The Current Economic Crisis Construction Essay

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Abstract

Based on the Brief given, this Vocational Practice Analysis will look at whether the Current Economic Climate has affected the Supply Chain. This Analysis will look at the Supply Chain at the different levels of Subcontractors, the main Contractor and the Client to see whether their behaviour and strategic direction has altered in any way to suit the changing market and demand.

This report will look at the current Recession, the causes and the effect it is having on the Construction Industry. It will focus on the division I work within of Willmott Dixon Construction Ltd and will use the project that I am working on between July 2009 and December 2010 to identify the affects the recession has had on the project and what has been done to deal with this.

Recession

Background

Most Economists define a recession as "two down quarters of GDP" [1] . Many Economists do not agree with this definition [2] as it does not consider all economic change variables, such as consumer spending and confidence and unemployment levels. The National Bureau of Economic Research (NBER) is responsible, in the United States, of declaring a recession. The NBER define a recession as "a significant decline in economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and whole-retail sales." [3] 

It is a period of time in which the economic activity within the Business Cycle slows down. This usually involves a rise in unemployment and a decline in output and investment levels. This could include a fall in household income, business profit, investment spending and inflation. If a recession lasts longer than three to four years, or if the GDP is down by 10%, this can be referred to as an Economic Depression [4] .

A recession can be referred to as different recession shapes. These are V-shaped, U-shaped, L-shaped and W-shaped. These are in reference to the recovery period and take their name from the shape they make in graphs during recessions.

The shapes of the graphs are formed from the speed of fall into the recession and the time period it takes to recover again. A V-shaped recession tends to take around the same time to go into recession as it does for the economy to recover. Whereas a W-shaped recession, sometimes called a double-dip recession [5] , starts to recover before the economy drops back into recession again.

The economy tends to follow a long-term business cycle [6] . A business cycle looks at the fluctuations in economic activity over a period of time and is measured using the Real Gross Domestic Product.

The cycle is thought to have four stages [7] . These are:

Expansion

Prosperity

Contraction

Recession

Expansion is growth of the economy, often following a recession. The Prosperity is the wealth and comfort within this. Contraction is a phase where the economy slows down and begins to decline, and finally Recession is a general economic decline. These stages link together to form a cycle so once the recession phase ends then the expansion stage will begin again.

The economic cycle was first identified in 1860 by a French Economist, Clement Juglar, who believed the cycle was eight to eleven years long [8] . Joseph Schumpeter believed that the "Juglar" cycle has four phases: Expansion, crisis, recession and recovery. The Juglar cycle, which is also known as the Business Cycle [9] , states that the recovery stage includes increases in consumer confidence, productivity, prices and aggregate demand and the cycle is usually between seven and eleven years in total.

Economists are split in their views regarding the business cycle and many believe it is not a cycle but economic fluctuations [10] . The Fiscal Policy and the Monetary Policy tend to stabilise the economy and decrease the excesses of the business cycle which therefore level out the economy and the cycle.

The Keynesian economic view is that fluctuations in aggregate demand are seen as the business cycle. Although Keynesian models do not directly link with business cycles, models such as the accelerator and multiplier models do have results which are similar to cycles [11] .

Recent Economic Recession

Cause

The recent recession, which hit globally in 2007, was instigated by a liquidity shortfall in the banking system in the United States [12] . In the US there were large numbers of securities which were tied into the US housing market. The majority of these securities were of high risk, or risks which could not be assessed, and these were marketed and sold on around the world. These debts were being sold on from institution to institution and the selling of these debts, which was happening on a global scale, was unsustainable. Then in 2007 this 'housing bubble' collapsed which resulted in the securities tied into the US Real Estate to significantly reduce in value. This impacted organisations and financial institutions globally as many suffered large losses and bankruptcy. Financial Institutions began to panic and decrease credit availability to banks, organisations and individuals. The global stock market was impacted as investor confidence was drastically damaged.

Implications

This global recession resulted in a drop in international trade, rising unemployment and housing price declines [13] . Economies worldwide have slowed due to the decrease of international trade and as credit tightened. Banks began to assess each application for credit more thoroughly and made credit availability a lot more difficult.

