Davis Langdon Ireland Review 2011

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Davis Langdon launched their Annual Review of the construction industry today. …

Davis Langdon launched their Annual Review of the construction industry today.

paul.mitchell@davislangdon.com

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  • 1. REVIEWDavis Langdon Ireland Annual Review 2011
  • 2. Cover image: Terminal 2, Dublin Airport
  • 3. ContentsINTRODUCTION 2 REGIONAL DEVELOPMENTS 29 Overview 29OVERVIEW 7 Sectors 29Medium Term Outlook 8 Market 33 Regional Spotlight 33SECTOR DEVELOPMENTS 13Public 13 INDICATIVE BUILDING COSTS 37Commercial 14 WORLD CONSTRUCTION 2011 39Retail 15 Europe 40Residential 15 Middle East 40Hotels, Sports & Culture 16 Asia Pacific 40Infrastructure & Industry 16 Australasia 41INDUSTRY DEVELOPMENTS 19 The Americas 42The Capital Works Management Framework 20 Africa 42Understanding Specialist Contractors 21 DAVIS LANGDON NEWS 45Recruitment Embargo 22Reform in Public Sector Assets & 22Facilities ManagementReviewing Insurance Valuations 23Value for Money Requirements 23NAMA – It’s all about the numbers... 24Working Out of Distressed Projects 26
  • 4. IntroductionIt has been over 16 years since I One of the positive outcomes of the NUI Galway’s Science Researchfirst started work in our offices in boom years for businesses within Bundle, Bons Secours PrivateLower Hatch Street. Over that time the Irish construction industry is Hospital in Cork, Limerick RegionalI have, like most of you, seen vast the depth and wealth of knowledge Hospital Critical Care Centre andchanges in our industry. During the generated during this period. The the TCD Biosciences Building.company’s 150 years in Ireland it high calibre and experience of ourhas constantly evolved as it has people is in high demand from We look forward to reflecting ongrown, dominating new sectors overseas markets. Unfortunately, these projects in our Annual Reviewand delivering new and innovative this has led to the all too familiar in 2012.services to our clients. “brain-drain” from our economy. In other cases it has served Irish We have continued to expand andWhilst all companies have taken companies well in delivering projects deepen our service line offeringtheir fair share of pain during the from dual locations therefore in the industry with Facilitiespast three years in Davis Langdon keeping people employed locally. Management consulting, ForensicIreland we have continued to focus and Recovery advice and withon growth and innovation. At the During 2010 our offices here in industry renowned thought leaders,end of last year, Davis Langdon Ireland worked with our colleagues DEGW, offer Business Consultancycompleted their merger as a in other parts of the world on major in the strategic use of place. Wenew service line offering within projects including Stone Towers in are currently working with ourAECOM. In the first six months we Cairo, the King Abdullah Financial London-based teams on the UK’shave jointly secured over 70 new District in Saudi Arabia, a €1.5 two largest rail schemes, includingappointments with AECOM across billion Marina development in the Specification Writing on London’sthe globe, amounting to over €20 UAE and a housing redevelopment Crossrail and Cost Managementmillion of fee income, including scheme for the people of Haiti. services on High Speed 2 (HS2)Dublin’s involvement in a €7 billion which includes two lines fromscheme in Chile and a €700 million We are aware also of Irish Birmingham to Manchester & Leeds.airport extension in Eastern Europe. companies that, with the help of Enterprise Ireland, have started to During 2010 we saw a significantWe are very proud of the significant gain a foothold and deliver a return number of casualties in theprojects that we have been involved in foreign lands which is good news industry. In addition to a plethorawith in Ireland over the past year for business in Ireland. of sub-contracting businesses goincluding Terminal 2, Grand Canal into liquidation we also saw someTheatre, Grangegorman Strategic Over the course of the next year household names in the industryPlan, the Motorway Service Area our 70+ strong office is in the close their doors. Unfortunately,PPP, Glasnevin Museum, UCC enviable position of working it is likely that we will see moreWestern Gateway Building, NUI on some of the country’s finest companies follow the variousGalway New Engineering Building projects here in Ireland, including routes of insolvency during 2011.and UL World Performing Arts the National Children’s Hospital, theAcademy to name but a few. new HSE Mental Health facility at Grangegorman, UCD Sports Centre,2 | Introduction
  • 5. Paul MitchellDirectorHead of Office – IrelandIn articles and commentary support it in providing jobs and Our former Managing Directorsprovided over the past 12 months restoring confidence. Michael Webb and Norman Craigwe have advised on the effect have done all the heavy lifting onthat the downturn would have on Easier said than done? The this one leaving it for me to signtender levels. Much has been made Construction Industry Council copies in Easons!of the “below-cost tendering” in produced a robust report “Buildingthe marketplace but we are now a Better Ireland – Investing in We celebrated our sesquicentennialreaching the elastic limit and are Infrastructure and the Built last year in the Grand Canal Theatreseeing sub-contractors refuse to Environment to Support Ireland’s and promised to follow up withquote for main contractors that have Smart Economy” with cogent bound publication in due course.priced work at unsustainable levels. arguments of how to achieve this The final draft is under review and in June of last year. we hope to get it back from theThere is now a narrow window of publishers very soon. We’ll keepopportunity for the government to The construction industry you posted.obtain the best value for money in needs formal representationthe marketplace and avail of the at government level to advise Finally, in these very challengingtechnical expertise and experience it on how best to deal with the times and on behalf of my fellowbefore it is too late. construction industry. The UK directors I would like to extend our did exactly this in 2009 to ensure sincere thanks to you our clientsIn our Annual Review in the early securing value for money from and colleagues for all your support2000s we warned of the effects the government’s procurement of during 2010. We look forward toof pumping investment into an construction, promote innovation working with you to deliver youroverheated construction market and sustainability in the industry business objectives during 2011where value for money was not and be responsible for ensuring and beyond.achieved. The reverse is true today. the government takes full accountA billion euro from the National of the impact of regulations on thePension Reserve Fund spent on our construction industry.infrastructure deficit today wouldyield significant value for money, We remain positive in anticipationincrease indirect employment, and will support our industrysavings on welfare payments and which we have all worked so hard Paul Mitchell DirectorGNP growth (estimated by the ESRI to create. Head of Office – Irelandto be €0.4 billion per annum in theyears immediately after the money Like so many others in the industryis spent). we will be releasing a new book this year, non-fiction unfortunately, butIt is high time that the government, may fall under the thriller categoryas constrained as it is, respect the depending on which decade youconstruction industry for the vital read. It is the 150 year history of ourrole it plays in our economy and business in Ireland! Introduction | 3
  • 6. University of Limerick: The Irish World Academy of Music and Dance There is now a narrow window of opportunity for the government to obtain the best value for money in the marketplace Interior, Terminal 2, Dublin Airport4 | Introduction
  • 7. National Paediatric HospitalTurning Point Sculpture, Terminal 2, Dublin Airport Introduction | 5
  • 8. ConsultantsOverview
  • 9. The horizon has been constantlyshifting over the last 18 months andthis has been no more evident thanwith the Public Capital ProgrammeSince the beginning of the economic In terms of “planned expenditure”downturn some of the key questions forecasts, these have alsobeing posed in relation to the fluctuated considerably. Theconstruction industry and its horizon has been constantlyseismic decline include: shifting over the last 18 months and this has been no more evident than“How bad will things get?” with the Public Capital Programme“When will we hit the bottom?” figures. Table 1 (overleaf) highlights“How quickly will things rebound?” how much the planned expenditure has dropped as the crisis hasThere is no doubt that the deepened. Whilst there is broadconstruction industry rode along agreement to the reduction of thethe crest of the wave during the deficit to 3 per cent of GNP by 2015,Celtic Tiger and there are those differences may well arise on thethat would argue, incorrectly in our ratio of cuts to taxes.view, that it was in fact the catalystfor the collapse of the economy.Regardless of which view one takeson this, it is certainly fair to say thatit is definitely at the trough of the 50000 50 %fragile economy today. €m 2010 45000 402010 has seen a continuation ofthe decline with overall output 40000 30estimated to have dropped to 35000 20under €11 billion (current prices). 30000 10Figure 1 (based on DKMConstruction Industry Review 25000 0& Outlook and Davis Langdonestimates for 2010 onwards) 20000 -10captures the full cycle of the 15000 -20industry since the early ninetiesand clearly demonstrates 10000 -30the extent of the fluctuationsexperienced in the last few years. 5000 -40 -50 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(e) 2010(e) 2011(e) 2012 FIGURE 1: Construction industry output (current prices) and per cent change Overview | 7
