in half year profits, saying it plans to replace lost public sector contracts with private sector work.

Already the group’s Leeds and Hull offices are winning business in areas such as private sector construction and large infrastructure projects, to compensate for the squeeze on public sector spending.

Morgan Sindall said the public sector now accounts for 50 per cent of its revenues, compared to 60 per cent this time last year. It is a slide that is expected to continue as the cutbacks take effect.

That said, Morgan Sindall does not believe the sector will die a death. It will reduce over time, but there will always be some demand.

Gordon Ray, regional managing director for Morgan Sindall, said: “The public sector is a core element of our business. Despite the challenging times ahead, there are still attractive opportunities to bid and we see this sector providing a significant source of our work.

“The award of three contracts on Hull BSF worth a total of £65m is our most recent success.”

Huddersfield-based Marshalls, which specialises in products ranging from natural stone paving to bollards, has warned that a cloud of uncertainty hangs over the construction sector.

Marshalls’ finance director Ian Burrell said: “On the wider economic signs there’s a reasonable amount of uncertainty. With the public sector we’ve got to believe that this is going to slow down a bit.”

But while many Yorkshire companies are trying to replace public sector work with private sector, some believe there is still plenty of work out there, but it’s of a very different nature.

Leeds-based construction consultancy Turner & Townsend says that while the days of brand new schools and hospitals are long gone, there is money to be made in helping the Government save costs.

T&T’s head of public sector David Mathieson said: “Yes of course there is not the money there was three, four years ago, but when you’re looking at downsizing you have to change your property. That is not to say the Government is spending large amounts of money, they’re not.

“But they have to move more people into less space, move them into peripheral buildings and get rid of leased buildings. There is a lot of restructuring.

“It’s a very competitive market, everyone’s volume is down, but the public sector is still very big. There is a lot of work around.”

T&T believes that some sectors are still very strong, particularly rail and energy.

“A big thing for the future is energy efficiency,” said Mr Mathieson. “There is a drive to make public buildings more efficient. It costs money to implement, but you save money in the long run.”

Leeds-based building services firm NG Bailey agrees that public spending cuts have presented challenges and there is high competition for fewer jobs.

But like T&T, the Ilkley-based company is also branching out into other areas in the public sector. Sean Wickens, NG Bailey’s group business development director, said: “There is still work in the public sector for construction and services businesses.

“But in addition, there are lucrative opportunities in other areas of public sector work such as maintenance and IT outsourcing.

“This market has the potential to be huge and the companies that will benefit are those with the capabilities and knowledge to enter in those markets.”

NG Bailey recently won a major contract with North Tyneside Police to maintain the heating, air conditioning and fire alarm systems at North Tyneside police headquarters.

While the days of brand spanking new school academies, futuristic hospitals and expensive council buildings are gone, it appears the public sector is by no means dying a death.

The Government has to save cash over the coming years and companies that can help them achieve that goal can make money.

Warning of building delays

Analysts have warned that Government spending cuts are likely to cause delays in home building and other large construction projects.

IHS Global Insight economist Howard Archer said: “The coalition Government’s extended pruning of public spending will clearly limit expenditure on public buildings, schools, hospitals and infrastructure, even though the Government is keen to prioritise some infrastructure projects.

“If the economy continues to struggle for momentum over the coming months, commercial construction activity is likely to be hit with projects put back on hold.”

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, said: “The millstone of public spending cuts can be seen clearly. It remains to be seen whether a marked expansion of commercial projects will help to replace what has been lost elsewhere.”