In this issue:
- Jim Martin Leading on Housing
- Case Study: Forstal Lane
- TPI Update
- Contractor Insolvencies
- Case Study: Palace Court
- CIH Conference
Jim Martin Leading on Housing
Following Jim’s attendance as Mayor of Hythe at King Charles III’s Coronation, Martin Arnold is proud to announce that our Chairman and co-founder, Jim Martin has now been elected Leader of Folkestone & Hythe District Council.
Jim’s long-standing impact on the housing sector is both well-known and well regarded. His passion for affordable housing, collaborative working style in the delivery of affordable housing and his focus on training and developing the skills of young people, have been the foundation of his success.
Aside from being Leader, Jim is also the Cabinet Member for Otterpool Park and Planning, meaning Folkestone & Hythe District Council will benefit immensely from his years of knowledge and experience in housing and construction. This is particularly important in light of the recent planning permission at Otterpool Park, the largest residential planning permission in the country which is set to deliver a new sustainable garden town comprised of 8,500 new homes, a new town centre, public parks, open space, commercial and retail spaces, and key community services including education, health and community centres.
Jim has said: “This is an exciting new Council and we will work collaboratively with the community to achieve amazing things for our extraordinary district.”
Case Study: Forstal Lane Joint Venture
Delivering Employer’s Agent, Principal Designer and Clerk of Works services, Martin Arnold helped to deliver 210 high-quality mixed-tenure homes in Kent on behalf of Joint Venture [JV] Southern Housing’s Lamborn Estates and Chartway Group. Due to its sensitive, semi-rural location, almost 40% of the site is preserved as green open space, incorporating an orchard of new trees.
Key to our success on this project was aligning the needs and goals of all stakeholders throughout the project to ensure a collaborative spirit was upheld, especially during the challenges of the covid-19 pandemic.
At the outset, our team helped to oversee the design co-ordination during the early phases of the project, adopting a pragmatic approach that addressed all essential client requirements as part of the scheme design.
The site was purchased with Outline Consent, which meant the JV was able to drive the design development to maximise sales values and incorporate robust and maintainable external areas and estate services, all whilst delivering sustainable community facilities such as nature areas and play parks.
During the construction phase, Martin Arnold led on the administration of the build contract and acted in an advisory role in relation to matters and variations to the Framework Agreement with a goal of creating a harmonious, ongoing commercial relationship between the JV partners.
One of the real benefits of the JV was that partners were able to share knowledge and skills, and divide up roles and responsibilities to benefit the JV and the development itself. A great example of this was the on-site marketing suite and show homes that were delivered and operated over the course of the development, managed by Chartway as part of the JV Framework agreement.
Southern were able to benefit from the local sales knowledge and strong brand of Chartway’s private sales arm, Westerhill Homes. Westerhill Homes managed on-site sales and marketing activities for both parties in the JV. All private open market units were sold using the same specification.
With Westerhill Homes managing the private sale portion of the development, this enabled Southern to concentrate on the delivery of the affordable elements of the project, including rent and shared ownership products. Westerhill Homes also concentrated on ensuring that the estate was developed in such a way that it delivered best value and facilities for the residents in the future. The result is a scheme that carefully balances quality with value for money.
Tender Price Update
Inflation continues to be at the forefront of construction related conversations and it appears this trend will remain for the foreseeable future. BCIS are reporting that there is some stability returning to costs and prices however input costs will continue to be the dominant factor on tender prices in the near term.
New work output has declined overall, particularly in the residential sector. That said, decline has not been as noticeable as some had forecast and underlying demand, especially across the wider construction industry, has been surprisingly robust in the face of increased costs and interest rates.
While year-on-year inflation remains high, the quarterly BCIS TPI sits at 1.1%, the same as the previous quarter with the next forecasted quarter at 0.5%, showing a slowdown in prices. The TPI increased by 4.9% between 2Q2022 and 2Q2023.
Estimating future costs remains a challenge in the near future despite material cost increases being predicted to slow down and logistics being back on track. Labour costs are anticipated to replace materials as the main cost driver given the current shortages which are likely to push up wage inflation.
With their profit margins already stretched, contractors continue to pass on any increased costs in increased tender prices. This cannot be avoided at this point. If contractors absorb these increased costs, this will result in even lower margins and an increased risk of insolvency which is a critical issue in the market at the moment.
As the current inflationary pressures continue to present a real risk, contractors are still less willing to commit to fixed price arrangements, especially on big, long and complex projects. We are seeing the re-emergence of single stage tendering as a route to market, however only in specific circumstances with the right tender conditions.