  • 10. Tomás KellyRegional DirectorMedium Term OutlookMedium Term Outlook 2009 2010 2011 2012 2013Looking ahead to the remainder € (million) € (million) € (million) € (million) € (million)of 2011 and beyond, the picture NDP * 11,410 11,428 11,538 13,000 12,400 €60bnremains bleak domestically over themedium term. As we can see from Budget Oct ‘08 8,231 8,297 8,193 9,672 9,159table 1, the annual public spendearmarked for 2011 is circa €4.65 Budgetbillion, added to this, private sector April ‘09 7,329 6,621 5,491 6,000 6,000capital investment is struggling due IIP 2010 -to a combination of the economic 2016 7,341 6,430 5,500 5,500 5,500downturn and lack of financeavailability. Budget Dec 2010 7,341 5,918 4,654 4,300 3,900 €26.1bnThankfully there are more Table 1: Summary of changing planned public capital programmeinfluencing factors other than *NDP National Development Planthe nation’s finances. Key externalfactors will be the timing andscale of an international economic In its end of April update on DKM Economic Consultantsrecovery. We have already seen the Stability Programme, the reviewed what would be apositive results in terms of Irish government reduced its GDP sustainable level of output in theexport growth which, if they can growth projection for the economy construction industry and from thebe maintained, should lead to in 2011 to +0.8 per cent. The latest extreme height of 25.1 per cent offurther investment in the industrial projections for the construction GNP in 2006 to a projected 7.9 perand commercial sectors. industry are summarised in Table 2. cent in 2012, DKM concluded that the sustainable level would be in theLikewise there have been some In summary, we expect the rate range of 12 per cent - 15 per cent.encouraging signs in terms of of decline in the industry to slowinward investment with Ireland down in 2011 with overall outputattracting a range of companies at circa €8.9 billion (from a highsuch as eBay, Google, PayPal, of €38 billion in 2007) and to beIntel and Zurich to establish and/ followed by a 5% reduction in 2012or expand their operations in and thereafter a couple of yearsIreland. Whilst the announcements at, or close to, zero growth. Thishave typically been smaller than will leave the industry output wellin the past, nonetheless they do below the figure of €18 billion,represent very valuable investment identified by the Constructionwith significant benefits for the Industry Council in 2009 as theconstruction industry and the long-term sustainable level for theeconomy generally. Irish Construction Industry.8 | Overview
  • 11. % Change in Construction Volume Prices In terms of Tender Prices, 2010 saw a continuation of the sharp 2010 2011 2012 decline in tender prices with anDAVIS LANGDON -35.00 -21.5 -8 average decline of circa 7 per cent over the year. Importantly, however,ESRI -30.75 -17.5 -7 the end of the year seems to haveCENTRAL BANK -28.00 -10.60 brought an end to the fall in prices. As a reflection of how low tenderDKM -29.60 -10.80 0.60 prices have fallen over the lastTable 2: Projected construction industry growth three years, table 3 overleaf shows selected indicative building costs from our 2000 Annual Review (converted to euro for comparisonMarket been smaller sub-contractors and purposes). Looking at these it isThe change in the industry over the developers, there have also been fair to say that these rates wouldlast few years has not been confined a number of high profile not seem out of place in today’sto the massive reduction in volume. contractors and consultancy market.In tandem the industry has been practices. This has contributedundergoing a sea change in terms to a sizeable reduction in capacity By contrast, the Consumer Priceof the new public works contracts. and this has become more Index (CPI) has shown a 28 per centThis combination of extremely tough noticeable in the last few months increase over the same period.operating market conditions and with fewer contractors submittingnew government contracts which expressions of interest in response A combination of the inability oftransfer greater risk to contractors to public contract notices. sub-contractors and suppliers tohas lead to an increasing number absorb further price reductionsof contractual disputes and we Other key developments include and the unsustainability of mainare likely to see a growing number contractors and consultants being contractors continuing to offergoing through the dispute resolution increasingly more selective in what “Directors Discounts” or “Zeroprocesses in 2011. they bid for and also shifting their preliminaries” should result in focus to overseas opportunities 2011 seeing a halt to priceAnother impact, which has been to retain key staff. These reductions and in fact modestsharply felt, has been the continual developments are a clear indication tender price increases of circa 3climb in the level of insolvencies of the sharp cash flow issues being per cent can be expected overin the industry. Figures published experienced by businesses and the the full year.by FGS (Farrell Grant Sparks) necessity to see a clear return onindicated that there were 684 any investment.construction-related insolvenciesin 2010, 39 per cent of totalinsolvencies in Ireland last year.Whilst the majority of these have Overview | 9
  • 12. Labour & Material Costs The SCS construction index, which It is these greener “far awayCosts obviously play a key role records input costs, has recorded fields” that have provided fertilein determining tender price an average of 2 per cent increase ground for significant numbers ofmovements and in this regard in costs in 2010. Irish consultants and contractorsDecember 2010 saw confirmation alike. It is imperative as individualof the union’s acceptance of the In light of the contrasting trends companies and an industry as7.5 per cent reduction in the in tender prices and construction a whole that we maximise theRegistered Employment Agreement. costs it is not surprising that there opportunities in “selling” ourWhilst industry employers had been has been considerable concern in services and skills. Severalseeking higher reductions, this relation to a lot of tenders in the companies have been successfuladjustment will be welcome. last year with regard to potentially in winning work overseas and abnormally low tenders (ALT’s). this can help sustain some of theOn the materials front there is a As a result, tender evaluations valuable jobs and skill base whichmuch wider range of variables. are taking protracted periods and has been created over the lastFrom domestic suppliers effectively contractors are taking longer to number of years. If Irish contractor“buying” contracts in order to get bonds. These delays, combined and consultancy businessesstay open (and make some small with the natural slow down in the can continue to innovate andcontribution to the cost of the progression of projects through exploit these internationalcapital invested in developing the public capital programme, are opportunities, then we can createand expanding their businesses creating real output and cashflow work domestically as well asduring the boom), to the other issues for all in the industry. internationally. Through this weextreme of specialist materials can maximise the benefits forsourced from international Conclusion Irish businesses and the domestic economy as opposed to beingsuppliers which may have been There is much talk about Irishexperiencing an inflationary cycle resigned to another brain drain and exports bucking the trend showing the permanent loss of a skill baseand a strengthening currency growth levels on the back ofagainst the Euro. that we as an industry developed improving international economies. over the last decade. 2000 2011 € / per square metre € / per square metre Offices - Owner Occupier 1,270 – 1,900 1,400 - 2,300 Secondary Schools 900 – 1,020 930 - 1,100 Hospitals 1,525 – 2,540 1,575 - 2,400 Basic Factory 510 - 825 600 - 850 Table 3: Comparison of indicative building costs10 | Overview
  • 13. Modest tender price increases of circa 3 per cent can be expected over 2011The Atrium, No. 2 Grand Canal Square Overview | 11
  • 14. ExpertSectorDevelopments
  • 15. In the last year there have been manyreferences to the public sector as“the only show in town”The downturn in the construction Publicindustry has been notable by the In the last year there have beenshift in the balance between the many references to the publicdifferent sectors. Figure 2 shows sector as “the only show inthe sharp contrast between the town.” Whilst this may be an oversplit in the five years from 2006 and simplification, the figures forour projection for 2011. new build construction in 2010 included in the DKM Review andThe residential sector has reduced Outlook document would supportfrom a wholly unsustainable 65.9 the premise that the publicper cent in 2006 to 20.8 per cent in sector (General Building and2011. Similarly we have seen the Infrastructure) represents,public sector increase as a share by a large majority, the mainfrom 21 per cent to 73 per cent source of non-residential newdespite having been reduced from build construction in Ireland.€6 billion to €4.5 billion.Increasingly consultants andcontractors are seeking outopportunities in sectors theywould not have traditionallyoperated. Notwithstanding thisand the associated risks for 2006 2011(f)clients, a worrying consequenceof the downturn is that output incertain specialist sub-sectors mayfall below a critical mass to supportsufficient competition to sustainthe specialist skills and in themedium term value for money. Residential Residential 65.9% 20.8% Retail RetailWe would anticipate that in the 7.0% 0.9%short-to-medium-term those Commercial Commercialsectors experiencing oversupply 4.5% 2.4%following the Celtic Tiger boom Hotels, Sport, Culture Hotels, Sport, Culture 2.5% 2.8%(residential, retail and tourism) Infrastructure Infrastructurewill remain in sharp decline 16.0% 57.4%whereas the public sector and the Public building Public buildingindustry and infrastructure sectors 4.1% 15.8%will decline at a slower rate. FIGURE 2 Graph showing contrast between the split in the five years from 2006 and our projection for 2011 Sector Developments | 13
