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Published by fred.shaw-matthews, 2019-11-18 06:30:34

MDA Briefing Autumn 2019

MDA Briefing Autumn 2019

BRIEFING

Construction, Economic and Procurement Update MARCH 2019

KEY MDA Market Reflections
FACTS: Steve Jones, Managing Director

Wholly I have just returned from the annual MIPIM property “jamboree” in the South of France,
an experience that was the same and yet different from years gone by.
owned
I don’t know what the attendance numbers were but I could not detect any notable
No external difference, maybe a little lower than 2018, but certainly nothing significant.

shareholders After the witching hour of about 7pm, once the sun had set and the alcohol kicked in,
the ambience and atmosphere gradually took on the feel of previous visits.
No debt
Cash in the It was during the day the difference was
apparent as the reality of the new dawn
bank set in. Every conversation and meeting
took place against the never ending
10% increase in uncertainty of the dreaded B word.

turnover Whichever side of the argument you
happen to be on, your business needs to
50%+ increase be doing remarkably well not to be just a
touch concerned at the evolving mess.
in profit
And it is not just the EU, there is Trump, the ongoing trade ‘discussions’ between the
70% repeat order US and China, Russia, the Middle East, I could go on and on!

business Closer to home and back in the UK, whilst we have had a small number of schemes
put on hold, generally we continue to grow and are profitable. We have secured a good
27 framework number of new commissions in the residential, student accommodation and retirement
care sectors in the last six months. The banks are clearly continuing to lend and we are
agreements now appointed to 30 bank/fund monitoring panels, an increase of 10 over the last 12
months.
30 funding/
My advice would be hold your nerve and remain positive. Whilst there will be ongoing
banking framework economic and political uncertainty for some months to come, there will also be
agreements opportunities. High-end residential is beginning to show signs of life with both foreign
Opened in (and UK) buyers attracted by lower prices and weaker sterling. Other sectors, student
accommodation and care homes to name two, remain very strong.
Cardiff
13 new joiners
32% female

workforce

11 graduates on

APC

Despite the trials and tribulations we must battle on, the sun will continue to shine and
things will settle down and get better. Eventually!

www.mdaconsulting.co.uk @MDAtoday

TENDER PRICE FORECAST

Kevin Heaton, Director

The latest data from the Office of National Statistics (ONS) shows that construction
output fell by 0.3% in the three months to December 2018 following a strong
performance and an increase of 2.1% in Quarter 3. The fall in the Quarter 4 output
being largely due to a decline in repair and maintenance output which fell by 2.8%
driven by falls in private housing and non-housing repair and maintenance of 4.0%
and 2.9% respectively. These decreases were offset to a degree by increases in
infrastructure (up by 1.9%) and private commercial new work (up by 1.4%) leading to
a 1.1% increase in all new work. The month-on-month series showed that output in
December fell by 2.8% from the level seen in November 2018 which represents the
largest month-on-month fall in growth for all work since 2012 when the figure fell by
4.3%.

According to the ONS the level of all work in 2018 increased by 0.7% year-on-year
which represents the lowest annual growth since 2012 which saw a 6.9% decrease in
annual output. Despite this some individual sectors have shown strong annual growth
such as private housing new work (up by 6.1%), infrastructure (up by 5.7%) and non-
housing repair and maintenance (up by 3.9%).

Looking at the wider UK economy, ONS data confirms that GDP grew by 0.2% in the
final quarter of 2018 driven by growth in the services sector of 0.4%. The production
sector (down by 1.1%) and construction sector (down by 0.3%) both having negative
contributions. Annual GDP grew by 1.4% in 2018 which was the lowest since 2012.
HM Treasury’s Forecasts for the UK Economy from a variety of independent sources
predicts stable growth of 1.4% in 2019 rising to 1.6% in 2020 and 1.7% per annum
for the following two years in 2021 and 2022. The National Institute of Economic and
Social Research (NIESR) have lowered their forecast for UK GDP for 2019 from 1.9%
to 1.5% as a consequence of the UK economy losing momentum in the final quarter
of 2018 due to Brexit-related uncertainty and a slow down in global economic growth.
NIESR predict that GDP growth is set to remain weak in the first quarter of 2019 with
the economy again growing by just 0.2% in the quarter. According to NIESR, GDP will
rise to 1.7% in 2020 with all predictions, once more, being conditional on a ‘soft’ Brexit
scenario.

The Barbour ABI data for all contract activity has reported a 9.9% increase in the value
of construction contracts awarded in January 2019 compared with December 2018
based on a three month rolling average, however, the quarterly analysis indicates that in
the three months to January 2019 the total contract awards value was 14% lower than
the previous three month period. This continues the volatility in contract award values
seen over the past six months.

