the UK healthcare construction market analysis and strategy for businesses

2. SUR 826 Financial Management in Construction
UK Construction
Healthcare Sector Market
Analysis
by
Sandeep Naik Vaigankar

3. Contents
 The UK Market Sector Overview
 Market sector drivers
 Procurement practice and pipeline
 SWOT Analysis of UK Healthcare Construction
 Stakeholders’ Strategic Pathways
 Conclusions and Recommendations

4. The UK Market Sector Overview
 UK GDP grew 2.6% in 2014; strong support from
Construction sector.
 2015 GDP forecast is growth of 2.5% but construction
sector may slow down.
Source: ONS

5. £92billion (2013)
7% of GDP
Estimated
£97billion
(2014)
Estimated
£100billion (2018)
Construction
contribution to the UK
GDP
The UK Market Sector Overview

6. Largest Govt dept.
NHS is priority of the Govt.
Funding Protection till 2015.
ONS Population Projection
2014 - 17.5%
population
aged 65+
By 2030 -
increase to
22.4%
 Increased patient demand
from ageing population
and long-term conditions.
 Need for the healthcare
Facilities.
Market Sector Drivers

7. NHS – construction activities
small,
specialist
facilities
large, complex,
multi-
disciplinary
hospitals
refurbishment
of existing
buildings
fit-out conversion
maintenance
and operations
PFI / PPP
ProCure21
LIFT
HUB
(Scotland)
Traditional
Procurement
Models
Procurement Practice and Pipeline

8. Procurement Practice and Pipeline

9. HEALTHCARE SECTOR PIPELINE UP TO 2020
Procurement Practice and Pipeline

10. NHS
Five Year
Forward
View
(Oct. 2014)
Annual
Efficiency
Savings
Maintain
Demand
Deliver
Good
Quality
Healthcare
Innovation
NHS Procurement and Efficiency Board
 Efficiency in procurement and
property.
 Improvements in contract and
supplier management.
Upgrading,
refurbishment,
renewal and
modernisation of NHS
buildings – 4.5%
increase (£2,128m in
2013-14)
Restructuring
floor area, land
area of NHS
estates – 5% in
2013-14.
Running cost
reduced by 1% -
£7.3 billion in
2013-14
Procurement Practice and Pipeline

11. STRENGTHS
- Huge supply chain, local source.
- Design and innovation skills.
- Low entry and capital cost.
- Govt’s budgetary allocation of capital
spending plans until 2018.
- Niche market sector.
WEAKNESSES
- High reliance on sub-contracting.
- Austerity measures of the Govt. and
fiscal pressures on public spending.
- Political uncertainties and lack of
confidence on the political leadership.
OPPORTUNITIES
- Client demand for innovations and new
ideas to achieve cost savings.
- Domestic and international markets
support from UKTI.
- Implementing innovative new designs
and infrastructure.
- Reduction in taxation and incentives for
innovation.
THREATS
- Funding and Investment inflow.
- Skill shortage and workforce training.
- Conservative Government’s fiscal
policies adhering to its conservative core.
- Capital spending cuts and failure to
achieve the Government deficit reduction
targets.
SWOT
Analysis

12. Stakeholders’ Strategic Pathway
 PFI funding model, a preferred route by NHS.
 Health and Social Care Bill reduced the number of health
bodies and abolished Primary Care Trusts and Strategic
Health Authorities.
 Need for the designs that help healthcare clients to cut
costs by reducing staff numbers and shorten the
processes of the health care service delivery.
 Construction healthcare CEOs think most of their future
growth will come from mature markets, and 22% are also
looking to China (PwC, 2015).
 There is a growing concern of the risk of over-regulation,
indebted government’s ability to handle huge fiscal deficits
and the availability of key skills

13. Stakeholders’ Strategic Pathway
 The lower productivity output would stretch the austerity
beyond the targeted years and deficit would continue to
grow putting pressure on public finances enforcing
further spending cuts.
 The Healthcare UK is actively involved in sourcing the
international business opportunities in healthcare with 82
leads of £10.8bn in 2013-14 exceeded the targeted
£1.5bn; and has set up the annual target of £1.5bn
business wins internationally up to 2020.

14.  Construction healthcare sector is very competitive.
 The healthcare sector is demanding the efficiency and
affected by the spending cuts.
 The public demand on the health service delivery is ever
increasing, that will create demand for the infrastructure.
 The companies with unique selling point and competitive
advantage would create business opportunities in this
sector.
 Significant cost savings can be made by applying the
economies of scale and reviewing the estates of the
NHS in the areas of facilities management and
operations by efficiently programming the servicing.
Conclusions and Recommendations

15.  The UK has a large stock of ageing hospital facilities,
which provides opportunities for the maintenance and
refurbishment of medical buildings.
 There is a huge potential in this segment with limited
competition for the companies to provide retrofit and
regeneration services to update the existing healthcare
facilities and equip them for new clinical services.
 The construction companies wanting to enter this
market sector should create the long term competitive
advantage by either reducing the costs or offering
something unique by reconfiguring the value chain
management.
Conclusions and Recommendations

16.  The public sector client’s tender selection is based on
value for money approach and not on the lowest tender;
hence can not compete only on the lower cost.
 The companies involved in this sectors are vastly
experienced, has access to expertise and are huge,
backed by the financial and technological capabilities,
difficult to compete against.
 Innovation is one of the key issues in creating and
sustaining the competitive advantage.
 organisations with innovative design and technological
ideas to improve efficiency in service delivery would be
successful in securing long-term business.
Conclusions and Recommendations

17.  The entry and sustaining the business in the healthcare
construction sector is very challenging:
1. PFI model would need strong financial reserves with
the company to support the contracts.
2. Framework procurement routes requires strength in the
tender bids supported by the skills, expertise and
experience.
3. Competitors in this sector are big companies with
strong financial, experience and expertise such as
Belfour Beatty, Kier etc.
4. Innovation is the key competitive edge but difficult to
realise in short term to gain entry, requires through
research and development with technological support.
Conclusions and Recommendations