Surviving the boom times: building services consultant survey

Business may be booming in the building services sector, but the pressures of frozen fees, skills shortages and rising construction costs mean industry’s top consultants cannot afford to be complacent. Roxane McMeeken reports on the findings from CIBSE Journal’s first consultant survey and speaks to industry leaders facing an overheating market

In many ways, building services engineers ‘have never had it so good’. However, just as when the then Prime Minister, Harold Macmillan, made this famous declaration in 1957 – about the UK’s booming, post-war economy – this is not the whole story.

As the construction industry emerges from recession, CIBSE Journal makes its first ‘state of the nation’ assessment of the building services engineering sector, supported by revealing evidence from our inaugural survey of the sector’s companies, conducted exclusively for us by Hewes & Associates.

We asked respondents about trends in turnover, profit and employment, and found that there is much to celebrate, with revenues rising and engineers taking an ever-more pivotal role in projects. Challenges continue to stalk the sector, however, not least in that fees are lagging behind the positive trends being seen elsewhere.

Click links below to access results of survey

Financial performance by 2014 sales
Total engineers
Total employees
Graduates employed

Onwards and upwards

Perhaps the most heartening finding of our survey – in which 27 companies took part – was that total operating profit for the firms for 2014 was up compared with 2013, by a huge 45%. In cash terms, this a rise in collective profit from £38m to £55m. This figure excludes Atkins because the comparatively much larger size of the company results in skewed figures – a 17.5% increase to £161m.

About the survey

The inaugural CIBSE Journal industry survey shines a light on the health of the building services sector by analysing financial performance and recruitment levels. Based on the number of chartered CIBSE members they employed, we sent questionnaires to more than 60 companies.

We asked them for their latest sales and profit figures, and employment details, including the number of mechanical and electrical engineers they had. In total, 27 firms responded and we have ranked their data in five tables according to sales, number of employees, engineers, chartered engineers and graduates. The survey is a snapshot of the industry rather than a comprehensive overview.

Some of the participants returned information solely relating to their building services divisions, so we have grouped them separately to firms that provided information on their organisation as a whole. Please email if you have any comments on the survey or would like to participate next year.

Sales have also grown well, with the firms combined (excluding Atkins) enjoying a revenue rise of 11% over the period, to £856m. Some of the more impressive increases were at Hoare Lea, where turnover rose from £52m in 2013 to £60m in 2014, at WYG, where sales grew from £73m to £84m, and at Cundall, where revenue climbed from £21.5m to £27m.

‘The market is a different place to what it was two years ago,’ says Matt Hann, business growth director at WSP Parsons Brinckerhoff, where building services turnover has grown from £20.5m in 2013 to £22m in 2014. ‘The building services sector is buoyant and a great place to work, and that makes our staff members feel motivated.’

This reflects the wider growth story of the construction industry; the Construction Products Association (CPA) said that activity rose in every quarter of 2014, with the strongest growth in private housing and commercial properties. For 2015, it forecasts growth of 4.9%.

There is much to celebrate, but challenges continue to stalk the sector, not least in the fact that fees are lagging behind the positive trends being seen elsewhere

Another piece of good news, Hann says, is that projects are happening around the UK rather than only in London, which often performs as a separate and significantly busier segment of the national market. ‘It has taken a while for things to start moving further north, but now we are working on fantastic projects up and down the country,’ he says. Recent appointments include an £80m teaching and learning facility in Glasgow and healthcare projects via frameworks in Scotland and England. WSP Parsons Brinckerhoff is also working on an impressive, six-tower, ‘vertical village’ development in Manchester, which recently won planning permission.

Equally tellingly, Grontmij opened its first building services office in Manchester in January and it expects to employ seven or eight engineers there by year-end. Geoffrey Palmer, director at the company, says: ‘This was a response to the government’s talk of creating a “northern powerhouse”, which we think is really happening.’

Others, however, are still finding that most of their revenue is from the South East. Ray Upjohn, chief executive of Chapman BDSP, for example, says: ‘Our work in the UK is mainly in London.’ The firm is seeing more mixed-use schemes in the capital than anything else, typically with an equal mix of retail, residential and offices, such as the redevelopment of Battersea Power Station.