The IHS Market/CIPS UK Construction PMI (Construction Industry Purchasing
Managers’ Index Survey) fell to 49.5 in February 2019 from 50.6 in the previous month
and well below the market expectation of 50.3. The longer term forecast is more positive
with Construction PMI in the UK estimated to stand at 52.6 in 12 months’ time and to be
trending around 53.6 in 2020.

TENDER PRICE FORECAST CONT’D

The construction industry continues to experience rising input costs and labour
resources remain tight with many specialist trades in short supply. Upward pressure
has been exerted on the cost of imported products due to the fall in sterling. Contractor
margins will continue to come under increased pressure as a consequence of absorbing
higher material and labour costs and as a consequence of falling demand and
increased competition.

The matter of Brexit and the exact manner and timing of our exit from the EU after
March 2019 continues to provide a backdrop of uncertainty surrounding the construction
industry and the wider economy. Amongst this uncertainty Contractors continue to
attempt to balance the desire to secure future workload against ongoing caution in the
pricing of risk particularly in larger, more complex schemes. Forecasting tender price
increases in this climate of Brexit uncertainty continues to be problematical with a wide
range of opinions across the industry. In line with most commentators MDA’s Tender
Price Forecast assumes a ‘soft’ or orderly Brexit with open market trading conditions
being retained. Should this not prove to be the case the construction industry could,
in the short term at least, be vulnerable to a number of negative factors which could
substantially change our industry forecasts. Our projections therefore are for tender
prices to rise between 2% and 2.5% in 2019, 2.5% and 3% in 2020 and by 3% to 3.5%
in both 2021 and 2022.

Kevin Heaton - Director

E: [email protected]

T: 0117 929 2641

Note: Forecasts of tender price inflation are indicative only and actual inflation will be
dependant on the particular circumstances of each individual project including size,
procurement route, programme, risk transfer and the prevailing market conditions in
each location.

For further information on forecasts of tender price inflation in your particular region
please contact your local MDA Consulting Ltd office.

Sources

Office for National Statistics (ONS): Construction Output in Great Britain: December 2018 (date 11 February 2019)

Office for National Statistics (ONS): GDP Monthly Estimate UK: December 2018 (date 11 February 2019)

National Institute of Economic and Social Research (NIESR): February 2019 GDP Tracker (date 11 February 2019)

National Institute of Economic and Social Research (NIESR): National Institute Economic Review The UK Economy
(date 6 February 2019)

Barbour ABI: Economic and Construction Market Review February 2019

Building Cost Information Services (BCIS) Quarterly Briefing: December 2018 and update on Quarterly Briefing January
2019

HM Treasury Forecasts for the UK economy: a comparison of independent forecasts no. 380 (dated February 2019)

OECD Economic Outlook Volume 2018 Issue 2

IHS Markit/CIPS UK Construction PMI (date 4 March 2019)

GUEST ARTICLE

CYBER SECURITY AND THE NEED TO BE VIGILANT

Huw Godsell - ACS Limited

With the ever increasing threat from Internet and email scams it is has become ever
more important that companies and particularly their staff are educated on at least the
cybersecurity basics.

Last year’s hacking attacks and data theft from British Airways, The Marriot Hotel Group
and Ticketmaster have all been widely reported. All three are high profile and are highly
likely to have state of the art anti-virus, firewalls and patch systems in place and yet
they were all compromised.

May 2018 saw the introduction of GDPR which was designed to make companies more
accountable for managing and storing personal data. MDA Consulting, whilst having
many of these systems and controls in place, are also committed to attaining The Cyber
Essentials Plus accreditation as part of an ongoing quality improvement program.

This will entail not only putting in place better staff education, tighter security controls
and regular patching, but also vulnerability testing to ensure that both their own and
their clients’ data is as secure as it can be.

This has meant MDA making a significant investment in new systems such as a new
Cloud based Defects Management system and a rolling program of replacing older
servers and PC’s, alongside a new patching system. MDA are also in the middle of
evaluating a replacement Intranet, HR and Accounts system which they hope to have in
place within the next few months.

Cyber Crime can be extremely profitable and often presents a low risk of being caught.
Until this changes I think we are going to see ever increasing attacks on our networks
over the next year, particularly from outside of the UK.

It is therefore important that people are careful about what emails and weblinks they
open as the consequences can be more far reaching than just their PC’s.

In 2017 for instance, the NHS was hit with a Ransomeware attack which encrypted a lot
of data leading to operations being cancelled.