Default rates on mortgages began to increase as credit was less available and unemployment was rising. Due to house prices decreasing this then resulted in many mortgages being in negative equity which added extra pressure to the financial institutions as they were unable to get all of their investment back. Prior to the recession many of these mortgages were issued to individuals who would now be considered a risk. Mortgages were offered with no, or very little, deposit put down and often for amounts which were many times their income and more than they could afford. This was not always the fault of the house-buyers as they were often encouraged by the mortgage lenders and loan and credit card companies as this was during a time of house price increases and affluent economic times. Many of these house-owners are now the individuals who are struggling to pay their mortgages and debt and are therefore losing their homes.

Financial Institutions have also suffered as many have been left with bad-debt which they cannot pass on and cannot retrieve the money either. This has resulted in the collapse of Lehman Brothers as they were declared bankrupt in September 2008 [14] , and the bailout of banks such as Northern Rock and Royal Bank of Scotland (RBS) by the Government in the United Kingdom. This has resulted in low consumer confidence and decreased credit lending. This has been disastrous for many industries, including Construction.

Impact on Construction Industry

The recession has hit both public and private spending within the Construction Industry. This resulted in many projects that were going through the planning phase were deemed as high risk and were then placed on hold. In the housing sector the value of the properties were decreasing and the numbers of potential house-buyers was also falling as they were unable to get a mortgage or were less confident with the financial situation and therefore did not want to invest. The private commercial sector was also more hesitant to invest in properties with a lower likelihood of renting the space to organisations or individuals once the construction is complete. Construction is also a slow process and therefore there is a lot of financial outlay to start off with and a long wait for the return. This also has put potential investors off beginning a new project during these times as the initial funding could cause them to go bankrupt during the build phases. This has meant that fewer projects are going ahead and therefore there is a rise in competition from other Main Contractors for this work, resulting in a severe drop in profit margins to try to secure these projects.

All private sector work has decreased as many have struggled to obtain funding as the banks are not lending as much and as easily, asset valuation has fallen and potential buyers and renters has also declined. This has been the effect all across the UK but larger cities such as London and Manchester have been hit worst due to the amount of private sector spending that took place in these regions prior to the recession.

Although public sector works have also struggled they have performed better than the private sector. This is because of the Fiscal Policies which have been implemented. The Government has continued to pump money into the construction industry as Gordon Brown has stated "We'll spend our way out of recession" [15] . The continued investment by the Government into sectors such as education has helped the industry with the availability of construction projects. Unfortunately in the Government doing this it has created a huge rise in National Debt which will have to be paid back and pulled back in at some point in the future.

The house-building sector has suffered the most, followed by Commercial and Civil Engineering [16] . In the housing industry a decline in potential buyers and a fall in house prices has influenced this decline. In the commercial sector many investors are less confident in funding large projects, and organisations which may have been looking to expand and either invest in new offices or extend current building would have postponed these plans as in a falling market there is less demand and therefore they may no longer be able to expand.

The recession has also had a large impact on employment in construction as there is less work available and there companies are either decreasing in size, and therefore make redundancies, or are going into administration which adds to large numbers of individuals being unemployed. This has led to many skilled labour being unemployed, leaving the industry and skilled foreign labour leaving the country. This will have an effect on the industry once the economy starts to pick back up as a large amount of the skill base would have been lost and therefore knowledge would not be available and money would need to be spent on re-training again.

Project

Project Description

The Wembley ARK Academy project commenced in June 2009 and includes the demolition of existing houses and a pavilion and the construction of a new Academy. The ARK Academy will provide educational facilities for approximately 1600 pupils including infant, junior and secondary school ages. The project will also include the construction of a new sports hall and external sports facilities which can be used by the general public out of school hours. The buildings are predominantly structural steel frames with precast concrete slabs and some timber elements.

The Client is The London Borough of Brent who is part of the national Building Schools for the Future (BSF). Brent's BSF programme looks to regenerate the area by providing improved and new school facilities to areas in need and areas of growth. Through the engagement of the local communities the Borough are working towards improving learning to young people [17] . This programme is managed by Partnerships for Schools (PfS) which was created by the Department for Children, Schools and Families (DCSF).Partnerships for Schools is an organisation who are in charge of managing and ultimately delivering the Government's capital investment programmes into schools. Building Schools for the Future; the Academies Programme is a part of the Government's capital investment programme in which its aim is to spend £45billion on rebuilding and renewing almost all Secondary schools in England over a 15 year period [18] .