Happily for companies with a London-biased workload, the international market offers the chance to diversify. ‘International work is still reasonably strong,’ says Upjohn. It makes up 20% of Chapman BDSP’s turnover – which grew from £12m in 2013 to £15m in 2014 – and the firm’s overseas business is split roughly equally between the Middle East and Africa.

Hurley Palmer Flatt balances a London-focused UK business with even more overseas work, and its non-UK book of business makes up 40% of turnover, which was £23m for 2014.

It will be higher now, after the firm acquired Andrew Reid & Partners last autumn, which is another sign of growing confidence in the market and a move that chief executive, Paul Flatt, says ‘doubles’ the business. At home, the workload now comes from three main sectors, he adds: ‘Commercial corporate – such as banks, insurers and legal firms, the development sector – driven by the shortage of offices, especially in London; residential schemes, backed by overseas investors; and the technology, media and telecoms (TMT) sector.

It’s no secret why these organisations are growing: they need more data storage and their businesses, research and technology are expanding all the time.’

Many building services engineers claim that, in addition to rising workloads, the role they are performing on projects is being enlarged. Upjohn says: ‘We are being brought in much earlier, mainly because of the work clients need to do on energy efficiency at the planning stage these days. Planners are now more interested in how much daylight a building will have and the layout of the plantroom. We also find that we are being consulted a lot more about the façade, on issues such as how it can maximise shading while also allowing in as much daylight as possible.’

This is logical and satisfying, he says. ‘It means you can make buildings a lot more efficient – by moving plant off the roof to make space for penthouses, for example, or by influencing the orientation of the building to reduce solar impact.’

Frozen fees

Despite building services engineers being busier and distinctly more upbeat, our survey revealed that there has been little improvement in fees. Of the respondents, 60% said fee levels had not changed, with a further 12% saying they had actually decreased. Bob Spittle, chairman of environmental engineering at BDP, says: ‘Fees are still very, very competitive, and I do not expect them to improve any time soon because clients have come to expect the current levels.’

Ian Durbin, partner at Hoare Lea, was only slightly more optimistic: ‘Fees are flattish. They are not as cut-throat as they were, and they are showing early signs of just starting to get a bit better. But each time you try to increase them by a small degree, it becomes clear that some firms out there are still doing the work for less.’

Fees are particularly gridlocked in the public sector because of the requirement to procure at the lowest price possible. ‘This could be potentially damaging,’ says Peter Mark, building services practice leader for Mott MacDonald. ‘Think about if you were getting quotes for someone to do your bathroom. You would generally not choose the lowest price because you would question the quality you would get, it is the golden rule. However, you would also want to see the added value or quality upfront to justify something more expensive. The challenge to our profession is to demonstrate why our service is the best and where we add value to our clients.’

Frozen fees are a real problem because the cost of everything else is going up. As a result, ‘the whole industry is being squeezed’, says Durbin. The key rising cost is staff. As CIBSE Journal has reported previously, rising workloads are driving companies to recruit, resulting in more candidates switching jobs and salaries rising. Our survey found that the number of people employed by the respondents collectively (excluding Atkins) increased by 17.5% from 2013 to 2014.

Mark says: ‘Salaries are well and truly outstripping inflation. Recruitment agents are overheating the market in particular. They will get a candidate a 10, 15 or even 20% pay rise and then six months later they will phone them up again. There is a relationship between salaries are fees – you can’t lose money on every project.’

The fact that the sector is not recruiting enough people is compounding this issue. Spittle says: ‘As we have emerged from this recession, it’s become clear that – more than in any other recession in my career – we have seen people leave the sector and not return.’ Mark adds: ‘We are hitting a skills shortage.’

A further squeeze is coming from increased construction prices, says Palmer. According to the RICS Building Cost Information Service, tender prices rose by 4.5% in the first quarter of this year, compared with the first quarter of 2014. ‘Increased construction costs have caught some people unawares,’ says Palmer, ‘and now tenders are coming back more expensive than originally budgeted for, and it’s difficult then to go back and ask for more money. This is causing a lot of heartache.’