More recently a Hosted Cloud provider had a similar experience which led to all data
and backup data being encrypted. This resulted in them losing a lot of clients and with
good reason.

In both cases these attacks were avoidable but in all cases a network is only as strong
as the weakest link, be it a weak password, open ports on the firewall or missing
security patches on computer systems.

If you have any questions or concerns please email me to discuss further!!

Huw Godsell - [email protected]

CROESO I GYMRU!

Ben Slocombe, Senior QS

As I sit in the office (in Bristol) writing this, a
large inflatable daffodil is perched on the cabinet
behind me. I’m sure this was bought for me by my
colleagues as a joke, but it has sat there for the
best part of three years; I’m proud to be Welsh.

Most of my career so far has been spent working
in England, with sporadic work back across the
border. It seems strange to me though, that when I
walk around places such as Swansea, Cardiff and
Newport, so much has changed in the landscape.
Construction activity in South Wales seems to be
sky-rocketing with no sign of slowing.

Certainly, in terms of construction output, the latest
Labour Market Intelligence report from the Construction Industry Training Board (CITB)
and Experian, the annual
growth projection average
in Wales is 4.6% to the
year 2022, compared to
the UK’s average of 2.1%.
Although representing a
reduction in the estimate
for Wales from 6.2% last
year, this shows that the
Welsh construction industry
is predicted to grow over
the coming four years at
a little over double the
rate of the rest of the
UK. Nevertheless, when
reviewing construction output data in Wales, a positive trend of year-on-year growth
can be seen since 2008’s downturn. The following graph has been generated from data
collected from the CITB report and the Office for National Statistics (ONS) forecast to
illustrate the trend over a 15-year period.

This positive trend,
coupled with the
knowledge of the
Welsh Government’s
£1.4bn commitment
to affordable housing
and several major
projects such as
the Central Quay
redevelopment in
Cardiff, means that
construction in South
Wales over the next
few years is set to be
a very exciting time.

CROESO I GYMRU! - CONT’D

Recognising the incredible opportunity that the South Wales region represents, MDA
has now opened an office in the centre of Wales’ capital city, our seventh in the
United Kingdom. It is hoped that, from this office, MDA will be able to substantially
increase the offering of Quantity Surveying, Project Management and Independent
Monitoring Surveyor services to existing and new clients in South Wales. Personally,
I am incredibly excited to be given the opportunity to lead this office in my hometown
and throughout the region and look forward to MDA’s involvement in more construction
projects in South Wales.

Networking and relationship-building is already off to a fantastic start for MDA in the
Welsh capital, as a
number of the team
hosted lunches at the
Cardiff and County
Club with some
prominent figures
within the Industry.
I have gained an
enormous number of
contacts in the few
months since the
office has opened
and this is growing
with every event I
attend. That said,
I am constantly
reminded of how much of a “small village feel” the Construction Industry really has,
and every introduction seems to lead to another person who knows nearly everyone I
have met, plus many more. This can only be a good thing and the exposure is doing the
newly-formed office a world of good.

This entire endeavour is a learning curve for MDA and myself, as the construction
market in South Wales varies considerably from that of the South West of England,
where I have been based for a number of years now. However, the number of enquiries
received and bids submitted is steadily increasing and MDA is well-positioned to
compete with some fairly well-established names within the South Wales construction
market. We have already secured a Bank Monitoring role for a new Client and have
several schemes in the pipeline with other Clients in the region.

Lettice Swan, Kevin Heaton and Steve Jones (amongst many others within MDA) have
been instrumental thus far in helping to establish the Cardiff office and to further MDA’s
network in South Wales. I am certain that the coming months and years for the future of
MDA both in Cardiff and elsewhere within the United Kingdom are going to be nothing
less than prosperous.

Ben Slocombe

E: [email protected]

T: 0292 104 0155

M: 07803 288076

THE ROLE OF AN INDEPENDENT MONITORING
SURVEYOR – AN MDA INSIGHT

Chris Lester, Associate Director

When I first started out providing monitoring surveying services within the industry
back in 2005, rightly or wrongly, I often felt that it was a much-maligned profession, that
was either met with disapproval from the Developer, primarily as an unnecessary cost
affecting their bottom line (as, of course, they were experienced and nothing was going
to go wrong with the project!) or confusion as to what the role actually entailed. This
despite it being a well-established role within the surveying fraternity.

I am pleased to say that nowadays, the role of an Independent Monitoring Surveyor is a
very well-respected profession that is often welcomed by all parties on a development,
including the Developer’s themselves, who, quite rightly, see the benefit of the extra
pair of eyes on the project, assisting with both the flow of funds and assistance in
managing the risk profile of the project. The ultimate goal for the whole project team,
from the funding party, through to their consultants, the developer and the rest of the
development team is the successful delivery of the project, as originally planned i.e. on
budget and on programme. However, construction projects do not come without risks!

