Davis Langdon Ireland Review 2011

REVIEWDavis Langdon Ireland Annual Review 2011

Cover image: Terminal 2, Dublin Airport

INTRODUCTION 2

OVERVIEW 7

Medium Term Outlook 8

SECTOR DEVELOPMENTS 13

Public 13

Commercial 14

Retail 15

Residential 15

Hotels, Sports & Culture 16

Infrastructure & Industry 16

INDUSTRY DEVELOPMENTS 19

The Capital Works Management Framework 20

Understanding Specialist Contractors 21

Recruitment Embargo 22

Reform in Public Sector Assets & 22 Facilities Management

Reviewing Insurance Valuations 23

Value for Money Requirements 23

NAMA – It’s all about the numbers... 24

Working Out of Distressed Projects 26

REGIONAL DEVELOPMENTS 29

Overview 29

Sectors 29

Market 33

Regional Spotlight 33

INDICATIVE BUILDING COSTS 37

WORLD CONSTRUCTION 2011 39

Europe 40

Middle East 40

Asia Pacific 40

Australasia 41

The Americas 42

Africa 42

DAVIS LANGDON NEWS 45

Contents

It has been over 16 years since I first started work in our offices in Lower Hatch Street. Over that time I have, like most of you, seen vast changes in our industry. During the company’s 150 years in Ireland it has constantly evolved as it has grown, dominating new sectors and delivering new and innovative services to our clients.

Whilst all companies have taken their fair share of pain during the past three years in Davis Langdon Ireland we have continued to focus on growth and innovation. At the end of last year, Davis Langdon completed their merger as a new service line offering within AECOM. In the first six months we have jointly secured over 70 new appointments with AECOM across the globe, amounting to over €20 million of fee income, including Dublin’s involvement in a €7 billion scheme in Chile and a €700 million airport extension in Eastern Europe.

We are very proud of the significant projects that we have been involved with in Ireland over the past year including Terminal 2, Grand Canal Theatre, Grangegorman Strategic Plan, the Motorway Service Area PPP, Glasnevin Museum, UCC Western Gateway Building, NUI Galway New Engineering Building and UL World Performing Arts Academy to name but a few.

One of the positive outcomes of the boom years for businesses within the Irish construction industry is the depth and wealth of knowledge generated during this period. The high calibre and experience of our people is in high demand from overseas markets. Unfortunately, this has led to the all too familiar “brain-drain” from our economy. In other cases it has served Irish companies well in delivering projects from dual locations therefore keeping people employed locally.

During 2010 our offices here in Ireland worked with our colleagues in other parts of the world on major projects including Stone Towers in Cairo, the King Abdullah Financial District in Saudi Arabia, a €1.5 billion Marina development in the UAE and a housing redevelopment scheme for the people of Haiti.

We are aware also of Irish companies that, with the help of Enterprise Ireland, have started to gain a foothold and deliver a return in foreign lands which is good news for business in Ireland.

Over the course of the next year our 70+ strong office is in the enviable position of working on some of the country’s finest projects here in Ireland, including the National Children’s Hospital, the new HSE Mental Health facility at Grangegorman, UCD Sports Centre,

NUI Galway’s Science Research Bundle, Bons Secours Private Hospital in Cork, Limerick Regional Hospital Critical Care Centre and the TCD Biosciences Building.

We look forward to reflecting on these projects in our Annual Review in 2012.

We have continued to expand and deepen our service line offering in the industry with Facilities Management consulting, Forensic and Recovery advice and with industry renowned thought leaders, DEGW, offer Business Consultancy in the strategic use of place. We are currently working with our London-based teams on the UK’s two largest rail schemes, including Specification Writing on London’s Crossrail and Cost Management services on High Speed 2 (HS2) which includes two lines from Birmingham to Manchester & Leeds.

During 2010 we saw a significant number of casualties in the industry. In addition to a plethora of sub-contracting businesses go into liquidation we also saw some household names in the industry close their doors. Unfortunately, it is likely that we will see more companies follow the various routes of insolvency during 2011.

Introduction

2 | Introduction

Introduction | 3

Paul Mitchell DirectorHead of Office – Ireland

Paul Mitchell DirectorHead of Office – Ireland

In articles and commentary provided over the past 12 months we have advised on the effect that the downturn would have on tender levels. Much has been made of the “below-cost tendering” in the marketplace but we are now reaching the elastic limit and are seeing sub-contractors refuse to quote for main contractors that have priced work at unsustainable levels.