Add info from factsheet

The land in which the Academy is being built is freehold owned by London Underground Ltd. London Underground Ltd have agreed to lease this land to London Borough of Brent. Brent is responsible for the development of the ARK Academy on this land and the costs of these works.

The Wembley ARK Academy is made up of two separate buildings with a large amount of external works for sports grounds. The project is to be handed over in phases. These are as follows:

Section/Area of Works

Date for Completion

Primary School (All floors)

Sports Hall (All floors)

Agreed external works

3rd September 2010

Secondary School (Ground & part of First floor)

17th September 2010

Secondary School

Plant Room

5th November 2010

Ark Academy fully completed (including all external works)

24th December 2010

The first and second phases are to be completed by September 2010 ready for the start of the new academic year and therefore it is vital that these dates are hit as school facilities need to be available for the students.

Procurement

The tender for the Wembley Ark Academy project was procured via the National Academies Framework. This Framework consists of six Main Contractors, known as Panel Members, who are invited to bid for each and every Academy being constructed throughout the duration of the Framework Agreement. At the end of the Framework agreement it is opened up to other Main Contractors and the selection process takes place again to find six main Contractors again. If Willmott Dixon can prove that they are still competitive, and they have impressed during the previous framework duration, then they will be included in the next Framework Agreement.

Once within the Framework the procurement process begins by all six Panel Members being informed that a specific Academy, Wembley Ark in this instance, is due out and then initial expression of interest is sought from these Main Contractors. All six Panel Members were then invited to a bidder's day which is in advance of the 'Project Invitation to Tender' (PITT) being issued. The bidder's day is set out to include a briefing on the Academy project and then a visit to the site of the new Academy as this enables the Panel Members to fully understand the extent of work that will be required.

The next stage of procurement was the PITT. The PITT duration was two weeks which consisted of answering between twelve and seventeen questions covering topics such as team selection and risk management. Four Panel Members were selected to progress to the next stage of the procurement process which was the PITT interview. The Evaluation Process then took place in which two Panel Members were selected. The two remaining Panel members were given a fourteen week period to enter a more detailed design competition. This process develops the design of the Academy from RIBA Stage B through to stage D and to the point in which a planning application can be made.

A preferred bidder was then selected, Willmott Dixon, and given a further sixteen weeks to progress the design from RIBA Stage D to stages E / F. This progression then allows them to go to site upon obtaining Financial Close. The Planning application was submitted at the beginning of this stage after the fourteen week detailed design competition. The planning application can only be submitted at this stage as the statutory period is fourteen weeks and is a pre-requisite of obtaining Financial Close. Finally, Willmott Dixon got Financial Close and moved onto site to start works on the Wembley Ark Academy's construction.

One of the main advantages to this type of contract for Willmott Dixon is that they are on the PfS Academy's Framework. This therefore means that they have a higher chance of getting future Academy projects as it is only Main Contractors that are within this framework that can tender for Academy jobs, which therefore gives Willmott Dixon a better chance of winning these contracts.

Contract

The form of contract being used on the Wembley Ark Academy is Lump-Sum Bespoke Design & Build Contract for PfS Academy Framework. The Client does not have a choice on the form of contract being used for this Academy if they are seeking funding from PfS as they are required to use the Bespoke Academies form of contract.

A Design and Build Contract differs from other types of contract as it does not require a Quantity Surveyor to be appointed by the Client but instead there must be an Employer's Agent who acts on the Employer's behalf. A document called the Employer's Requirements is included and it is on the basis of this document that the contract is in place. The Employer's Requirements specifies exactly what the Contractor must do and deliver, and the Contractor must stick to this document. As part of the Partnerships for Schools (PfS) there is an Authority's Requirements document, which is the same as the Employer's Requirements document, and contains all of the requirements set out by PfS and London Borough of Brent which are specific to this project. These include the lease agreement with London Underground Ltd, progress reporting (including progress photo's), working hours, traffic arrangements and a large number of other items.

For example, the site is located adjacent to Wembley Park Underground Line and Station and also has a bus lane running past the entrance to the main site access route. Conditions have been included in the contract in regards to the location of the site as care must be taken to keep the bus lane clear at all times and the roads must be kept clean at the access point into and out of site. Also, the land where this Academy will be built is owned by London Underground Ltd. Therefore, London Borough of Brent have a lease agreement in place between the two parties in regards to the lease of this land.