An Independent Monitoring Surveyor (IMS), also known as a Fund or Project Monitor,
should be viewed as a specialist role, requiring experienced professionals who will
assist Banks and other Funding parties on funded development schemes. Typically,
having a quantity surveying and construction background, the role is to act as an
‘early warning system’ for the Funder and be their ‘eyes and ears’ on the scheme,
predominantly advising on the associated risks and the ability of the Developer
(otherwise referred to as the Borrower) to complete the scheme on budget and to
programme.

An initial due diligence process will be carried out, as an independent assessment of
the borrower’s proposals, and will ultimately assess the overall risk profile of the project.
Provided that funding is then agreed, thereafter ongoing monitoring of the project will
continue with monthly reports updating the Funder of any changes to the scheme as
well as updating the overall progress of the project, and monitoring costs against the
development loan. The IMS will continually assess the changing risk profile of the
project throughout the construction phase and how this may impact on the Funder’s
position.

This latter point is one of the key aspects of the IMS role, as
it is not just about identifying the risk but to understand the
severity of the risk and implications on the overall project
and on the Bank’s security / funding, and how these can
then be best mitigated and managed at an early stage. The
Funder will be keen to ensure their position is protected
throughout the construction phase and where problems do
arise, perhaps delays or additional costs, that these are
then managed by the Borrower from a commercial aspect
and from an internal funding perspective. Whilst there are
common risks on all projects i.e. delivery and provision
of materials and resourcing, ground conditions etc., risks
should always be reviewed on a project by project basis. A
large refurbishment of an existing city centre building has very different risks associated
with the project as opposed to a small new build residential project on a greenfield site.
Some brief ways to mitigate risks on such development projects include through the
procurement and contractual arrangements in place, the adequacy of the contingency
allowances, provision of performance bonds or guarantees and the professional
appointments and warranties being provided.

THE ROLE OF AN INDEPENDENT MONITORING SURVEYOR – AN
MDA INSIGHT - CONT’D

I’ve always thought that an IMS is a ‘jack of all trades and a master of none’, which,
I am sure some would say is not strictly true given the last part, but generally
summarises the overall role, given the requirement to understand the project from a risk
perspective and how these may impact on the success of the scheme, provide advice
on planning, costs, programme, procurement, contractual arrangements amongst other
things and understanding Bank funding parameters and loan conditions. Understanding
the development from a commercial sense is also important.

As noted in the RICS Professional Guidance, UK for a lender’s independent monitoring
surveyor, many bank’s and funding institutes will insist that their appointed monitoring
surveyor:

• is a qualified professional (preferably an RICS Chartered Surveyor);

• has appropriate experience in the role (recognising the IMS role as a speciality);

• understands procurement within the wider development process and the associated
risks;

• is appropriately resourced and remunerated for the commission; and

• is covered by an appropriate level of professional indemnity insurance.

MDA Consulting is in a unique position, working with both ‘good book’ lenders and
with those parties dealing with distressed developments or insolvent construction
companies, which provides a unique skill set to advise from a risk perspective on all
types of developments, as well as having good relationships with Developer’s and
Contractor’s alike. MDA also act as Employer’s Agents, Project Manager’s, Quantity
Surveyor’s, Building Surveyors, H&S advisors and Principal Designers within the
industry.

Our experienced monitoring team
regularly report to a variety of banks
and funders, being on over 30 funding
panels, and as an open, transparent
and close-knit company, are able
to draw on a wealth of experienced
colleagues with varying disciplines
across all offices.

The monitoring team are serviced
across all seven offices, with national
coverage including the newly opened
Cardiff office. The monitoring service
now accounts for approximately
20% of revenue, helped by the large
growth across the south and south
west regions over the last 12 – 24
months.

THE ROLE OF AN INDEPENDENT MONITORING SURVEYOR – AN
MDA INSIGHT - CONT’D

Over the last 12 months, the
team has welcomed Rebecca
Nutt, Patrick Briffa, Lee
Gurney and Robert Brennan,
with still more opportunities
available to join and assist with
further growth, particularly in
Birmingham and Bristol.

MDA are currently monitoring
a range of projects across a
number of sectors including those
within residential, healthcare,
commercial, leisure and industrial
sectors.