  • 16. John O’Regan Anthony McDermottDirector Regional DirectorPublic CommercialAs summarised in the overview, Public Capital Programme €m €mthere has been a distinct lack of 2010 2011certainty around the projectedpublic capital spend as the Department Outturn (P) Estimateeconomic crisis has worsened. Education 705 491The most recent estimates for 2011published in February indicate the Health 385 392following projected expenditure per Transport 1,760 1,438department (see Table 4). Environment 1,464 1,002It is likely that this will be relooked OPW 159 124at by the new government witha probable emphasis on a larger Enterprise, Trade & Innovation 469 508number of smaller projects, but the Tourism, Culture & Sport 113 99envelope is unlikely to be increased.There is also the likelihood of Other 863 636greater capital expenditure by TOTAL 5,918 4,690semi-state organisations in theinfrastructure sectors of energy, Table 4 : Public Capital Programmebroadband and water.With an increasing emphasis on It is anticipated that by the end With NAMA and foreign banksachieving value for money, cost- of 2011 we will see the start of getting through their due diligencebenefit analysis and other project a gradual improvement with the examinations they are likely toprioritisation mechanisms are likely prospect of the funding crisis being become more and more focussedto be used on a wider basis and on addressed, coupled with a steady on disposals which hopefullylower value projects. flow of foreign direct investment may prove attractive to overseas stimulating some activity in the investors. In this regard it is likelyCommercial office and industrial sub-sectors. that the higher quality assets Companies such as LinkedIn, Yahoo in prime locations will hold upThe commercial property market and Google have recently acquired significantly better than thosehas been at the coalface of the or set up new offices here and the that were not needed in the firstproperty issues arising from the recent sale of the NAMA-owned instance and then were locatedeconomic and financial crisis being Montevetro building to Google on the wrong side of the Monopolyexperienced in Ireland for the last has been the largest commercial board game!couple of years. The interwoven transaction here in some timenature of many of the residential (circa €100 million). These sub-and commercial developments, sectors have also seen somewith the sets being transferred activity arising from consolidationto the National Asset Management and cost-reduction measures.Agency (NAMA), has lead to a veryunsettled period with low levelsof activity.14 | Sector Developments
  • 17. Mark Smith Cathal BarryAssociate Regional DirectorRetail ResidentialRetail The negative sentiment and poor In addition, a recent survey trading conditions are likely to lead carried out by the Department ofIt was another tough year for to more casualties in the market Environment, Heritage & LocalIrish retail in 2010. Retailers have during the year and are proving to Government indicated that thereworked very hard to reduce costs be a real barrier to closing deals is currently a supply overhangand entice customers to part with that have been in the pipeline of approximately 33,000 newtheir hard earned cash. Constant for some time. This is especially units completed (including nearreports of tenant negotiations true of the grocery and consumer completed) and available for salewith reluctant landlords continued goods sector in under populated in the Irish market; 9,000 of whichunabated and our unexpected residential developments as were located in Dublin.weather in December added to reflected by the sale of Liffey Valley,further misery, dashing any hope one of our largest shopping centres.of hitting end-of-year targets. Public The ongoing restructuring ofThe outlook for 2011 is likely to Residential the social housing investmentcontinue to test the resolve of the Private programme away from constructionretailers given the government’s and acquisition towards long-termausterity measures in the four year House building has been a major leasing and rental accommodationplan. Consumers will continue to be driver of the Irish economy over the will have implications for futurecautious in the light of uncertainty last decade-and-a-half, with output levels of public house building.around the general economy. reaching unsustainable levels of The level of new social housingHowever, on a more positive 90,000 units in 2006. units built, which until 2009note, retailers will have made the would have been between 5,000necessary hard cuts during 2009 The housing sector has been going and 7,000 units, is expected to beand 2010 and will be better placed through a severe adjustment now substantially lower over the nextto weather 2011. for close to four years with output few years with current estimates for 2011 projected to be slightly of between 1,000-2,000 new unitsA number of new developments will down on 2010 levels to circa 7,000 projected for 2011 and 2012.be coming to market during 2011 – 8,000 units followed by a slightincluding Balbriggan Shopping pick up in 2012 to 8,000-9,000Centre and potentially the Point units, subject to some increase inVillage. Retailers will also start to liquidity in the market and NAMApopulate the remaining units in involvement in providing loans toTerminal 2. Overseas retailers are purchasers. Currently growth islikely to take advantage of market being restricted by weak consumerconditions and the favourable sentiment, the protracted economicterms on offer for new units as situation and the uncertaintywell as the change-out of non- regarding the availability of financeperforming tenants in turnover rent and future capital values.agreements. Overall, the main focusis going to be on effective assetmanagement and controlling costs. Sector Developments | 15
  • 18. Andrew Thompson Eoin DunphyAssociate AssociateHotels, Sports & Culture Infrastructure & IndustryHotels, Sport & Culture In rail, the Cherrywood Luas In the energy sector there are a extension and the Phase 1 of the number of innovative and exciting2010 brought the completion of Navan Rail line were opened. new projects in wind, waste-to-a number of very significant new energy, geothermal, wave, hydroworld class facilities to Dublin 2011 is likely to see a significant and other renewables. Many ofsuch as the new Aviva Stadium, the reduction (circa -25 per cent) in them are being delayed by planningNational Conference Centre and the infrastructure expenditure. Much and/or availability of finance.new Grand Canal Theatre in Dublin of the speculation remains around Hopefully the momentum of a newwhich will be enjoyed by many for the Metro North and whilst the government, together with theyears to come. Interconnector and the Dublin Area rising oil prices, will give this sector Rapid Transit (DART) Underground the stimulus and stability to unlockUnfortunately, looking ahead, projects are still advancing, none some of these projects in 2011.at least in the short term, the of these will result in significantoutlook for these sectors looks construction activity in 2011.likely to remain low largely dueto the current public expenditure Davis Langdon acted as PPPreductions forecast combined with co-representative for thethe current funding constraints. SuperStop Consortium in relationThere continues to be very limited to the recently completed design,movement in the hotel sector with construct, operate, maintain andexisting room supply continuing to finance contract with the Nationaloutstrip current demand. Roads Authority (NRA) for three service areas (six service stations)Infrastructure on the national road network, two of which are located on the M1& Industry motorway and one of which is onDublin Airport Terminal 2 was the M4 motorway.opened in November. At itspeak Terminal 2 was the largest The decision by Intel to proceedconstruction project in the state, with their plans in Leixlip will giveand employed up to 2,600 workers a much needed shot in the armon site. to the industrial sector. Whilst manufacturing and export markets2010 also saw the substantial are holding up well, there are verycompletion of the national few large-scale capital projects inmotorway programme, including this sector. Most of the work is inthe motorway service stations, upgrading and the steady churnLimerick tunnel, the M50 upgrade required to keep facilities going.and the various sections ofmotorway around the country.16 | Sector Developments
  • 19. Residential Development, Ballyloughan, Galway Motorway Service Areas, PPP Tranche 1Motorway Service Areas, PPP Tranche 1 Sector Developments | 17
  • 20. LeadersIndustryDevelopments
  • 21. From the public sector clientperspective, the major challengeis “getting more from less” and“business change management”With the industry in such a state of Additionally, the combinedflux as we have been experiencing offering of significantly reducedover the last couple of years, it is not capital costs and moderated paysurprising that there is a wide range expectations has greatly improvedof issues occupying people’s minds. our competitiveness. This is being reflected in our export lead growthHere we take a look at a number of and, when allied with our lowthe key client issues and identify corporate tax rate, is attractingpotential solutions towards more than our fair share ofaddressing them. international investors.From the public sector client The Croke Park Agreement isperspective the major challenge supposed to be the spring board foris “getting more from less” and public sector reform. Unfortunately“business change management” it has suffered from a slow start. Ofwhereas from the private sector course the real test of its successperspective the emphasis has been will be the amount of real “reform”on “restructuring portfolios” and as opposed to purely “cuttingendeavouring to extract liquidity costs.”and value from existing assets. In terms of precedent for theThe fall out of these developments implementation of strategictogether with the wider economic reform, the constructionand property crisis has manifested procurement reform agenda hasitself in a number of ways and been in train since the governmentthese have been felt across all decision of 2004. In the lastsectors and service providers in 18 months these reforms havethe industry. Among the impacts been taking hold but not withouthas been a significant reduction in presenting on-going challenges.the numbers engaged, including a Here we identify some of the keynumber of high profile insolvencies issues impacting public sectorin both the contracting and implementation and issues thatconsulting arms of the industry. are more generally the focus of clients in the industry.On the positive side, theseenforced adjustments have lead toa significant improvement in thevalue for money available. Industry Developments | 19