A design and build contract usually transfers all risks to the Main Contractor and away from the Client as the Contractor is responsible for both the design and construction. This can be appealing to a Client dependant on the specifics of the project. It is often a preferred route if the Client is looking for a prompt completion date, a good quality finish is required and if risk and price certainty is important [19] . A design and build contract is advantageous to both the Client and the Main Contractor as although the risk has been transferred to the Contractor, they are involved at a much earlier stage and can work with the Architect. This usually results in the design and construction phases overlapping which reduces the overall project length.

Due to the importance of the phased handovers, as these coincide with the start dates of the school years and terms, there must be teaching facilities available. If these dates are not met the Liquidated and Ascertained Damages (LAD's) included in this contract are the temporary provision of school facilities. If any of the phased hand over dates are not met then the Main Contractor will be penalised. This penalty is not a fixed LAD amount per week or a percentage of total contract value, like other contracts have in place, but is whatever is seen as a reasonable penalty in regards to temporary school facilities. For example, if the first phase, the Primary School, is late then Willmott Dixon, the Main Contractor, would need to either provide a porta-cabin or another area of the building if this is complete. There is not a specific penalty stated but is what is seen as 'reasonable' by both parties.

Payments to Willmott Dixon from London Borough of Brent, the Client, are made against pre-agreed payment milestones. Payment milestones would have been decided upon and agreed and these would be within the Contract Documents. Valuations are carried out on a monthly basis by the Contract Administrator and the Project Surveyor for Willmott Dixon. These valuation dates are agreed from the out-set and normally Sub-contractor payments would also run inline with these valuation dates. Willmott Dixon's Project Surveyor values the work that has been carried out during the month against the payment milestones. The valuation meeting allows the Contract Administrator to go through the valuation and come to an agreement with the Project Surveyor about this value. The Contract Administrator is working on behalf of the Client, London Borough of Brent, and therefore aims to keep the valuation figures low as this will be the amount that London Borough of Brent then pays to Willmott Dixon for that months work.

There are many advantages and disadvantages to Willmott Dixon, the Contractor, in using a Lump-sum Bespoke Design and Build Contract for PfS Academy Frameworks. The main disadvantage is the risk. Being a design and build contract this means that all of the risk is transferred from the Client to the Main Contractor. Willmott Dixon are responsible for both designing and building the Academy. The Authority Requirements Document details the high level specifics to what must be provided but it is down to Willmott Dixon to design how they are going to provide them. If there are any un-foreseen items or if any major items were missed during tender stage or problems and changes later in the design phase then this is Willmott Dixon's responsibility, and they must therefore manage this and any additional costs are down to Willmott Dixon.

The main advantage to the Main Contractor when using a design and build form of contract is that they get to choose the Design Team. This allows Willmott Dixon to choose the Architect, Structural Engineers, Landscape Consultants and the rest of the Design Team as they are responsible for the design. Therefore, Willmott Dixon can pick organisations that they have worked with previously and therefore have a relationship already built between them. This relationship is important as there must be a level of trust between them as Willmott Dixon holds all the risk and so they need to ensure they have a team supporting them and one that they know they can work with to provide the best final product to the Client that they can.

Another benefit of this project, the framework and contract is that as Willmott Dixon have worked on other Academy buildings and projects then these are often quite similar. Although the design is different, as the Architects may not be the same for each, the general details and specifications are often quite similar. For example, the external tarmacadam types and play surfaces are likely to be the same, or very similar, specification for each Academy. This can therefore make it slightly easier for Willmott Dixon when design some of the major details and when looking to get Subcontractors on board. For this same reason this is also a benefit to the Subcontractors on the Supply Chain as they are more likely to be asked to price the works if they carried out the work on a previous Academy project.

  

Project Economics and Cost Management

Wembley Ark Academy is based on a Lump-sum form of contract. This means that the project value has already been agreed between the Client and Willmott Dixon and as long as Willmott Dixon deliver all of the requirements set on the Authority's Requirement Document and provide a building which is fit-for-purpose then this agreed amount will be the amount that will be paid to them.

The value agreed on this project is £32million and it has been split into payment milestones. The entire project has been divided into phases and these phases must be handed over on certain dates (as section 3.1). The payment milestones are linked with these phases and it is against these milestones that the monthly valuations are valued against with the Contract Administrator.