There is now a narrow window of opportunity for the government to obtain the best value for money in the marketplace and avail of the technical expertise and experience before it is too late.

In our Annual Review in the early 2000s we warned of the effects of pumping investment into an overheated construction market where value for money was not achieved. The reverse is true today. A billion euro from the National Pension Reserve Fund spent on our infrastructure deficit today would yield significant value for money, increase indirect employment, savings on welfare payments and GNP growth (estimated by the ESRI to be €0.4 billion per annum in the years immediately after the money is spent).

It is high time that the government, as constrained as it is, respect the construction industry for the vital role it plays in our economy and

support it in providing jobs and restoring confidence.

Easier said than done? The Construction Industry Council produced a robust report “Building a Better Ireland – Investing in Infrastructure and the Built Environment to Support Ireland’s Smart Economy” with cogent arguments of how to achieve this in June of last year.

The construction industry needs formal representation at government level to advise it on how best to deal with the construction industry. The UK did exactly this in 2009 to ensure securing value for money from the government’s procurement of construction, promote innovation and sustainability in the industry and be responsible for ensuring the government takes full account of the impact of regulations on the construction industry.

We remain positive in anticipation and will support our industry which we have all worked so hard to create.

Like so many others in the industry we will be releasing a new book this year, non-fiction unfortunately, but may fall under the thriller category depending on which decade you read. It is the 150 year history of our business in Ireland!

Our former Managing Directors Michael Webb and Norman Craig have done all the heavy lifting on this one leaving it for me to sign copies in Easons!

We celebrated our sesquicentennial last year in the Grand Canal Theatre and promised to follow up with bound publication in due course. The final draft is under review and we hope to get it back from the publishers very soon. We’ll keep you posted.

Finally, in these very challenging times and on behalf of my fellow directors I would like to extend our sincere thanks to you our clients and colleagues for all your support during 2010. We look forward to working with you to deliver your business objectives during 2011 and beyond.

4 | Introduction

There is now a narrow window of opportunity for the government to obtain the best value for money in the marketplace

University of Limerick: The Irish World Academy of Music and Dance

Interior, Terminal 2, Dublin Airport

Introduction | 5

Turning Point Sculpture, Terminal 2, Dublin Airport

National Paediatric Hospital

Overview

Consultants

Since the beginning of the economic downturn some of the key questions being posed in relation to the construction industry and its seismic decline include:

“How bad will things get?”“When will we hit the bottom?”“How quickly will things rebound?”

There is no doubt that the construction industry rode along the crest of the wave during the Celtic Tiger and there are those that would argue, incorrectly in our view, that it was in fact the catalyst for the collapse of the economy. Regardless of which view one takes on this, it is certainly fair to say that it is definitely at the trough of the fragile economy today.

2010 has seen a continuation of the decline with overall output estimated to have dropped to under €11 billion (current prices).

Figure 1 (based on DKM Construction Industry Review & Outlook and Davis Langdon estimates for 2010 onwards) captures the full cycle of the industry since the early nineties and clearly demonstrates the extent of the fluctuations experienced in the last few years.

In terms of “planned expenditure” forecasts, these have also fluctuated considerably. The horizon has been constantly shifting over the last 18 months and this has been no more evident than with the Public Capital Programme figures. Table 1 (overleaf) highlights how much the planned expenditure has dropped as the crisis has deepened. Whilst there is broad agreement to the reduction of the deficit to 3 per cent of GNP by 2015, differences may well arise on the ratio of cuts to taxes.

The horizon has been constantly shifting over the last 18 months and this has been no more evident than with the Public Capital Programme

Overview | 7

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FIGURE 1: Construction industry output (current prices) and per cent change

Medium Term OutlookLooking ahead to the remainder of 2011 and beyond, the picture remains bleak domestically over the medium term. As we can see from table 1, the annual public spend earmarked for 2011 is circa €4.65 billion, added to this, private sector capital investment is struggling due to a combination of the economic downturn and lack of finance availability.

Thankfully there are more influencing factors other than the nation’s finances. Key external factors will be the timing and scale of an international economic recovery. We have already seen positive results in terms of Irish export growth which, if they can be maintained, should lead to further investment in the industrial and commercial sectors.

