Classrooms cancelled
There’s
no such thing as an easy cutback. And faced with an unprecedented
deficit, the coalition Government is having to make some of the most
difficult economic decisions in recent political history.
One of the most controversial to hit the cash-strapped public sector has been the cancellation of Labour’s flagship Building Schools for the Future programme. The £55 billion initiative was intended to construct or rebuild England’s entire secondary school estate over the next 10 to 15 years, but following a full-scale review this summer reality is now very different.
“About 700 schools in development have been axed, as well as the entire future programme,” says Jonathan Davies, a Director in BDO’s Government and Infrastructure team. “All of them had been signed off by the previous government, so this will have a major impact on local authorities, contractors and subcontractors across the country.”
Saving money in the future is one thing, but many of the local authorities have already put millions of pounds into scoping projects which are now not going ahead, and some are even considering taking the politically delicate step of suing the Government over the issue. “At least two councils are seriously considering this,” Jonathan confirms. “There’s next to no chance that the projects will be resurrected in their current form, but there’s a possibility that they may get some of the development costs back.”
The situation is being watched with interest by other councils.
But it’s the contractors and the subcontractors who have been hit the hardest. “Many of them have resourced up to bid for and deliver a high volume of work over the next few years, and we’re already seeing some fairly radical restructuring in their operations as a consequence of the change in plan,” says Jonathan.
“The bids have tended to be for a programme of building projects covering all the schools in a particular area or, in some cases, all of the local authority’s schools,” he explains. “Preferred bidders have been told they will be the exclusive suppliers for any school building projects in a region over the next ten years, and until recently they had a reasonable expectation that this would guarantee a certain level of work.
“But there was no legal contract saying exactly how many projects this would involve; and since the review, while preferred bidders are not simply being fired, it’s now a question of them doing more like two or three – the contracts are worth £30 or £40 million rather than £150 to £200 million.”
Clearly, smaller subcontractors are less able to cope with this sort of shift – this is ironic, given that the national firms who bid successfully for the contracts in the programme had tended to place a great deal of emphasis on using local suppliers as much as possible, aiming to boost local economies with the extra work. Instead, business recovery teams are sure to find there is more work to do in the construction sector.
Nevertheless, councils around the country are looking at alternative ways of salvaging at least some of their projects, as Jonathan points out: “Innovative schemes to generate revenue are being considered, from selling land and other assets to partnerships with the private sector, and professional services firms clearly have a role to play in this regard.
“There is even scope for firms to help the contractors themselves, who may decide to approach councils with schemes and structures of their own for getting the job done.” So there may be at least some rays of hope amidst the gloom.
Unquestionably, though, the next few years are going to be tough for councils and contractors alike.
