H1.10: Building hopes

A special report in association with Hill Dickinson, The Co-operative Bank, Morris & Spottiswood and Emplacement

Headline writers have been using more axes than a woodcutters' convention in recent weeks as one government programme after another felt the chop. Is there anywhere safe left to hide in the building game?

"The state of the market is bloody scary and it's going to continue to be scary and hard to define until November, after the comprehensive spending review in October," explains Andrew Thomas, chief executive of the Centre for Construction Innovation North West, which advises contractors on how to improve their businesses.

"The situation is creating a hiatus where the only safe areas come down to policies that are not damaged by the austerity measures."

Energy is frequently cited as one of those safe havens. Either we build more capacity or we are going to run out of energy in 20 years. Construction companies are migrating towards energy and find some of the few remaining contracts over £100m there.

Peel and Covanta will start on site in 2011 with a £500m energy-from-waste incinerator on Ince Marshes in Cheshire. Bovis Lend Lease, Peel's usual construction partner, is expected to get the contract. Costain won the £405m infrastructure contract for the Greater Manchester Waste PFI, including five mechanical biological treatment plants and 24 household waste recycling centres.

There is also the refurbishment programme in social housing by arms length management organisations and registered social landlords.

Thomas adds: "If they don't bring social housing up to decent homes standard according to European legislation the houses will be declared uninhabitable. The buildings will become void and deteriorate more quickly."

The carbon targets for reducing energy consumption have created a market for improving existing buildings. The Energy Savings Trust and Feed in Tariffs have created ways to subsidise things like boiler replacement in a domestic property and bringing money in for a private homeowner. The utility companies are also forced to reinvest surpluses into infrastructure.

Schools face the prospect of coping with the loss of Building Schools for the Future. There are a large number of schools that have been waiting for BSF and haven't been spending a lot on their existing schools as they thought they were getting a new one. They will now be planning to spend on improving the old building, albeit with smaller amounts of £3m, £4m, £5m rather than an added nought.

The local authority work already budgeted for will continue, not least Manchester City Council's £175m Town Hall and civic complex revamp. Laing O'Rourke is rumoured to be in line for the coveted contract. Rochdale Council appointed Sir Robert McAlpine for its new offices of up to 320,000 sq ft. Designs are due to be unveiled in the summer.

In transport, there is welcome ongoing work at Merseytravel stations around Liverpool and on the Metrolink in Greater Manchester, where a consortium of Laing O'Rourke, GrantRail and Thales Group UK is midway through the expansion of the network. But future transport projects such as the second crossing over the Mersey and the high speed rail link between London and Scotland through Manchester are under review and would be years away from starting if they are in fact cleared.

There are glimmers of light out there but the competition is fierce for the little work that exists.

"There is incredibly competitive pricing and clients are making decisions on cost which creates a margins time bomb, it is hugely disappointing but that's how it is," concludes Thomas.