  • 22. Tomás KellyRegional DirectorThe Capital WorksManagement FrameworkThe Capital Works Aside from the fundamental The Guidance Notes in Pillar 4 changes of contractor and reinforce this by stating theyManagement consultant contracts which are appropriate where designFramework were introduced in 2007, some constraints on the contractor are at examples of other areas of change a minimum, and the contractor mayIn May 2004 the government which clients are likely to have to respond to output requirements indecided to reform public sector implement in 2011 include: innovative ways, and thus presentconstruction procurement greater opportunities for deliveringthrough the introduction of the a) The introduction of a Project better value for money.Capital Works Management CoordinatorFramework. This decision set in The project structure allows d) Post Completion Performancetrain a major programme of work for the identification of a Evaluationsby the Government ConstructionContracts Committee (GCCC) Project Coordinator. The Project Under the new Guidance Notes, alland the Department of Finance Coordinator will be the main works contractors and consultantsto review all aspects of capital promoter and practical leader of should be assessed in accordanceproject procurement from appraisal the project, and has the pivotal with the performance andthrough to project review on roles of liaising between the Design timeframe details contained incompletion of the project. Team and the Management Team; of their contract. These assessments engaging with all the stakeholders; may subsequently be used asThe culmination of this review has and of implementing the decisions reference material in relationbeen the completion of the Capital of the Sponsoring Agency. to suitability assessment of theWorks Management Framework contractor for future projects.(CWMF) and its subsequent b) Formalisation of approach to The implementation of this newpublication on Risk and Value Management Framework, produced by thewww.constructionprocurement.gov.ie. Risk and Value Management Department of Finance, has beenThe objective of the initiative is have existed and played a role in made mandatory since May lastto achieve greater cost certainty, projects over the last number of year (Circular 06/10). Arising fromvalue for money and more efficient years however these procedures this it is likely that audits will beproject delivery. introduce a more structured and carried out and it will be important formal approach to their adoption. for the public sector to be seenThe framework is made up of four implementing these softer typepillars and whereas Pillars 1 & 2 are c) Procurement Strategies issues as well as the fundamentalsprimarily concerned with reforming of using the correct contracts. The introduction of Design and Buildthe processes involving interaction contracts in Pillars 1 and 2 openedwith the private sector, namely the door for the use of Design andcontracts with Works Contractors Build for public sector projects.and Consultants, Pillars 3 & 4 areprimarily concerned with reformingthe processes on the “Client” publicsector side.20 | Industry Developments
  • 23. Eoin DunphyAssociateUnderstanding SpecialistContractorsUnderstanding they are focusing on international possible to get highly competitive opportunities or some of the larger tenders and still use the bestSpecialist Contractors industrial clients where they can contractors. This approach willThe standard of Mechanical secure direct appointments. deliver value for money at the tenderand Electrical (M&E) specialist stage, protect quality and ensurecontractors in this country has In the short term it is generating successful delivery.traditionally been very high and opportunity for the small-to-many of the Irish contractors medium-sized subcontractors.would punch well above their weight The long-term impact on thewhen compared with their UK and industry, however, is concerning.international counterparts. These The concern is that mainspecialists play a vital role in the contractors will run into difficultiessuccessful delivery of any large and in delivering such buildings ifcomplex building. they do not have the right sub-contractors in place.To many, the field of EngineeringServices can be seen as a black art In order to address this issue allof complex systems and processes parties need to play their part.that bear little resemblance to the The specialist contractors need toless sophisticated building shells in “de-mystify” the whole area and bewhich they reside. more transparent in their dealings with main contractors. MainFurthermore, the specialist industry contractors need to rebuild somethat has evolved to deliver the design of the key relationships with theand installation of these systems trade and take a more long-termis seen by some as a “clique” that view when entering into contracts.operates outside of rest of the industry. Clients and their advisors need toThese views and attitudes can lead avoid the “race to the bottom” onto distrust and frustration which tenders and instead concentrate onhave been further exacerbated by value for money rather than lowestthe aggressive tendering conditions tender cost.that the new government formof contract and the weak market At Davis Langdon we have aconditions have generated. specialist Engineering Services Team who understand theThe net result is that many of the technology and know the market. Welarger household names in the can guide clients and design teamsMechanical & Electrical contracting through the issues demystifyingworld are at loggerheads with some the “black art” of M&E costsof the main contractors and are and procurement. With the rightdeclining to bid for work. Instead approach to procurement it is Industry Developments | 21
  • 24. Stuart Griffin Gregory FlynnAssociate Regional DirectorRecruitment Embargo Reform of Public Sector Assets and Facilities ManagementRecruitment embargo is changing with an increasing Understanding the cost of use of project management operation per building and acrossIn 2009, the government ordered consultancies who are charged a whole property portfolio isan indefinite public sector jobs with managing project delivery and essential and a “first step” inembargo. The only exceptions to the leaving the public sector personnel establishing a plan for change.recruitment freeze are key personnel to formulate policy.in the health and educational To maximise efficiencies, greatersectors. The move, which wasimplemented to cut the public Reform in Public Sector space sharing can be achieved and involves a transition fromsector pay bill, is estimated to resultin the loss of up to 4,500 jobs a Assets and Facilities the concept of “my desk” to “ouryear across the entire public sector Management space.” Significant cost savings are possible through reducedthrough natural wastage & voluntary Property is the government’s second rental costs, running and FM costsredundancy/early retirement. most expensive asset after its staff and disposal receipts, and over and the requirement for government the whole life of the building orThe recruitment freeze clearly to rationalise its estate and improve tenancy these can often outweighhas implications for public sector ways of working is equally as any capital construction and fit-bodies seeking to undertake pressing as the need to instigate out costs in establishing a new orconstruction or development public sector reform in human re-modelled environment. As fiscalprojects. A lot of organisations in resources and business operations. constraints tighten, even more thanthe public sector have experienced before, clients will need to bravereductions in personnel in the last Of course there have been forays the approach of “spend to save.”two years and the double whammy into reviewing the governmentthat a lot of the personnel who have estate in the past, most notably theleft/taken early retirement held a recent decentralisation programme.lot of the knowledge and expertisein project delivery. Unfortunately at a time when the government has invested inCombined with this reduction increasing its property portfolio,in resources there has been an the opportunity to release theincrease in the volume of work. more expensive city centreWhilst the number of projects has accommodation has beenbeen reduced due to cutbacks, greatly diminished.the Capital Works ManagementFramework has clearly set out At a macro level it is likely thatadditional roles and responsibilities reforms can be achieved in theand the formalisation of some medium term with a plannedtasks such as risk and value programme. At a micro levelmanagement. The net effect of (individual department orthe recruitment embargo and the organisation/body) reforms andimplementation of the CWMF is efficiencies can begin to bethat the model of project delivery achieved at a quicker pace.22 | Industry Developments
  • 25. David Johnston Jason Hobson-ShawAssociate AssociateReviewing Value for MoneyInsurance Valuations RequirementsReviewing Therefore, the reinstatement cost Value for Money calculation will need to be informedInsurance Valuations by an up-to-date cost database RequirementsFalling tender prices, witnessed and based on sound professional The need to achieve value forover the last two-to-three judgement. money from construction projectsyears, have been raising interest has never been so important.amongst property owners and The accuracy of the Reinstatement In the public sector, the reductionmanagers about the current Cost Assessment is directly in the Public Capital Programme inlevel of insurance coverage on dependent on reliable and up- Budget 2010 will see a heightenedtheir portfolios. In particular, the to-date information relating to need to achieve more with less.level of insurance cover may well the property. Property owners are This drive for efficiency requiresexceed the current rebuilding continuously altering, upgrading careful proactive management tocost with the consequence of and extending their portfolios, ensure that returns are maximisedhigher than necessary insurance therefore, accurate calculations on capital investments. There ispremiums. Good practice dictates of floor area are critical as they also a growing need to ensurethat insurance reinstatement are a key component in the overall that the risk of not achieving thecost assessments be reviewed at cost assessment. The delineation business case objectives isregular intervals throughout the life between landlord and tenant actively managed.of a property. This is particularly responsibilities is important.relevant in times of fluctuating Each property within a portfolio Value Management provides antender prices as have been will need to be reviewed on an effective process for maximisingexperienced in the last three years. individual basis with regard to value in line with the employers’ insuring obligations to ensure the and end users’ requirements,In addition to building costs, responsibilities between landlord and fulfils the first of theseallowances for professional fees and tenant are clear and accounted requirements. Risk managementincluded in the Reinstatement for in the assessment. fulfils the second requirementCost Assessment may not reflect as part of effective projectcurrent market conditions. To take account of changes being management, by providing aConsultant fees have experienced made to properties and the process for managing risk.sizeable decreases in the recent importance of establishing a sound Value and Risk Managementpast, therefore, these too will basis for insurance valuations, can be employed as an integratedneed to be reviewed to ensure an combined with the need for reliable process at strategic stages andaccurate assessment of overall cost data and market knowledge, decision points throughout thereinstatement cost. Of course other it is essential that insurance project lifecycle. However, therefactors may have arisen requiring valuations are regularly renewed — is greater potential for improvinginsurance valuations to increase. in the current climate it can often value and reducing or mitigatingThese could include changes to be a win-win situation. risks in the earlier stages ofregulations such as improved a project.energy performance requirementsnecessitating higher specificationmaterials. Industry Developments | 23
