Construction costs versus the market, 2014

Nick Bointon
Construction costs versus the market, 2014

The construction sector is still short of work and contractors still struggle to keep going especially trying to retain the craftsman, service and expertise. Restructuring and downsizing operations have taken their toll and it is difficult to slim down further without compromising the core competence of organisation without terminally affecting the quality of the work. The balance sheets for 2012 and 2013 for the majority of Dutch contractors do not look good, with far too much red ink apparent.

Can the ship be turned round? Housing construction reached an historic low in 2013. IGG expects little improvement in 2014 indeed expects a further fall with many more Contractors going under.

This will further reduce the supply and as the demand is not there pressure will mount. Costs and inflationary wage settlements only increase costs so even a hint of recovery is further forestalled by these increases. All these factors impact on any hint of recovery so the time, pace and amount of available work are all a brake on any potential upturn. At least inflation is at a very low level and is likely to remain so for 2014 and 2015 (source: DNB dec’13) but some economists are even afraid of deflation.

The question is whether the wages in the construction sector will rise much. Set in a number of collective agreements these rises are defined to cover inflation and sometimes even more. The influence of the open borders in Europe and the poor economic situation, particularly in the Eastern and Southern European countries will remain for some time as is noticeable in real wages, There are attempts to negotiated separate wages arrangements for non- Dutch staff but firstly that is difficult and secondly it is not certain how this will affect the construction costs.

There are many wildly varying conjectures about the future so we hereunder make our predictions for the next 1.5years!

Generally the feeling is that prices have now reached the bottom and should stabilise and be set for a gradual recovery. That will reflect largely an increase in labor costs and storage rates with materials being more difficult to predict especially as availability is a factor for the years ahead

There will certainly be a change coming at some point with rates increasing and will eventually partially restore normal profit margins but again but for now we see a bleak future..

In procuring their works clients always want to select from healthy, profitable well run companies with operating results and operating cash flow (EBITDA).commensurate with their operations. Unfortunately several large companies have become impaired and goodwill and stock positions have become frighteningly slim.

In order to meet these criteria contractors will be much more cautious in giving discounts (commercial or purchasing) and their focus on reducing their risk and exposure has other effects. Things like the use of BIM and smart programmes and monitoring all help but with slim or zero margins it certainly focus the mind and in many cases and applications we question the effectiveness of these ‘easy solutions’.

IGG has actually been a beneficiary of this general downturn, like a pump salesman during a flood!

Being only cost engineers IGGs’ ability to cost, control budgets and accurately monitor progress throughout the construction and keep that exquisite focus on cost has been a vindication of our methodology and experience.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IGG has actually been a beneficiary of this general downturn, like a pump salesman during a flood!

Being only cost engineers IGGs’ ability to cost, control budgets and accurately monitor progress throughout the construction keeps that exquisite focus on cost has been vindication of our methodology and experience.

 

 

Onze specialist binnen IGG Bointon de Groot

Mail
 

Nick Bointon

Neem contact met ons op Voor vragen kunt u vrijblijvend contact opnemen met onze specialist
 

IGG Bointon de Groot

Adres : Prinses Catharina Amaliastraat 32
2496 XD Den Haag
Post : Postbus 85767
2508 CL Den Haag
Tel : 070 514 54 20
Fax : 070 514 32 31
E-mail : info@igg.nl

Our partners

IGG Bointon de Groot is an active partner in the built environment. IGG follows
al trends and developments. Some of our important partners:

Partners