Likewise there have been some encouraging signs in terms of inward investment with Ireland attracting a range of companies such as eBay, Google, PayPal, Intel and Zurich to establish and/or expand their operations in Ireland. Whilst the announcements have typically been smaller than in the past, nonetheless they do represent very valuable investment with significant benefits for the construction industry and the economy generally.

In its end of April update on the Stability Programme, the government reduced its GDP growth projection for the economy in 2011 to +0.8 per cent. The latest projections for the construction industry are summarised in Table 2.

In summary, we expect the rate of decline in the industry to slow down in 2011 with overall output at circa €8.9 billion (from a high of €38 billion in 2007) and to be followed by a 5% reduction in 2012 and thereafter a couple of years at, or close to, zero growth. This will leave the industry output well below the figure of €18 billion, identified by the Construction Industry Council in 2009 as the long-term sustainable level for the Irish Construction Industry.

DKM Economic Consultants reviewed what would be a sustainable level of output in the construction industry and from the extreme height of 25.1 per cent of GNP in 2006 to a projected 7.9 per cent in 2012, DKM concluded that the sustainable level would be in the range of 12 per cent - 15 per cent.

8 | Overview

2009 2010 2011 2012 2013 € (million) € (million) € (million) € (million) € (million)

NDP * 11,410 11,428 11,538 13,000 12,400 €60bn

Budget Oct ‘08 8,231 8,297 8,193 9,672 9,159

Budget April ‘09 7,329 6,621 5,491 6,000 6,000

IIP 2010 - 2016 7,341 6,430 5,500 5,500 5,500

Budget Dec 2010 7,341 5,918 4,654 4,300 3,900 €26.1bn

Table 1: Summary of changing planned public capital programme *NDP National Development Plan

Tomás Kelly Regional Director Medium Term Outlook

MarketThe change in the industry over the last few years has not been confined to the massive reduction in volume. In tandem the industry has been undergoing a sea change in terms of the new public works contracts. This combination of extremely tough operating market conditions and new government contracts which transfer greater risk to contractors has lead to an increasing number of contractual disputes and we are likely to see a growing number going through the dispute resolution processes in 2011.

Another impact, which has been sharply felt, has been the continual climb in the level of insolvencies in the industry. Figures published by FGS (Farrell Grant Sparks) indicated that there were 684 construction-related insolvencies in 2010, 39 per cent of total insolvencies in Ireland last year. Whilst the majority of these have

been smaller sub-contractors and developers, there have also been a number of high profile contractors and consultancy practices. This has contributed to a sizeable reduction in capacity and this has become more noticeable in the last few months with fewer contractors submitting expressions of interest in response to public contract notices.

Other key developments include contractors and consultants being increasingly more selective in what they bid for and also shifting their focus to overseas opportunities to retain key staff. These developments are a clear indication of the sharp cash flow issues being experienced by businesses and the necessity to see a clear return on any investment.

PricesIn terms of Tender Prices, 2010 saw a continuation of the sharp decline in tender prices with an average decline of circa 7 per cent over the year. Importantly, however, the end of the year seems to have brought an end to the fall in prices. As a reflection of how low tender prices have fallen over the last three years, table 3 overleaf shows selected indicative building costs from our 2000 Annual Review (converted to euro for comparison purposes). Looking at these it is fair to say that these rates would not seem out of place in today’s market.

By contrast, the Consumer Price Index (CPI) has shown a 28 per cent increase over the same period.

A combination of the inability of sub-contractors and suppliers to absorb further price reductions and the unsustainability of main contractors continuing to offer “Directors Discounts” or “Zero preliminaries” should result in 2011 seeing a halt to price reductions and in fact modest tender price increases of circa 3 per cent can be expected over the full year.

% Change in Construction Volume

2010 2011 2012

DAVIS LANGDON -35.00 -21.5 -8

ESRI -30.75 -17.5 -7

CENTRAL BANK -28.00 -10.60

DKM -29.60 -10.80 0.60

Table 2: Projected construction industry growth

Overview | 9

Labour & Material CostsCosts obviously play a key role in determining tender price movements and in this regard December 2010 saw confirmation of the union’s acceptance of the 7.5 per cent reduction in the Registered Employment Agreement. Whilst industry employers had been seeking higher reductions, this adjustment will be welcome.