  • 26. It is essential that Value NAMA — it’s all aboutManagement concentrates onoptimising benefits and costs the numbers… €71bn 145rather that the traditional value worth of property loansengineering approaches where transferred at a price paidcosts are reduced with a resultant of €30bn ~ 58% discountloss of benefits. Business Plans 44 €1.1bn 30 to be reviewedThe area of risk transfer has the number of receivers by NAMA in 2011certainly been a major discussion appointed to datepoint in relation to the Works €592m 2Contracts with contractors of equates to c.40% of total plans have been reviewed which of the top borrowers businessthe view that too many risksare been passed to them and/or that insufficient information extended to coalition partiesis made available to allow them borrowers within opposed to anyto adequately assess and price NAMA to date further transfer of Paddy McKillen loans relating tothe risks. The more formal and loans to NAMAstructured approach to riskmanagement at the early designstages identified in the guidancenotes should result in a more €99.9m price paid for Montevetro 11considered approach to risk building by Google the number ofallocation and the appropriate top borrowers €4bn €1.1bninvestigations and assessments that it isbeing carried out in sufficient time expected thatfor inclusion in tender documents. enforcement loans yet to worth of loans transferred action will beIn public sector projects, the need be transferred from AIB at start of 2011 taken againstfor Value and Risk Management has from AIB at a discount of 60%been recognised and endorsed in c.€24bn 12 2the new Capital Works ManagementFramework (CWMF). The CWMF deal from BoI/AIB EU-IMF rescue the terms of the transferred under of loans to be a further €16bn as in ‘NAMA-2’,sets out detailed requirements for MoU’s close - €10bnimplementing robust processes forValue and Risk Management at key to completionstages during a project lifecycle. This with the 30 topshould be seen as a positive step borrowersin formalising these requirementsto ensure a level of consistency ofapproach by project teams. = €14bn potential shortfall in Bank Stress Test24 | Industry Developments
  • 27. Paul MitchellDirectorNAMA —it’s all about the numbers...Yes, it certainly has been a year As we have stated before, theof the numbers! What else would outflow of construction activity fromone expect given the scale of NAMA is not so much dependentthe unprecedented loan transfer on NAMA’s work rate or success,underway in the state. but demand in the marketplace. The two are obviously inextricablyIn our Annual Review last year we linked but nobody is going to startstated that NAMA planned to have a new hotel in an under-populatedall loans transferred by mid-2010. area even if NAMA did approve it orWe commented then that this was indeed had the resources to make itambitious and we’ll repeat our call happen. Where the frustration doesagain this year and estimate that lie, however, is when there is someit will most likely be by the end element of demand and the fundsof 2011 or even early 2012 before are held up in the application andwe see all loans transferred. This approvals process.also depends on what the coalitionparties negotiate with the EU in It was a positive sign in therelation to the bailout. industry to see Google purchasing the Montevetro building fromSo what has it meant for our REO. The obvious effect is anindustry? The property advisors immediate reduction in the supplyhave had a very busy year and in in the market and hopefully aa lot of cases their accounts are corresponding increase in demandnow showing a profit. The majority for a similar type space in the sameof the developers are in limbo locality. Grand Canal Dock Offices,waiting to submit their business amongst others, should see someplans or await the outcome of their of the benefit of that transaction.fate following the various levels ofcredit review. Those consultants The main question at the moment isthat were heavily reliant on the what effect the coalition will haveconstruction phase of development on NAMA. In their programme forin the private sector during the government, they have stated thatboom years are the hardest hit. they do not agree with it and willCurrently they are either seeking seek to change it as part of theirwork in other markets or have bailout negotiations.downsized and waiting patiently, ona skeleton staff. The contractors aresimilarly placed but have picked upvarious work out schemes mainlyfor receivers put in place by theBanks/NAMA. Industry Developments | 25
  • 28. Neil McBethAssociateWorking Out ofDistressed ProjectsWorking Out of in our 1995 Building Regulations. In viable projects it is likely that Unfortunately, the victims in these NAMA or the respective bank willDistressed Projects situations are the owner occupiers move to secure a return and eitherIn the 2009 Annual Review, a lot who are left with the leaky homes carry out the minimal works towas made of the sheer number of with inadequate infrastructure, secure successful disposal or “selldistressed projects that needed security or life safety systems. as seen” but in either case thereto be completed under NAMA’s must be someone at the other endcommand during 2010. Whilst These people are left wondering to take the product out.quite a number of projects limped what recourse they have when theto the finish line, a lot of them did developer has gone out of businessnot as the cost benefit analysis and their negative equity homereturned an all too familiar “No”. requires significant funds to putProjects have also succumbed things right.to the closer scrutiny afforded toschemes nowadays by numerous A mature approach is required bylevels of review/credit committees. all parties in this situation includingEven cases that require completion the owner, the receiver/NAMA/works to comply with statutory bank and the local authority. AsHealth and Safety requirements tends to be the case in a lot ofhave suffered and take their the more serious situations, thedubious honour of being on the fault lies with a party that does“dangerous ghost estate” list. not have the capacity to deal with its rectification. Parties chargedOn the schemes that have with cleaning up the mess from abeen successfully worked-out, financial perspective are carryingwhether through receivership or out significantly more technicalsome version of intensive care, due diligence before taking on anystakeholders not normally involved hidden liability in these cases.in such technical detail haveencountered a steep learning curve. Whilst much of 2010 was taken upIt is fair to say that it has left a lot with reviewing schemes and takingof people asking the difference action from an insolvency point ofbetween “Self-Certification” view, it is unlikely that there will behere in Ireland and “Building much change in 2011. Apart fromControl” in the UK, from a building schemes that have a clear businessregulation perspective. We have case, it is likely that the only fundsseen a number of truly shocking spent on distressed projects willresidential schemes that have be the €5 million announced bybeen complete, signed off, sold government for the “dangerous”and currently occupied that fall far ghost housing estates.short of the standards set down26 | Industry Developments
  • 29. Grangegorman Development Public sector — Reduction in the Public Capital Grangegorman Development Programme in Budget 2010 will see a heightened need to achieve more with less HSE Mental Health Replacement Facility, Grangegorman Industry Developments | 27
  • 30. GlobalRegionalDevelopments
  • 31. The results of Census 2011 willundoubtedly make interesting readingand may signal the likely trend in thedistribution of construction outputgoing forwardOverview It is expected that construction output will continue to followIn 2010 we saw the virtual the broad distribution of thecompletion of the main inter-urban population. The results of Censusroutes from Dublin. These significant 2011 will undoubtedly makeprojects, which have been primarily interesting reading and may signaldelivered over the last ten years, are the likely trend in the distribution ofprobably amongst some of the most construction output going forward.visible physical examples of thesignificant investment during theCeltic Tiger era. Sectors Looking at the sectors in theThe direct impact of these vital regional context, whilst there maymotorways, coupled with the be some chinks of light, the overallinvestment in upgrading the rail outlook remains weak.links, has resulted in bringingthe regions closer together and,importantly, made doing businessin the regions more sustainable.Notwithstanding these closer linksthere remains distinct regionalvariations and subtleties in respect Dublinof sector emphasis. 46% Mid-West/MidlandsTypically the spread of construction 15% Southernoutput matches the distribution of 24%the population across the country. Connaught &With the increasing urbanisation North West 15%of the country this results in thevast majority of output beingconcentrated in the major citiesand towns. As a result circa 40 – 45per cent of output is in the GreaterDublin Area (Dublin, Kildare, Meath& Wicklow). FIGURE 3 Distributions among regions Regional Developments | 29
