Reining Cutting
Government spending cuts will put funding for road construction in jeopardy
This road construction industry comprises contractors undertaking new work, repair, additions and alterations of motorways, streets, roads, airfield runways, and other vehicular and pedestrian ways. This work can be carried out on the operator’s own account or on a fee or contract basis. Portions of the work, or even all the practical work, can be subcontracted out.
Roads perform an integral role within the UK economy and society. The construction of motorways and trunk roads has far-reaching multipliers for the local economy and delivers greater efficiency and safety for commuters and freight distribution. In addition, governments can use investment into transport infrastructure to stimulate economic activity and open up new areas for residential or industrial development.
The Road and Motorway construction industry mainly comprises private contractors, ranging from small independent operators to global engineering giants, although public road and traffic authorities continue to employ operatives for construction management, maintenance and repair activities. The road system is predominantly funded by the public sector through central government bodies and local authorities, although there has been a notable swing towards private investor participation in infrastructure projects over the past decade, including private finance initiatives (PFIs) on road developments. Private developers also fund the construction of infrastructure on new housing subdivisions, car parks and roads on new commercial and industrial developments, and airport runways.
Industry revenue currently totals £6,325 million (a 1% rise from 2009-10), including value added of £2,530 million or approximately 0.2% of UK GDP. The industry has maintained solid revenue growth averaging 2.0% per annum over the five years through 2010-11, despite the onset of severe recessionary conditions and the collapse of demand for the construction of streets, kerbs and pavements on new housing subdivisions. The total market for new road, motorway and street construction has grown by 3.3% per annum over the past five years, climbing from a trough in the mid-2000s. The injection of public spending on major motorway and trunk roads has ensured the industry has expanded at a faster pace than the UK economy, although there has been negligible stimulus for expansion from maintenance and repair work on existing roads.
International trade represents only a minor share of industry activity, with both industry exports and imports accounting for about 1.0% of annual industry revenue and domestic demand.
The industry currently employs approximately 46,500 people in 2,750 establishments, including permanent and part-time employees, working proprietors and partners. The total industry workforce, including subcontracted labour, numbers about 100,000 full-time equivalent people in 2010-11.
The industry comprises many small to medium-scale firms contracting on road projects within narrow regional markets. The firms undertake small-scale projects as prime contractors or joint contractors and function as subcontractors for discrete portions of projects on major road developments. The major players have the capacity to construct major highway projects across all regional markets; however, the largest half dozen contractors contribute about 25% of annual industry revenue. These include Balfour Beatty, Costain Group, Morgan Sindall, Carillion, Amey, Royal BAM Group (Bam Nuttall) and Newarthill plc (Sir Robert McAlpine Ltd), along with specialist pacing contractors such as Tarmac Limited and French giant Colas SA.
The demand for road construction services will contract sharply over the next few years as government rein in spending in order to consolidate their budget position and contain public sector debt. Industry revenue is forecast to decline by an average 1.5% per annum over the five years through 2015-16, while the UK GDP is projected to maintain subdued growth by 1.4% per annum.
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