On the materials front there is a much wider range of variables. From domestic suppliers effectively “buying” contracts in order to stay open (and make some small contribution to the cost of the capital invested in developing and expanding their businesses during the boom), to the other extreme of specialist materials sourced from international suppliers which may have been experiencing an inflationary cycle and a strengthening currency against the Euro.

The SCS construction index, which records input costs, has recorded an average of 2 per cent increase in costs in 2010.

In light of the contrasting trends in tender prices and construction costs it is not surprising that there has been considerable concern in relation to a lot of tenders in the last year with regard to potentially abnormally low tenders (ALT’s). As a result, tender evaluations are taking protracted periods and contractors are taking longer to get bonds. These delays, combined with the natural slow down in the progression of projects through the public capital programme, are creating real output and cashflow issues for all in the industry.

ConclusionThere is much talk about Irish exports bucking the trend showing growth levels on the back of improving international economies.

It is these greener “far away fields” that have provided fertile ground for significant numbers of Irish consultants and contractors alike. It is imperative as individual companies and an industry as a whole that we maximise the opportunities in “selling” our services and skills. Several companies have been successful in winning work overseas and this can help sustain some of the valuable jobs and skill base which has been created over the last number of years. If Irish contractor and consultancy businesses can continue to innovate and exploit these international opportunities, then we can create work domestically as well as internationally. Through this we can maximise the benefits for Irish businesses and the domestic economy as opposed to being resigned to another brain drain and the permanent loss of a skill base that we as an industry developed over the last decade.

2000 2011

€ / per square metre € / per square metre

Offices - Owner Occupier 1,270 – 1,900 1,400 - 2,300

Secondary Schools 900 – 1,020 930 - 1,100

Hospitals 1,525 – 2,540 1,575 - 2,400

Basic Factory 510 - 825 600 - 850

Table 3: Comparison of indicative building costs

10 | Overview

Overview | 11

Modest tender price increases of circa 3 per cent can be expected over 2011

The Atrium, No. 2 Grand Canal Square

Sector Developments

Expert

The downturn in the construction industry has been notable by the shift in the balance between the different sectors. Figure 2 shows the sharp contrast between the split in the five years from 2006 and our projection for 2011.

The residential sector has reduced from a wholly unsustainable 65.9 per cent in 2006 to 20.8 per cent in 2011. Similarly we have seen the public sector increase as a share from 21 per cent to 73 per cent despite having been reduced from €6 billion to €4.5 billion.

Increasingly consultants and contractors are seeking out opportunities in sectors they would not have traditionally operated. Notwithstanding this and the associated risks for clients, a worrying consequence of the downturn is that output in certain specialist sub-sectors may fall below a critical mass to support sufficient competition to sustain the specialist skills and in the medium term value for money.

We would anticipate that in the short-to-medium-term those sectors experiencing oversupply following the Celtic Tiger boom (residential, retail and tourism) will remain in sharp decline whereas the public sector and the industry and infrastructure sectors will decline at a slower rate.

PublicIn the last year there have been many references to the public sector as “the only show in town.” Whilst this may be an over simplification, the figures for new build construction in 2010 included in the DKM Review and Outlook document would support the premise that the public sector (General Building and Infrastructure) represents, by a large majority, the main source of non-residential new build construction in Ireland.

In the last year there have been many references to the public sector as “the only show in town”

Sector Developments | 13

Residential65.9%Retail7.0%Commercial4.5%Hotels, Sport, Culture2.5%Infrastructure16.0%Public building4.1%

Residential20.8%Retail0.9%Commercial2.4%Hotels, Sport, Culture2.8%Infrastructure57.4%Public building15.8%

2006 2011(f)

FIGURE 2 Graph showing contrast between the split in the five years from 2006 and our projection for 2011

As summarised in the overview, there has been a distinct lack of certainty around the projected public capital spend as the economic crisis has worsened. The most recent estimates for 2011 published in February indicate the following projected expenditure per department (see Table 4).

It is likely that this will be relooked at by the new government with a probable emphasis on a larger number of smaller projects, but the envelope is unlikely to be increased. There is also the likelihood of greater capital expenditure by semi-state organisations in the infrastructure sectors of energy, broadband and water.

With an increasing emphasis on achieving value for money, cost-benefit analysis and other project prioritisation mechanisms are likely to be used on a wider basis and on lower value projects.