  • 32. John O’ReganDirectorResidential – there is planning permission for aPrivate residential development further estimated 58,025 dwellingsfrom a commercial point of that have not commenced andview is at a virtual standstill. are therefore not posing anyBanks and receivers are slowly immediate construction or sitecompleting a limited number specific difficulties.of “Ghost Estates.” Similarly, asmall number of projects areprogressing through planning Estates surveyedgenerally aimed at retaining site Number of units per estatevalues rather than for immediate 0-53 CO. DONEGALdevelopment. Significant stock 54-152 153-355exists in a combination of 356-899complete and stalled conditions. 900-2314In 2010, the Department ofEnvironment, Heritage & LocalGovernment carried out anationwide survey of all estates CO. SLIGO CO. MONAGHANwhere developments were either CO. LEITRIM CO. CAVANcommenced in the last three CO. MAYO CO. LOUTHyears, or completed in the last CO. ROSCOMMONthree years but with a vacancy rate CO. LONGFORD CO. MEATHgreater than 10 per cent. The mapshows the 2,846 developments CO. WESTMEATH CO. DUBLIN(15 per cent of which were active) CO. GALWAYsurveyed. The key findings were; CO. OFFALY CO. KILDARE– There are 78,195 dwellings in the CO. WICKLOW CO. LAOIS developments surveyed that are CO. CLARE complete and occupied; CO. CARLOW– 23,250 dwellings are complete CO. TIPPERARY and vacant; CO. KILKENNY CO. LIMERICK CO. WEXFORD– 9,976 dwellings are near complete;– 9,854 dwellings are at various CO. WATERFORD early stages of construction activity from site clearance, CO. KERRY CO. CORK foundations up to wall plate level; and30 | Regional Developments
  • 33. One-off housing continues as – Digital Media although expenditure is projectedindividuals with available funding to drop in 2011. – Data Centrestake advantage of low site costs andbuilding prices. New social housing – Call Centres Major projects completed inis also at a standstill with the 2010 include Terminal 2, theexception of a number regeneration These areas have all experienced Aviva Stadium and the Nationalprojects such as in Limerick. an amount of activity and are Convention Centre in Dublin. showing increased signs of growth.Commercial and Retail Typically the projects are upgrades, There has also been significantWhilst there have been no re-fits and fit-outs of existing investment in the third levelsignificant new developments operational facilities. education sector (which isundertaken there has been some essential if we are to continueactivity across the regions from The available stock of existing units to attract the internationalmajor retailers such as Tesco, Lidl of suitable size, quality and location investment mentioned above) withand Aldi. Retail fit-out continues is limited and will be quickly used a particular emphasis on sciencein the budget-conscious end up as demand continues. and technology. Among the projectsof the sector which has seen completed or under construction inincreased activity in contrast to Examples of significant 2010 include:the general trend. Similarly activity announcements in the last sixin the corporate fit-out market is months have included: – New Engineering Building,often driven by restructuring and NUI Galwayefficiency drives. – Intel — Kildare – Bundle of three research – Valeo — Galway buildings, NUI GalwayMulti-national/Foreign Direct – Fidelity — Dublin and Galway – I.T. Building UCCInvestmentThe marginal bounce in the global – Quest Software — Cork – World Academy Building, ULeconomy, Ireland’s increasing – PayPal — Dublin – New Medical School, ULcompetitiveness, tax structure – Citi — Dublin and Waterford – Science City, Phase 1, UCDand highly educated workforce arecontinuing to provide a steady flowof projects across the regions PublicThe key growth areas have been: As highlighted earlier, the distribution of construction– Pharmaceutical tends to mirror the population distribution. This is, in part at least,– Bio-Pharma derived from the need to provide– Bio-Medical certain services in close proximity to the population. In this regard, the– Medical Devices education sector has seen ongoing– ICT development in primary and second level schools across the country, Regional Developments | 31
  • 34. Infrastructure improves overall road safety With the majority of the motorwayAs stated at the start, there has and assists in providing network now in place, 2011 willbeen a significant number of consistent journey times. see the start of a reduction inmotorway schemes completed in investment in roads. That said, – M50 Upgrade:2010, particularly on the western other areas of civil engineering may Looking ahead, the 57 kilometresseaboard. Among the schemes see increased investment in the M17/M18 Gort to Tuam motorwaywhich have dramatically improved renewable energy sectors though which is at the preferredthe journey times are: to date the schemes are typically bidder stage will make another small and infrequent. With the significant addition to the– The Limerick Tunnel: western seaboard presenting good Atlantic corridor route. 10 kilometres of dual opportunities for exploiting our carriageway including the 675 wind, wave and tidal resource, it In the same region the Limerick to metres Limerick Tunnel under is imperative that the necessary Galway rail line has been officially the River Shannon. The tunnel structures are put in place to make reopened, with trains travelling took four years to construct at the business model work and also between the two cities for the first a capital cost of €605 million to provide a return for the state. time in 34 years. The re-opening and was delivered within budget Despite its very public difficulties of the rail link comes after €160 and ahead of schedule. The the Corrib Gas terminal and million was spent upgrading the tunnel has the capacity to take pipeline is ongoing. Ennis to Athenry line. approximately 40,000 vehicles out of Limerick city centre. Greater Dublin and NE 60%– The new 22 kilometer M18 South Motorway: This new motorway 17% will save approximately 20 Connaught and NW 10% minutes during peak commuting Mid West/Midlands times between Limerick and 13% Galway. The scheme also represents the completion of another section of the Atlantic Corridor, which is the strategic route linking Letterkenny to Waterford, through Sligo, Galway, Limerick and Cork.– The M7 Motorway (Limerick to Nenagh & Nenagh to Castletown Co Laois): The opening of this scheme brought about the completion of the M7 Dublin to Limerick inter-urban motorway which FIGURE 4 Regional Breakdown of construction output 2010(e)32 | Regional Developments
  • 35. Market Residential construction Private non-residentialInsolvencies Productive infrastructureAs mentioned earlier, one of the 6000 Social infrastructurestarkest examples of the downturn Total Regional output 5000has been the huge increase inthe number of insolvencies. 4000Whilst this trend is a nationwidephenomenon, the majority of the 30001,763 insolvencies in 2010 were in 2000the Greater Dublin and North Eastregion. See pie graph opposite. 1000This is indicative of the tremendous 0 Dublin Mid West / Southern Connaught /strain the industry is under across Midlands North Westall the regions and since the last FIGURE 5 Sector breakdown of regional construction output 2010(e)quarter of 2010 we have started tosee a reduced number of expressionsof interest in projects arising from On balance we expect tender prices Similarly the public socialthe reduced number of competitors. to start edging back upwards by infrastructure sector representsIn addition, those remaining are approximately 3 per cent in 2011. as much as 14 per cent inbeing more selective about those Dublin compared to 8 per centthat they bid for because of the costs Regional Spotlight in South East.involved in tendering. Figure’s 3, 4 & 5, which are Dublin Davis Langdon estimates, basedPrices As the capital city and main on the DKM Review & Outlook economic centre Dublin has seenGenerally, because we have a estimates for 2009, set out the a number of significant Celticrelatively small market place, trends estimated breakdown across the Tiger era developments comein tender price movements tend to regions in 2010. to completion last year (Avivabe similar across the country, albeit Stadium, Terminal 2, Conventionactual tender rates will vary from As we can see in figure 5 there Centre etc).region to region and in particular are differences between regionsfrom Dublin and the other regions in terms of the proportions of Whilst the developments in 2011where a variance of 5 – 10 per cent their output derived from the and the coming years are likely tocan exist. Similarly, variances in various sectors. Examples of these be of a smaller scale, it is inevitabletender rates exist between sectors variances would be a comparison and indeed necessary that wein regions depending on the level of of the private non-residential continue to invest in vital nationalcompetition and the volume of work. sector which represents 19 per cent infrastructure such as the National in the Dublin region versus 4 per Paediatric and Maternity Hospital’s cent in the Midland region. and in our university sector. Regional Developments | 33
