Almost three-quarters of firms expect the majority of work to come from the private sector in 2016, according to the latest figures from consultancy Gleeds.

Seventy per cent of main contractors and their supply chain partners reported a confident and optimistic outlook for the industry based on performance in Q3 and Q4 2015. Each step forward is not without a degree of nervousness, however, as businesses share their concerns about resource and capacity as the volume of contracts out to tender increases.

Even though Q3 data from the Office for National Statistics revealed a decline in construction output of around 2.2 per cent when compared with Q2, feedback from surveyed construction firms suggests workloads are robust, with the outlook positive and expected to remain so for the next six months.

Despite resource pressures, there has been a significant upturn in bidding activity over the past 12 months, with 75 per cent of respondents to Gleeds’ survey saying they were making concerted efforts to allow sufficient time to tender for new work.

On average, 41 per cent of firms were working on between six and 10 bids at a time – up from 32 per cent in Q3/Q4 2014 – while 35 per cent of firms reported they were working on 11 or more bids.

Pricing change suggests increased competition

Overheads and profit applied to tender pricing have fallen over the past nine months, and Gleeds data shows it is now more common to see rates of 1-6 per cent as opposed to 10 per cent or more. This downward trend suggests increased competition in the marketplace, which is likely to be a result of greater power from suppliers over cost and rivalry among existing players.

While there is industry-wide acknowledgement that we have a skills crisis on our hands, the increase in bidding activity over the past year suggests the shortage is not having a pronounced impact on bidding and procurement.

Recruitment levels meanwhile remain high, with 86 per cent of respondents recruiting for additional staff to bid and deliver work. This indicates that construction businesses are relatively confident over the labour requirements needed if and when new work is won.

Nevertheless, almost 40 per cent of those surveyed said they were struggling to manage staff costs in light of the increasing cost of labour.

Materials costs have also risen, with 80 per cent of respondents reporting that materials costs had increased in the previous six months, while 50 per cent said lead-in times for certain materials had lengthened.

Overall, 84 per cent of the supply chain expected materials prices to increase over the next six months.

Respondents suggested that tender opportunities are strong – through both frameworks and traditional competitive tender routes. The volume of tenders procured via framework agreements has increased notably, indicating public sector capital expenditure is being prioritised.

However, some respondents noted that two-stage procurement has become increasingly popular, while it was noted that the appetite among main contractors for single-stage tenders is coming to an end.

Private sector dominating opportunity

Nevertheless, the private sector continues to account for the lion’s share of work. When asked where businesses anticipated future workload coming from, 70 per cent of firms expected the majority of work to be derived from the private sector over the next 12 months.

This is an interesting shift in opinion in comparison with Q1/Q2 2015, when companies predicted that future workload was likely be more equally proportioned between public and private sectors.

Statistics reveal that in Q3/Q4, the top five most active sectors based on tender opportunities were commercial, education, health, leisure and retail.

This data highlights two things: firstly, that the private commercial sector is still very much leading the way when it comes to investment and delivery, while the improvements we have seen in consumer spending are having a knock-on effect in the leisure and retail sectors as customers have more disposable income to spend.

Second, that spending in the private sector is being matched by a fairly substantial amount of government investment in education and health, which has since been reinforced in the Spending Review and Autumn Statement. What is missing is movement in the housing market towards the delivery of the 400,000 new homes that George Osborne wants built by 2020.

This indicates a loss of momentum in the residential sector, with other sectors now presenting greater opportunities, so renewed focus on the housing market is welcome. Whether or not the magnitude of investment needed actually materialises is another matter altogether.

Sarah Davidson is head of research and development at Gleeds