Propping up the country

The importance of the public sector to the construction industry is highlighted with the latest round of figures that show while order books are still thin, the slide has become slower as the government pumps money into new building contracts

The government's "scrappage" scheme may have given the car industry a lift and politicians a public relations boost but there is no way that it is halting the recession single-handed.

Public sector spending on bricks and mortar is doing far more and the signs are that it is starting to pay off – at least for the construction industry.

Of course we –and the builders – are not out of the woods yet. The Chartered Institute of Purchasing and Supply's (CIPS) August survey of the construction business showed that business activity in the UK construction sector has continued to contract but it is now doing so at its slowest pace in 18 months.

A quick flick through the pages of the weekly construction trade press gives anectodal indication of the role of the public sector in slowing the slide.

News of Building Schools for the Future schemes this week include a £180m contract awarded in Birmingham, while a consortium of building contractors has picked up a £230m BSF contract in Bradford. Other types of work are available too. Plymouth city council is looking at a £46m swimming pool while the contenders line up for the £1.75bn portion of the £16bn Crossrail project that will link rail lines on the east and west sides of London.

The importance of the public sector to construction output is likely to be confirmed within the next few days when the Office of National Statistics (ONS) releases construction output figures for the second quarter of the year. ONS figures' for the first quarter showed how the public sector has provided an increasingly important part of construction workload.

In the first quarter of 2007 it accounted for about 29% of all new work. A year later this had grown to 31%. Two years later, in the first quarter of this year, it represented 39% of new work.

The imminent ONS figures are likely to offer further proof that the economy is improving. Simon Rubinsohn, chief economist with the Royal Institution of Chartered Surveyors says they will reflect the construction industry's "less negative mood". Whereas the first quarter showed that output fell by 7% the latest figures are likely to show a contraction of only 2%.

Nevertheless, CIPS's chief executive David Noble describes the construction sector as "the sick man of the UK economy" and says that far from seeing signs of a return to growth the sector remains stuck in an unprecedented 18-month period of contraction.

Thinning order books have made bidding for construction work a fiercely competitive business. Figures from the Building Cost Information Service showed that in the first quarter of 2009 prices of building contracts had fallen by more than 6% from the point 12 months previously at which they peaked. The service expects prices to have fallen almost 15% by the time they bottom out in 2011.

One happy consequence of the current situation it seems is that public sector organisations with access to funding are now able to get more bricks for their bucks.

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