  • 36. Cork In the education sector, National The Department for RegionalAmbitious plans for the large areas University of Ireland (NUI) Galway Development has also recentlyof Cork docks now have to be put continues to roll out its significant issued its “Shaping Our Future —on the long finger until demand and development programme. Regional Development Strategyfunding returns. However, some (RDS) 2025 10 YEAR REVIEW” forcommercial activity continues with Sligo public consultation 10 year whichthe Beamish and Crawford site After a period of frantic places strategic significance to theprogressing through planning. construction activity, Sligo has development of Communications, had a very stagnant year. Positive Renewal Energy and WasteThe private medical sector has signs exist for the future, including Management Infrastructure.seen growth with the completion of ongoing development at Sligo IT The Investment Strategy fora number of extensions to private and Abbott. The inclusion of the Northern Ireland (ISNI) Informationhospitals and a number of primary estuary bridge in the new Sligo Portal provides importantcare centres. The Bon Secours group development plan also opens the access to information on capitalcontinues to be the largest provider area to planning and development. procurements that are plannedwith plans to further improve its and being delivered.facilities in Cork and Tralee. Northern Ireland Private sector investment across all Similar to the rest of the island of sectors, including offices, industrial,Limerick Ireland, Northern Ireland has been retail and regeneration has struggledThe other significant development affected by the combination of due to unavailability of funding. Inin the region was the announcement the global credit crunch and the addition, Northern Ireland has alsoin June 2010 of the government’s restricted public sector purse for been affected by NAMA and thisapproval for the First Phase capital expenditure. continues to be an issue.Implementation Proposal for theLimerick Regeneration Programme. The public sector is being looked In overall output terms the industryThis announcement, if carried at to provide stimulus to the has seen output drop from £3.2through by the government, will be a economy and by implication the billion in 2009, to circa £2.5 billionmassive boost for the construction construction sector. In this regard, in 2010, and is likely to remain flatindustry and the region. there have been some welcome in 2011. announcements recently such asGalway the significant investment in theSections that have enjoyed Northern Ireland sporting sector.significant activity include the This announcement included £60multinational companies that million for Casement Park, £61benefit from the cluster of million for Windsor Park and othertechnology and medical-based stadia and just under £15 millioncompanies in the Galway area. for Ravenhill.34 | Regional Developments
  • 37. University of Limerick: The Irish World Academy of Music and DanceNUI Galway, New Engineering Building Regional Developments | 35
  • 38. ProfessionalIndicativeBuilding Costs
  • 39. The figures quoted are for mid- € per square metreHealthcare range buildings in the Dublin areaHospitals 1,575–2,400 at January 2011 prices. Due toPrimary Care Centres 1,300–1,650 the volatile nature of the currentNursing Homes 1,100–1,600 market and the low tenders being received, it is possible that tendersEducation will be received, outside of thesePrimary Schools 930–1,100 ranges. Professional advice shouldSecondary Schools 930–1,100 be sought for specific projects.Third Level 1,300–2,400Commercial The Davis Langdon IndicativeOffices - Shell & Core (Landlord Fit-Out) 1,200–1,750 Building Costs should NOT be - Owner Occupier 1,400–2,300 used for fire insurance valuationsOffices Fit-Out - Basic 325–450 or for residual valuations for - Medium 450–700 funding purposes. - High 700–1,050 - Top 1,050–1,800 If you require a valuation forShopping Centres - Shell & Core 625–1,000 fire insurance or more specific - Mall 1,250–2,300 - Fit-Out 750–1,200 information, please contact Davis Langdon.ResidentialApartments 1,100–1,500 When considering building costsApartments (12-16 storey) 1,500–1,950 you should check if costs include:Social Housing 850–1,150Sheltered Housing 950–1,450 – Value Added TaxHousing (suburban housing) 800–1,000 – Professional FeesIndustrialWarehouse / Factory Shell 500–600 – InflationFactory (Basic) 600–850 – Fit-OutHigh Spec Factory - Shell & Core 800–1,200 - Fit-Out 650–1,100 – Landlord Fit-out Landlord CreditsLeisureHotels - 34 star 1,200–1,850 – Furniture - 5 star 1,950–3,000 – Planning levies, Fees & ChargesSwimming Pools 1,600–2,000(60% wet/40% dry) – DemolitionCar Parks – Abnormal Ground ConditionsSingle Basement 500–800Multi-Storey 350–500Double Basement 700–1,100 Indicative Building Costs | 37
  • 40. KnowledgeWorldConstruction2011
  • 41. 2012 is expected to be more positive,with growth approaching levels(5 per cent) not seen since thebeginning of the recessionConstruction Nevertheless, Asia has not witnessed the declines evidentmarket overview in the other global regions.2010 was another difficult year forconstruction globally. Overall, world China for the first time hasconstruction spending declined for overtaken the USA and was thethe third consecutive year, falling largest national constructionby 1 per cent to $4.4 trillion. World market in 2010. China is alsoconstruction spending growth is not expected to be one of the fastestset to return until 2011, although it growing markets through 2011is forecast to be below 1 per cent (figures 6 & 7).overall. 2012 is expected to be morepositive, with growth approaching There were some large regionallevels (5 per cent) not seen since differences throughout the year.the beginning of the recession. Construction spending in Western Europe was the most affectedOn a regional basis, only Asia saw with a contraction of -2 per cent,positive construction spending with the most significant fallsgrowth through 2010, although the occurring in Spain, Portugal,levels of growth have slowed as a Greece and Ireland.result of the wider recession. China USA JapanGermany Italy France Brazil UK Korea India Mexico SpainAustralia Othercountries 0 100 200 300 400 500 600 700 800 900 US $bn FIGURE 6 Global Construction Spending 2010 (US $bn) World Construction 2011 | 39
  • 42. Indeed, recent forecasts suggest through 2011. Any recovery is likely property (generated by the rampantthat there may be a more to be led by countries in Central speculation during the mid–2000s)fundamental shift occurring in and Eastern Europe, in particular can be absorbed. However, onethe balance between construction Poland (9 per cent), the Czech major infrastructure project of notespending in Western Europe and Republic (9 per cent) and Hungary in the region is the construction ofAsia (figure 8). (8 per cent). the Gulf Cooperation Council (GCC) railway, with the first phases in theOur review of world construction Middle East UAE expected to begin imminently.in 2010 and outlook for 2011 Construction spending in theconcentrates on the five main Middle East declined in 2010 Conversely, construction spendingtrading blocks, namely: Africa, the (-2 per cent) although the outlook in Saudi Arabia (the largestAmericas, Asia Pacific, Australasia, for 2011 is beginning to look more construction market in the region)Europe and the Middle East. promising, with construction remains relatively robust despite spending growth likely to reach the problems elsewhere in theEurope 3 per cent. Any growth is likely to region. Indeed, given recent eventsIn Europe, construction spending be led by work resuming on projects in North Africa (Egypt, Tunisia anddeclined by 3 per cent in 2010, that had been suspended rather Libya), Saudi Arabia is likely tofollowing the 9 per cent decline than any major new schemes. benefit from the expected increasein 2009. In Western Europe, in oil prices, which often translatesconstruction spending in Spain The UAE (principally Dubai) was into increased construction activity.(-15 per cent) and Portugal (-12 per the hardest hit by the slowdowncent will continue to be among the and faces the most prolonged Asia Pacificworst affected, with little prospect and subdued recovery. Dubai’s In Asia, construction spendingof any improvement over the next recovery is largely conditioned by growth (7 per cent) continues tofew years. However, conditions how quickly the excess supply of outstrip all other global regions.elsewhere are looking slightlymore optimistic with some growth 15expected in Poland, Germany andthe UK, although the recovery islikely to be a slow one. 10On a more positive note, 5 Japan Spainconstruction spending in Turkey % change Italylooks relatively robust, with growth 0 Brazil Mexico France USA China Germany UK Korea India Australia Other countriesapproaching 5 per cent through2011 with similar levels expected -5in 2012. -10Overall, construction spendinggrowth is expected to remain -15largely static in Western Europe FIGURE 7 Global Construction Spending Growth 2010-11 (% change)40 | World Construction 2011
  • 43. Indeed, most country markets inAsia didn’t experience a recession,only a slowdown in rates of growth.Growth in infrastructure spendingcontinues to drive the market 2010 2020in Asia, this is largely a factor ofcontinuing economic developmentbut also the effect of variousgovernment stimulus packages,introduced during the recession,which translated into some very Western Europe Western Europelarge civil engineering projects 32% 32%throughout the region. Middle East Middle East 2% 2% Eastern Europe Eastern EuropeThe strongest construction 4% 4%spending growth in 2011 is Asia Asiaexpected in China (10 per cent) 37% 37%and India (10 per cent). Indonesia Africa Africa 2% 2%(5 per cent) and Vietnam North America North America(5 per cent) also offer some 19% 19%potential. Latin America Latin America 4% 4%The latest five year plan takes FIGURE 8 Share of construction spending by region 2010-20effect in China this year, with a Source: IHS Global Insight (2010)focus on economic, social andenvironmental sustainabilitythrough to 2015. As a result, Australasia In addition, the recent floodsfuture construction spending Construction spending in Australia in Queensland are expected togrowth is expected to moderate is expected to grow by 3 per cent generate significant levels offrom the heights of the recent past, in 2011 after two years of decline. construction spending in thealthough it is still likely to average Prospects for 2012 are even immediate future as the statebetween 8 per cent - 9 per cent per brighter with further construction attempts to re-build.annum. Infrastructure spending growth (7 per cent) forecast.continues to be the primary driver Infrastructure spending isof construction spending growth leading the re-bound and isin China. likely to be the fastest growing sector going forward, in particular the mining and transport infrastructure sectors. World Construction 2011 | 41