CommercialThe commercial property market has been at the coalface of the property issues arising from the economic and financial crisis being experienced in Ireland for the last couple of years. The interwoven nature of many of the residential and commercial developments, with the sets being transferred to the National Asset Management Agency (NAMA), has lead to a very unsettled period with low levels of activity.

It is anticipated that by the end of 2011 we will see the start of a gradual improvement with the prospect of the funding crisis being addressed, coupled with a steady flow of foreign direct investment stimulating some activity in the office and industrial sub-sectors. Companies such as LinkedIn, Yahoo and Google have recently acquired or set up new offices here and the recent sale of the NAMA-owned Montevetro building to Google has been the largest commercial transaction here in some time (circa €100 million). These sub-sectors have also seen some activity arising from consolidation and cost-reduction measures.

With NAMA and foreign banks getting through their due diligence examinations they are likely to become more and more focussed on disposals which hopefully may prove attractive to overseas investors. In this regard it is likely that the higher quality assets in prime locations will hold up significantly better than those that were not needed in the first instance and then were located on the wrong side of the Monopoly board game!

14 | Sector Developments

Public Capital Programme €m €m 2010 2011

Department Outturn (P) Estimate

Education 705 491

Health 385 392

Transport 1,760 1,438

Environment 1,464 1,002

OPW 159 124

Enterprise, Trade & Innovation 469 508

Tourism, Culture & Sport 113 99

Other 863 636

TOTAL 5,918 4,690

Table 4 : Public Capital Programme

Anthony McDermott Regional Director Commercial

John O’Regan Director Public

RetailIt was another tough year for Irish retail in 2010. Retailers have worked very hard to reduce costs and entice customers to part with their hard earned cash. Constant reports of tenant negotiations with reluctant landlords continued unabated and our unexpected weather in December added to further misery, dashing any hope of hitting end-of-year targets.

The outlook for 2011 is likely to continue to test the resolve of the retailers given the government’s austerity measures in the four year plan. Consumers will continue to be cautious in the light of uncertainty around the general economy. However, on a more positive note, retailers will have made the necessary hard cuts during 2009 and 2010 and will be better placed to weather 2011.

A number of new developments will be coming to market during 2011 including Balbriggan Shopping Centre and potentially the Point Village. Retailers will also start to populate the remaining units in Terminal 2. Overseas retailers are likely to take advantage of market conditions and the favourable terms on offer for new units as well as the change-out of non-performing tenants in turnover rent agreements. Overall, the main focus is going to be on effective asset management and controlling costs.

The negative sentiment and poor trading conditions are likely to lead to more casualties in the market during the year and are proving to be a real barrier to closing deals that have been in the pipeline for some time. This is especially true of the grocery and consumer goods sector in under populated residential developments as reflected by the sale of Liffey Valley, one of our largest shopping centres.

Residential PrivateHouse building has been a major driver of the Irish economy over the last decade-and-a-half, with output reaching unsustainable levels of 90,000 units in 2006.

The housing sector has been going through a severe adjustment now for close to four years with output for 2011 projected to be slightly down on 2010 levels to circa 7,000 – 8,000 units followed by a slight pick up in 2012 to 8,000-9,000 units, subject to some increase in liquidity in the market and NAMA involvement in providing loans to purchasers. Currently growth is being restricted by weak consumer sentiment, the protracted economic situation and the uncertainty regarding the availability of finance and future capital values.

In addition, a recent survey carried out by the Department of Environment, Heritage & Local Government indicated that there is currently a supply overhang of approximately 33,000 new units completed (including near completed) and available for sale in the Irish market; 9,000 of which were located in Dublin.

PublicThe ongoing restructuring of the social housing investment programme away from construction and acquisition towards long-term leasing and rental accommodation will have implications for future levels of public house building. The level of new social housing units built, which until 2009 would have been between 5,000 and 7,000 units, is expected to be substantially lower over the next few years with current estimates of between 1,000-2,000 new units projected for 2011 and 2012.


Mark Smith Associate Retail

Cathal Barry Regional Director Residential

Hotels, Sport & Culture2010 brought the completion of a number of very significant new world class facilities to Dublin such as the new Aviva Stadium, the National Conference Centre and the new Grand Canal Theatre in Dublin which will be enjoyed by many for years to come.