Fluctuation options and provisions have cemented themselves as the foremost mechanism for lessening the fixed price risk on contractors. The BCIS is reporting a surge in the use of their Price Adjustment Formulae Indices (PAFI) over the past year.
Repair and maintenance continue to thrive with carbon reduction requirements and huge retrofit programmes as well as the ongoing fire safety work necessitating imminent upgrades to many buildings.
Contractor Insolvencies Still Rising
Uncertainty in the construction and housing sectors continues to build as another flurry of contractors have entered into administration during the second quarter of 2023. In the 12 months preceding March 2023, over 4,000 construction firms became insolvent and in the first quarter of 2023 alone there was an 18% increase in construction sector insolvencies.
Contractors have struggled to deal with rising costs of both materials and labour caused by increases in inflation, high energy and fuel prices, a restricted labour and skills market and increases in debt, in part related to the payback of Covid loans to government and banks.
Simply, many projects have been caught out by the rapid change in prices across the market, whilst being anchored to fixed price contracts, often procured before the pandemic, back in 2020. These legacy projects are unsustainable in today’s market and are at significant risk of failure.
In the last 12 months, we have been, and are, dealing with several insolvencies and expect the number of insolvencies to continue to rise for the rest of 2023. We anticipate some levelling off in the rates of insolvency by the first quarter of 2024, by which time the market will have begun to correct itself and show signs of stabilisation.
In the short to medium term, we recommend that contractors and clients have open and honest dialogue across these legacy projects and that parties discuss any concerns or critical issues in the sub-contractor supply chain which might affect project delivery.
Where insolvency looks inevitable, here are our top 3 tips for clients and developers:
- Consider, with professional legal advice, whether termination under the contract is the right decision. If it is, work with your Employer’s Agent and solicitor to follow the correct contractual procedure.
- Once termination is complete, clients are now responsible for the safety and security of the site. Get support from your Employer’s Agent, health and safety professionals and security company to mitigate any risk to you on site and put your insurances in place in readiness.
- Review the contractual paperwork, gather your file of design information, warranties, bonds and carry out a detailed audit and assessment of the progress of works on site for valuation purposes.
Martin Arnold are happy to share our knowledge and experience of contractor insolvencies. For more information, please contact us via our website.
Case Study: Palace Court Refurbishment
Martin Arnold worked with Southern Housing to deliver a residential refurbishment development in Westminster, converting an existing Victorian 18-bedroom HMO into 8 beautifully designed flats, situated just a stone’s throw from Hyde Park. The key works included the replacement of the main roof, structural alterations to the 4th floor, and necessary compartmentation and means of escape to comply with Part B of the Building Regulations.
Appointed as Contract Administrator, Quantity Surveyor and Principal Designer, our team produced a specification, JCT contract and monitored the works throughout the contract period to ensure compliance with the contract documents.
Due to the building being located in the Bayswater Conservation Area, there was a requirement to maintain and refurbish key elements of the building, whilst providing high quality units for the affordable rent sector. Repointing the external façade, due to the poor condition of the existing pointing, proved challenging. However, through a number of repeat inspections, we ensured that the level of quality was high and the completed work aligned with the surrounding Conservation Area.
Key to the scope of works was the delivery of a compliant fire strategy. Our Principal Designer worked with the wider project team to establish the best means for accessing the Automatic Opening Vent. An options appraisal was delivered to the client, as was a significant amount of background information, to ensure they could make an informed decision.
The project is now in its defects period. MA have been managing the process by keeping a tracker of defects raised by residents, chasing the contractor for rectification timescales and ensuring work is completed as soon as possible. The team have also been quick to resolve residents’ queries resulting in a high level of resident satisfaction.
CIH Brighton Conference and the Results of Our Charity Poll
Martin Arnold attended the CIH South East Housing Conference in May 2023 and, like many others we spoke with over the two days, we had a very successful and enjoyable conference.
Clearly the sector is in a challenging place, but building safety and energy efficient homes are firmly at the top of the agenda, whether our clients are looking at new developments or their existing portfolio of homes. It is clear to us that our clients’ customer needs are at the top of the agenda which is especially important when our sector is responsible for many of the most vulnerable in society.
Unlike in previous years, Martin Arnold did not hold our annual drinks reception which is always so well attended and supported. This year we decided to donate the money to charity instead and we asked you to help us split up the pot!
Finally, we can confirm the results as below.
We would like to take this opportunity to thank you for your support.