  • 44. The Americas lead by infrastructure spending, spending in South Africa has slowedIn the USA, construction spending specifically, transport and energy post World Cup 2010 although somegrowth is expected to return during projects throughout the region. growth is likely in infrastructure2011 (albeit very limited), with a spending over the medium term,robust recovery expected through Brazil (5 per cent), Chile (9 per cent) particularly in the water, energy2012. This follows four consecutive and Peru (5 per cent) are where and transport sectors.years of decline which resulted in growth is likely to be the highestthe USA experiencing the longest through 2011. Brazil, the largest General Outlookand deepest construction recession construction market in the region, In terms of broad trends andof any major market in the world. is expected to exhibit significant dominant patterns of change, growth in construction spending we are seeing a structural shiftAll sectors are expected to remain in the near term as World Cup and in construction demand, fromrelatively subdued throughout 2011, Olympic development continues. developed to developing regionsalthough a relatively strong upturn In addition, growth is expected (figure 9). Specifically, thereis expected in 2012 led largely by in the residential sector in Brazil appears to be a shift in balancethe residential sector. However, as the government attempts between Western Europe and Asia.residential spending remains at to address the chronic housinghistorically low levels so any growth shortage in the country. In the short-term, there is likelyis coming from a very low base. to be a slight recovery in global Africa construction spending throughThe USA government’s stimulus The recent unrest in parts of North 2011, with more sustained growthpackages have helped cushion Africa, and the threat of contagion, expected from 2012 onwards.the blow to some extent, although is expected to have dramatic Developing countries are leadingmany of these projects are long- consequences for construction the recovery. The strongestterm schemes designed to help the spending in the immediate future. construction spending growth willindustry over a number of years, so Construction spending in Egypt, again be in China and India, withtheir impact is not immediate. Tunisia and Libya is expected to some countries in Latin America decline significantly through 2011 and East and Central Europe alsoHowever, there are some bright and there are likely to be knock- growing robustly.spots, in particular publicly-funded on effects in other neighbouringtransportation projects. Plans for countries in the region. In the long run there is expectedfuture high-speed rail projects to be a fundamental shift in futurebetween some major US cities are However, away from the demand patterns as constructionwell developed and construction Mediterranean coast, prospects spending in developing regionscould start as early as 2012. in Nigeria look promising with grows significantly, largely at construction spending growth of the expense of construction inFurther South, after a relatively 9 per cent expected during 2011. developed regions.flat 2010, construction spending Furthermore, some sub-Saharangrowth (5 per cent ) is expected countries (Angola in particular) are David Crosthwaiteto return to Latin America during benefiting from an influx of Chinese Davis Langdon, an AECOM company2011. Most of the growth will be investment. However, construction March 201142 | World Construction 2011
  • 45. In Europe, construction spending declined by 3 per cent in 2010, following the 9 per cent decline in 2009Singapore 2005 2010 2020 Developed countries Developed countries 65% 45% Developing countries Developing countries 35% 55% FIGURE 9 Share of construction spending by development status 2005-20 Source: Global Construction Perspectives (2010) Qatar Science and Technology ParkQatar Science and Technology Park World Construction 2011 | 43
  • 46. Multi- DisciplinaryDavis LangdonNews
  • 47. AECOM is a global provider ofprofessional, technical andmanagement support servicesNorman Craig Surveyors he chaired the QS APC committee and is a current memberEarlier this year Norman Craig of the SCS Council .concluded his 37 year career withDavis Langdon. Norman joined PKS We are very grateful to Norman forin 1975, became an Associate in all he has done for the practice over1980, was made a Partner in 1988 his tenure and wish him well for theand Managing Director of future.Davis Langdon PKS in 2005.He worked with many of the firms Introducing AECOMleading clients and Design Teams As many of you will be awarefrom the Trinity Arts Building in Davis Langdon, an AECOM1980 to the Grand Canal Theatre company, has completedand offices in 2010, the venue for its merger with AECOM.the firms very successful 150th AECOM is a global provider ofyear celebration in March 2010. professional, technical and management support servicesNorman played key roles in to a broad range of markets,developing the practice, including including transportation,expanding the office locations facilities, environmental,outside Dublin, broadening the energy, water and government.range of services offered by thefirm and globalising the business The Davis Langdon businesses inthrough links with the Davis Africa, Australasia, Europe, MiddleLangdon organisation. East and North America represent one separate service line ofHe led the firm to being the first Program, Cost, Consultancy (PCC)Irish professional practice to within AECOM.be Quality Assured and the onlyConstruction Cost Management Across the island of Ireland, wefirm to be included in the Best 50 now have seven offices locatedCompanies to work for. in Belfast, Cork, Dublin, Galway and Limerick offering BuildingUnder his leadership the firm grew Engineering, Design Build Operate,and prospered without sacrificing Environment, Program, Cost,the core value of integrity. Consultancy, Project Design and Development, Transportation andOutside the firm Norman also Water services. In addition, AECOMplayed key roles in education both has 86 offices in 24 countriesas an external examiner to DIT and across Europe.LIT . In the Society of Chartered Davis Langdon News | 45
  • 48. The synergy of bringing Cost and Recent projects include: For more information, please visitProject Management services to www.aecom.comexisting clients is already paying - Assessment of traffic impactsdividends. Jointly, AECOM and of Luas Broadbridge, LuasDavis Langdon have secured over Docklands Extension and Metro70 projects together in the first six West projects;months with fee income in excess - Development of NRA’s Trafficof €20 million. Management Strategy;Globally, AECOM has received a - Development planning for thenumber of significant accolades in Grangegorman campus, Dublin;Engineering-News Record*, some of - Engineering design of the M7/M8which are listed below: motorway scheme;- No.1 in the Top 500 Design Firms - Galway City walking and cycling strategy;- No.1 in Transportation - Irish Rail’s investment strategy;- No.1 in Water and- No.1 in Marine and Port Facilities - Tara St. Redevelopment.- No.1 Overall Top 150 Global Design Firms Our local expertise is also used globally. For example, Davis* Engineering-News Record is the Langdon professionals in Ireland most recognised publication in are currently working with AECOM the engineering and construction on a €7 billion masterplanning industry. The rankings are based scheme in Chile, a €700 million on annual revenue. airport extension in Eastern Europe and the redevelopment of theOur Dublin Transport office Grangegorman campus.currently provides a broad range ofservices across the industry. Clients With approximately 45,000include government departments, employees around the world,Irish Rail, Local and Regional AECOM is a leader in all of theAuthorities National Roads key markets that it serves.Authority (NRA) and the Railway A Fortune 500 company, AECOMProcurement Agency, in addition to serves clients in more than 125a number of private clients involved countries and has annual revenuein the development of the built in excess of $7.0 billion.environment.46 | Davis Langdon News
  • 49. Glasnevin Museum, Glasnevin Cemetery, Dublin Davis Langdon News | 47
  • 50. TeamDavis LangdonPeople6 | Introduction Bigger & Better
  • 51. Paul Mitchell Tomás Kelly David JohnstonDirector Regional Director Associatepaul.mitchell@ tomas.kelly@ david.johnston@davislangdon.com davislangdon.com davislangdon.com+ 353 1 4320460 + 353 91 530199 + 353 21 4222800John O’Regan Jason Hobson-Shaw Neil McBethDirector Associate Associatejohn.o’regan@ jason.hobson-shaw@ neil.mcbeth@davislangdon.com davislangdon.com davislangdon.com+ 353 91 530199 + 353 1 4320434 + 353 1 4320478Anthony McDermott John Lombard Stuart GriffinRegional Director Associate Associateanthony.mcdermott@ john.lombard@ stuart.griffin@davislangdon.com davislangdon.com davislangdon.com+ 353 1 4320481 + 353 1 4320413 + 353 21 4222800Gregory Flynn Mark Smith Eoin DunphyRegional Director Associate Associategregory.flynn@ mark.smith@ Eoin.dunphy@davislangdon.com davislangdon.com davislangdon.com+ 353 1 4320498 + 353 1 4320438 + 353 1 4320404Cathal Barry Andrew ThompsonRegional Director Associatecathal.barry@ andrew.thompson@davislangdon.com davislangdon.com+ 353 61 318870 + 353 61 318870 Davis Langdon People | 49
  • 52. About AECOM Key offices in IrelandAECOM is a global provider of professional Davis Langdon, an AECOM Companytechnical and management support services Dublin Officeto a broad range of markets, including 24 Lower Hatch Streettransportation, facilities, environmental, Dublin 2energy, water and government. With T: 353 1 676 3671approximately 45,000employees around the F: 353 1 676 3672world, AECOM is a leader in all of the key E: ireland@davislangdon.commarkets that it serves. Davis Langdon, an AECOM CompanyAECOM provides a blend of global reach, Galway Officelocal knowledge, innovation and technical Heritage Hallexcellence in delivering solutions that Kirwan’s Lanecreate, enhance and sustain the world’s Galwaybuilt, natural and social environments. T: 353 91 530 199A Fortune 500 company, AECOM serves F: 353 91 530 198clients in approximately 125 countries and E: john.o’regan@davislangdon.comhas annual revenue in excess of $7.0 billion. Davis Langdon, an AECOM CompanyMore information on AECOM and its services Limerick Officecan be found at www.aecom.com. Mezzanine Suite Riverpoint Lower Mallow Street Limerick T: 353 61 318 870 F: 353 61 318 871 E: cathal.barry@davislangdon.com Davis Langdon, an AECOM Company Cork Office Hibernian House 80A South Mall Cork T: 353 21 422 2800 F: 353 21 422 2802 E: david.johnston@davislangdon.comProgram, Cost, Consultancywww.davislangdon.comwww.aecom.comDL 20752 (03/11) / Designed in-house by EME Business Development