Meanwhile, building services engineering firms are under pressure to invest in research and development that could make them more efficient and more able to cope with meagre fees. ‘More prefabrication would decrease costs and improve efficiency,’ says Spittle, ‘but it does change the way you work because you often design in a different sequence, as you need to make decisions earlier than if you were in a standard RIBA design sequence.’ This requires investment in training, as well as the development of new work processes.

All those new recruits need training, too, and huge investments are needed to train staff in building information modelling (BIM). Not only will BIM Level 2 be required on centrally procured public sector projects next year, but some level of BIM is now required by ‘most clients’ in the private sector, says Durbin.

The technology has the potential to lower costs for building services engineers: ‘There are signs that it’s making us more productive,’ Durbin adds. However, training costs, procuring software and developing work processes are all significant outlays. Moreover, Durbin says: ‘BIM needs constant work. You don’t just train people once – you have to keep training them so they stay up to date. And all this investment has to come out of our profits.’

One more squeeze on the sector is what Durbin calls ‘ever-decreasing programme lengths’. ‘Increasingly clients are saying that they don’t want to wait for, say, a year, for a building to be designed. They are looking at ultra-efficient automotive or aeroplane manufacturing and wondering why buildings have to take so much time,’ he says.

‘This is down to a lack of understanding of what the design process really involves, but it’s a phenomenon with even very experienced clients, and it’s adding a lot of pressure.’

Despite these strains, the overall positive mood of building services engineers may well be justified; the CPA is forecasting further growth for the construction sector next year, of a healthy 4.2%.

However, to return to Macmillan, the former Prime Minister learned that growth alone does not amount to a healthy economy when his economic boom was marred by spiralling inflation. In the same way, building services should hope for more next year than simply a further increased workload.

If fees do not improve, then something else will have to give if companies are to remain profitable. The good news is that some of the sector’s leaders are already thinking about possible solutions (see ‘Easing the squeeze’ below).

Easing the squeeze

Can anything be done to loosen the grip of those factors putting a squeeze on the building services engineering sector? The industry leaders that we interviewed had some bright ideas that offer real hope for the years ahead.

New approaches to design might help. Ian Durbin believes this will be needed to meet the demand from clients for shorter programmes. ‘It might mean we have to change the way we deliver design by working more closely with the other disciplines. This is something I am thinking about at the moment and I haven’t got any definitive answers yet – but probably the industry needs to think about this collectively.’

Peter Mark suggests that more standardisation in design could allow building services engineers to be more efficient: ‘BIM is recalling the old question posed in the Latham Report [published in 1994 on making the industry more efficient] of whether everything needs to be uniquely specified.’

As for the skills shortage, Ray Upjohn, who started out as an apprentice, believes apprenticeships have huge potential for the sector. ‘It’s a long-term plan, but apprentices are very valuable,’ he says. ‘You train them up within your environment from the start of their career and the ones that apply themselves can go far.’

With university fees costing upwards of £9,000 a term, the apprenticeship route has become an attractive alternative for high-calibre young people who don’t want to start their career saddled with debt.

However, Mark says: ‘We are undoubtedly hitting a skills shortage… The gaps will be filled largely by people coming from overseas – which is very welcome because some of these engineers, such as those from Poland, are better trained that their British counterparts.’

Perhaps there is also some room for manoeuvre on fees. Paul Flatt says: ‘For straight MEP, it’s true that fees are unchanged; however, grown-up clients are prepared to pay more for “value added” services – they understand what they need to pay for a proper job.’ Such services include acoustic and electromagnetic compatibility studies, BIM, fire engineering and utilities management.

Despite fears that clients will not budge on fees, the firms we interviewed all report being able to be more choosy about the jobs they accept, which offers hope that market conditions might change. One senior engineer told CIBSE Journal privately: ‘Nowadays, if you don’t take a job, there will be another one.’

Palmer adds: ‘We explain to clients that there is a right fee for doing the job well and with the appropriate level of seniority. Sometimes you lose jobs that way, but we are certainly still getting our fair share of interesting projects.’

To really make headway with fees, Spittle says, building services engineers must shout about their work. ‘We need to get better recognition for the contribution we make to the industry.’