An advantage of this form of contract, on the Wembley Ark Academy project, is that as it is based on a lump-sum this gives cost certainty to Willmott Dixon. Therefore, although the risk is with them due to this being a design and build project, at least financially they know the final value that they will receive and therefore know where they are aiming for. By being on a lump-sum contract enables the Project Surveyor to budget more accurately. This is because they know the exact amount that they will be receiving at the end of the project. This also allows the Commercial Team for the Hitchin Local Construction Office (LCO) to budget more accurately for the Wembley Ark project within their accounts.

At the beginning of the project the Project Surveyor for Willmott Dixon worked through the construction packages which will make up the construction of the Academy Building. Each of these packages then had a budget figure allocated to it in which when the project procurement takes place, these figures must be met or be under to keep within the total project cost plan. The Surveyor would use resources such as the quotations received during the tender stage, experience and knowledge and historic information from previous similar projects to project a budget figure for each of these building elements. As the Wembley Academy project is similar to other projects which Willmott Dixon has worked on this was a little easier as there was more information and help available when trying to forecast these costs.

This initial cost plan is used throughout the procurement stages by the Surveyors as it provides a figure to work towards when procuring different Subcontract packages. The project costs are managed throughout the projects length by the use of a cost value comparison (CVC) spreadsheet. This document shows the budgeted costs, the target costs and the actual costs and it is updated on a regular monthly basis. This helps the Surveyors to keep control on any money being spent on Subcontractors, Suppliers and Preliminaries and therefore manage these costs. Another document which helps to manage costs and is used further on in the projects duration is the Cost to Complete (CtC). It is completed on a monthly basis at the same time as the CVC document. The CtC lists each Subcontractor, Supplier and Preliminary and breaks down forecasted costs into months for the rest of the project length. The CtC is updated on a monthly basis to include actual costs for each month, when available, to keep control of these. This document tends to look into each element in more detail so that a final cost can be reported a more accurately to the Management Team.

Using a design and build form of contract allows the Main Contractor to look into different value engineering options. Value engineering is looking into improving the value of goods or services. To achieve this either the function needs to be improved at the same cost or the cost of the product or service is decreased but still providing the same function. This means that materials, products or systems can be revised from the original specification but must provide the same quality and function, or even better, at a lower cost.

Management Roles and Structure

The Management Structure for the Wembley Ark Academy project is as follows:

Client London Borough of Brent

Contract Administrator Navigant Consulting

End User

ARK

Main Contractor Willmott Dixon Construction Ltd

Services Co-ordinator

Design Consultants

Architect

Structural Engineer

M&E Engineer

Sustainability Consultant

Landscape Consultant

Sub-contractors & Trade Specialists

M&E Subcontractor

Client

The Client, or Employer, has control over their expectations in regards to what they are expecting as the end product. The Authority Requirements Document is compiled to include everything that they need the Academy to have. This document does not tend to go into detail as to the specifics of it item or product that they would like, but instead provides high level details which Willmott Dixon, the Main Contractor, can then use to begin their design. As stated previous (section 3.1) London Borough of Brent's Building Schools for the Future programme is managed and controlled by Partnerships for Schools (PfS) who are in charge of delivering the Government's capital investment programmes. Therefore, PfS are the organisation that oversee the entire programme and London Borough of Brent therefore manage the Academy programme within their region, which includes the Wembley Ark Academy project, and makes the payments to the Main Contractor.

End User

The End User for this project is Ark. Ark is the organisation which will manage the Academy on the London Borough of Brent's behalf once it has been handed over. Within Ark is the new Heads of the Academy for both the Primary and Secondary Schools. Although they are not the Client they are still key stakeholders in this Academy project and therefore attend the majority of the Design Team meetings to ensure that the products that are being design and built would be fit-for-purpose in regards to the teaching facilities that they require. The End User's would also be included on decisions such and colours schemes and furniture, fixings and equipment (FF&E).

Contract Administrator

The Contract Administrator is responsible for carrying out the administrative duties under the contract on behalf of the Employer. On the Wembley Ark Academy project the Contract Administrator is also responsible for the payment provisions, valuing the works and valuing any variations / changes. The Contract Administrator, Navigant Consulting, meets with the Project Surveyor for Willmott Dixon on a monthly basis and agrees on the value of the works completed in relation to the payment milestones (as per section 3.1.2).