Some of our current larger

schemes include the high-profile

ICC Wales at Celtic Manor, a

large private residential scheme ICC Wales, Celtic Manor
in Jersey, a large 101 unit senior courtesy of Dave Powell Aerial Photography Wales
living accommodation scheme

in London, a 190 unit residential

scheme in Cornwall, the refurbishment of an existing building (in the South West) into a

mixed-use development including student accommodation, hotel and retail units and a

140-bed Hilton Garden Inn Hotel in the Midlands.

Our current schemes range from relatively small developments with a gross
development cost (GDC) of £500k up to £80m, which provides an insight into the
breadth of knowledge and experience the monitoring team have at MDA.

Should you wish to discuss any aspect of the above or wish to discuss our role as IMS
in more detail, please don’t hesitate to get in touch.

Chris Lester - Associate Director
E: [email protected]
T: 0117 929 2641
M: 07776 148 658

MDA BUILDING SURVEYING SERVICES
Rebecca Nutt, Associate

So what is Building Surveying?

The role of a building surveyor is difficult to define as it covers a wide spectrum of
services. Most people’s experience relates to the purchase of a new house when a
building surveyor is instructed to inspect and flag up defects in the structure or fabric of
a property. This is only a small element of what we do though. Aside from this building
surveyors also provide advice on design, maintenance, refurbishment, restoration and
legal matters.

Typical services provided by building surveyors include the following:

• Negotiating dilapidations claims

• Defect investigation and maintenance advice

• Insurance assessment and claims assistance

• Project monitoring

• Property legislation advice

• Building surveys and measured surveys

Who provides Building Surveying work at MDA?

Our building surveying team is based in London however we are able to cover
instructions anywhere in the UK and the Republic of Ireland. Our team has over 20
years of building surveying experience and have worked at various companies from
social housing (Peabody) to larger, real estate advisory consultancies (GVA and Colliers
International).

What type of work do you do?

We cover the typical scope of building surveying services as listed below:

1. Dilapidations acting for landlord and tenants

2. Acquisition surveys (Technical Due Diligence)

3. Repair and refurbishment (Contract Administration)

4. Planned and preventative maintenance surveys (PPMs)

5. Fire reinstatement valuations

6. Party Wall work

Who needs building surveyors?

Building surveying clients come in all shapes and sizes from small business owners
to landlords and investors. In short, anyone who leases or owns bricks and mortar,
or intends to lease or own a building, will at some point use the services of building
surveyors.

MDA BUILDING SURVEYING SERVICES - CONT’D

How much do your services cost?

This really depends on the service required. In general though acquisition surveys and
PPMs can start from £1.2k. Fees for dilapidations are usually based on a percentage of
the savings we achieve for the client through our negotiations; the more money we save
our client, the greater our fee. Fire reinstatement valuations start from £400 for desktop
surveys. We are always happy to give guidance or provide fee quotes even if we are
not ultimately instructed.

What has been your most interesting instruction?

In our previous company we were instructed to carry out a technical due diligence
survey of hotel complexes in Thessaloniki, Greece. Following our instruction we
assembled a team of engineers and consultants from the UK and Athens and together
carried out a British style acquisition survey on three, large, 5* hotel complexes.

and Most challenging instruction?

This project was challenging and also soul-destroying! Prior to joining MDA we were
instructed to carry out end of lease dilapidations and subsequent refurbishment works
on an office block in central London. Following the works the client’s intention was to
sell the building for more than double the original purchase price and in order to do
this they wanted the specification and workmanship to reflect this high price level. After
months of meetings to clarify layout and specification we finally finished the contract
works and the building was successfully sold for the asking price. When the sale went
through the new owners decided to strip our every fitting, ceiling and partition in the
building! Seeing all the broken light fittings, marble and mirrors lying in a skip outside
the building was heart-breaking. So much for sustainability in construction…

How can we help you?

Whether you are a property owner,
occupier, developer or funder we are
happy to provide advice on any building
surveying issues you may have.

We are also available to visit you or your
property to discuss the options available
to you and the best strategy to take to
move forward.

Should you require a fee quote, or
simply want to discuss a building related
problem, please get in touch.

Rebecca Nutt - Associate Director

E: [email protected]

T: 0207 399 0888

M: 07753 811 429

COMPANY NEWS
Senior Appointments

Robert Brennan
Senior Surveyor, Bristol Office

Patrick Briffa
Senior Surveyor, London Office

Lee Gurney
Associate Director, Manchester Office

Cameron van Heerden
Associate, London Office

Matthew Rimola
Senior Surveyor, Leicester Office

John Quinn
Senior Surveyor, London Office

Promotions

Rebecca Nutt promoted to
Associate Director, London Office

Steve Udall promoted to
Director, London Office

Keith Warburton promoted to
Associate Director, Birmingham Office


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