Main Contractor

The Main Contractor, Willmott Dixon, is responsible for the design and the construction of the Academy building. This includes appointing all of the Design Consultants and Sub-contractors and Suppliers that will help to produce the finished product. Willmott Dixon manages and controls all of the activities on a daily basis on site to ensure that not only are all of the Authority's Requirements being met but that Health and Safety Legislation is being adhered to on site. They would also ensure that any Sustainability techniques and products are being used to keep the Academy Sustainable for the whole building life-cycle.

During the construction phase Willmott Dixon has a number of key personnel based on site. These include:

a Project Director who has overall responsibility for the site and project and ensures it runs to programme,

Design Manager who works with the Design Consultants and the Subcontractors to get all of the design elements and details that are required for works to take place,

Project Surveyors who deal with the projects finances, all of the procurement, the contract documents and valuations with the Contract Administrator and the Subcontractors.

Building Managers who liaise with the Subcontractors on site to co-ordinate the works, ensure the programme in stuck to and ensure that health, safety and environmental legislation is always adhered to and to try to improve on the standard required.

Services Co-ordinator

This is a consultant that is external to Willmott Dixon but works closely with them on site. The Service Co-ordinator acts as a central point between the M&E Sub-contractor and Willmott Dixon to help both parties. They tend to be experts in the M&E field and therefore can help with communication between the two parties when it comes to ensuring that the M&E Subcontractor delivers everything within their package and helps with any issues or problems that arise during that time.

Design Consultants

The Design Consultants were appointed by Willmott Dixon and therefore report to them. They are responsible for the design in their specific area of expertise. They would work with Willmott Dixon and design the Academy to meet the items stated in the Authority's Requirements Document. This would be done through the attendance on site of a weekly Design Meeting in which the Design Team and the Design Manager for Willmott Dixon would attend.

Supply Chain

What is a supply chain?

A Supply Chain is a link of companies that work together, either through supply of materials, products or services to produce an end product for the Client. This therefore means that all Contractors, Suppliers and Subcontractors are a part of a Supply Chain. Each company or Client within an overall supply chain can have their own supply chain which they use to provide the goods or services to their Client in a project.

For a supply chain to function to its full capacity each component of the supply chain must work collaboratively and have the same aims and objectives to provide a finished product to the project Client. A well managed supply chain is looking into the longer term rather than a short term one-off project. By looking into the longer term they are able to deliver added value to the client and build a relationship which will in turn lead to future works.

What are the benefits?

There are many benefits to the Subcontractors, the Main Contractor and the Client with having a well managed supply chain.

For the Subcontractors there is a higher likelihood of future works as the Main Contractor is able to trust them and know that they will deliver the material, service or product as required, to a competitive cost and on time. By building a relationship this ensures that there will be future work available to the Subcontractor and therefore they have an established workload.

The benefits to a Main Contractor are received from both the relationship with the Subcontractors and the Clients. By assembling a well managed supply chain, that they can trust, they know that the prices they pay are competitive but also that the goods or service that they receive are of a good quality. By using a supply chain this may mean that the prices are not the lowest in the market but there is not the element of risk that there would be by using the lowest price as past performances show that they can provide to the required quality. The supply chain will also know and understand your procedures and should have the same aims and objectives with delivering a good product but also with issues such as sustainability. By building a relationship with a Client this can lead to future projects. This is the same whether the Client is a Local Authority in the Public Sector or a Private Investor as both may have future projects.

The Client benefits from an efficient Supply Chain as they receive a better level of service by the Main Contractor. There is a better understanding of their needs and requirements and an improved level of trust between all parties. This therefore results in a finished product which meets the Clients needs, which is delivered to time and cost with a lower level of defects [20] .

Willmott Dixon's Supply Chain

Willmott Dixon has a dedicated Supply Chain Team for each Local Construction Office (LCO). The Supply Chain Manager's within each LCO takes control of the Supply Chain Management System to ensure that all information is updated onto this system about each Subcontractor and ensures that each member of the supply chain is performing well on each project and helps with any disagreements between parties if need be. Having a supply chain that performs well, has a good relationship with Willmott Dixon and is financially competitive in the market is vital to ensure that projects are delivered to the quality expected and therefore future projects are won. Not only is this important to Willmott Dixon but it is also a benefit to the Subcontractors as it means that they too are more likely to get future work.

Over the last few years the company have been working to decrease the overall size of the supply chain for each LCO so that there are around four companies per trade available to send enquiries to. This helps to build a better relationship with the Subcontractors and also promote collaborative working and partnering. This ensures that there is trust between both parties and also know and understand each others procedures on working practice, health and safety and sustainability. The construction industry is working very hard on environmental and sustainability issues. Education and promotion of different techniques, methods and systems which can be used by the Subcontractors, the Main Contractor and the Client are essential.

Analysis

The previous recession which started in Autumn 1988 originated in the housing sector also. In early 1988 average earnings was rising at a fast pace that retails prices which meant that the majority of people felt well-off financially, but at the same time house prices were increasing even faster than average earnings. With a combination of rising average earnings and the housing market looking appealing as an investment the demand for housing was high.

In March 1988 the Government made its Budget announcement that the Multiple Mortgage House Ownership taxation relief would be changed to 'per dwelling'. The multiple mortgage house ownership meant that every income earning person that owns a share of a house could get taxation relief on their mortgage. The new taxation policy changed this so that it would only be one income earning per household that could receive tax relief. The policy change was postponed until August 1988 which resulted in a huge influx of people wanting to buy a house so they could benefit from the multiple tax relief [21] . This outcome of this was that house prices accelerated which also triggered an increase in interest rates from 7.5% in May 1988 to 15% in October 1989 [22] which was unsustainable. Once the new housing taxation relief policy was implemented in August 1988 house sales decreased by such a large amount that the housing market collapsed. House prices decreased which left many house-owners in negative equity, and interest rates were high which made mortgage and debt payments more difficult to pay. House builders were left with land which was over-valued which they could not sell as its value had decreased and there were not buyers willing to buy in this time of economic recession.

This resulted in an economic recession hitting all sectors. Employment fell from 1.8m in 1990 down to 1.4m in 1993 in construction [23] . The housing sector fell drastically from 1988 followed by the commercial sector in 1990. The commercial sector was delayed as the majority of the projects are large and therefore projects which were taking place when the recession hit kept construction companies going during their duration. Then in 1990 when these large projects were complete there were fewer large commercial projects available for tender and any which were there had increased competition. Repair and maintenance made losses between 1990 and 1993 and infra-structure struggled, but this was not as much as the other sectors. The reason for this is the Channel Tunnel construction was taking place which large amounts of investments by the privatised and energy industries [24] . It wasn't until mid 1994 that orders began to increase and the construction industry began to recover.

Although the circumstances which caused the current recession are different to those of the late 80's early 90's recession the results in the construction industry are very similar. Unemployment rates have risen, large numbers of companies, both in and out of construction have gone bankrupt and into administration and many others have faced huge drops in profit and company size. Many companies have needed to look internally at their own company strategies and structure. This has resulted in many cutting costs, which has included downsizing the workforce and making redundancies. This has added to the growing unemployment rate and the decreasing number of job vacancies available.

More litigation

Cost cutting

Credit and financing difficult to get

Skilled labout is leaving the industry. This means the skill base is lost and once the economy has recovered money will need to be spent and resources used to re-train the workforce.

Fiscal policies - government spending

Monetary Policies - lower interest rates - increase consumer spending and investment (construction etc)

Out of recession as country but not construction - lag behind as projects priced in recession period

Project Level

Economic Climate Impact

Levels of labour (as costs cut)

Liability (as companies going bust)

Companies/subcontactors are looking at making money from a different angle. This is because they have had to cut their profit margin down to win the works package and therefore are trying to claw back some money.

Relationships with subcontractors hit as everything is so tight - litigation

Not getting same level of service and quality as you had previously as costs have been cut - this includes the amount and quality of supervision normally provided is lower, therefore standards slip (e.g. house-keeping)

Value of pound sterling has decreased so materials and products are more expensive abroad and are sources locally - more expensive in cost, but better in regards to sustainability issues

Mitigation

Construction Division Level

Economic Climate Impact

Return to single-stage tendering

Interest low - cask in bank - re-investment does not yield much

Value of the pound sterling has decreased - global projects

Coming out of recession - historical prices as projects which were priced during the recession which very low profit margins will be running once the rest of the economy is out of recession and therefore their prices would have increased. It will be a couple more years before this catches back up and levels off….

Mitigation

Client Level

Economic Climate Impact

Clients less confident and are therefore less likely to invest

Harder to get financing for projects

Mitigation

Sub-contractor Level

Economic Climate Impact

Supply Chain Questionnaire's

Conclusion

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