Unfortunately, looking ahead, at least in the short term, the outlook for these sectors looks likely to remain low largely due to the current public expenditure reductions forecast combined with the current funding constraints.There continues to be very limited movement in the hotel sector with existing room supply continuing to outstrip current demand.

Infrastructure & IndustryDublin Airport Terminal 2 was opened in November. At its peak Terminal 2 was the largest construction project in the state, and employed up to 2,600 workers on site.

2010 also saw the substantial completion of the national motorway programme, including the motorway service stations, Limerick tunnel, the M50 upgrade and the various sections of motorway around the country.

In rail, the Cherrywood Luas extension and the Phase 1 of the Navan Rail line were opened.

2011 is likely to see a significant reduction (circa -25 per cent) in infrastructure expenditure. Much of the speculation remains around the Metro North and whilst the Interconnector and the Dublin Area Rapid Transit (DART) Underground projects are still advancing, none of these will result in significant construction activity in 2011.

Davis Langdon acted as PPP co-representative for the SuperStop Consortium in relation to the recently completed design, construct, operate, maintain and finance contract with the National Roads Authority (NRA) for three service areas (six service stations) on the national road network, two of which are located on the M1 motorway and one of which is on the M4 motorway.

The decision by Intel to proceed with their plans in Leixlip will give a much needed shot in the arm to the industrial sector. Whilst manufacturing and export markets are holding up well, there are very few large-scale capital projects in this sector. Most of the work is in upgrading and the steady churn required to keep facilities going.

In the energy sector there are a number of innovative and exciting new projects in wind, waste-to-energy, geothermal, wave, hydro and other renewables. Many of them are being delayed by planning and/or availability of finance. Hopefully the momentum of a new government, together with the rising oil prices, will give this sector the stimulus and stability to unlock some of these projects in 2011.

16 | Sector Developments

Andrew Thompson Associate Hotels, Sports & Culture

Eoin Dunphy Associate Infrastructure & Industry


Residential Development, Ballyloughan, Galway Motorway Service Areas, PPP Tranche 1

Motorway Service Areas, PPP Tranche 1

Industry Developments

Leaders

With the industry in such a state of flux as we have been experiencing over the last couple of years, it is not surprising that there is a wide range of issues occupying people’s minds.

Here we take a look at a number of the key client issues and identify potential solutions towards addressing them.

From the public sector client perspective the major challenge is “getting more from less” and “business change management” whereas from the private sector perspective the emphasis has been on “restructuring portfolios” and endeavouring to extract liquidity and value from existing assets.

The fall out of these developments together with the wider economic and property crisis has manifested itself in a number of ways and these have been felt across all sectors and service providers in the industry. Among the impacts has been a significant reduction in the numbers engaged, including a number of high profile insolvencies in both the contracting and consulting arms of the industry.

On the positive side, these enforced adjustments have lead to a significant improvement in the value for money available.

Additionally, the combined offering of significantly reduced capital costs and moderated pay expectations has greatly improved our competitiveness. This is being reflected in our export lead growth and, when allied with our low corporate tax rate, is attracting more than our fair share of international investors.

The Croke Park Agreement is supposed to be the spring board for public sector reform. Unfortunately it has suffered from a slow start. Of course the real test of its success will be the amount of real “reform” as opposed to purely “cutting costs.”

In terms of precedent for the implementation of strategic reform, the construction procurement reform agenda has been in train since the government decision of 2004. In the last 18 months these reforms have been taking hold but not without presenting on-going challenges. Here we identify some of the key issues impacting public sector implementation and issues that are more generally the focus of clients in the industry.

From the public sector client perspective, the major challenge is “getting more from less” and “business change management”

Industry Developments | 19

The Capital Works Management FrameworkIn May 2004 the government decided to reform public sector construction procurement through the introduction of the Capital Works Management Framework. This decision set in train a major programme of work by the Government Construction Contracts Committee (GCCC) and the Department of Finance to review all aspects of capital project procurement from appraisal through to project review on completion of the project.

The culmination of this review has been the completion of the Capital Works Management Framework (CWMF) and its subsequent publication on www.constructionprocurement.gov.ie. The objective of the initiative is to achieve greater cost certainty, value for money and more efficient project delivery.

The framework is made up of four pillars and whereas Pillars 1 & 2 are primarily concerned with reforming the processes involving interaction with the private sector, namely contracts with Works Contractors and Consultants, Pillars 3 & 4 are primarily concerned with reforming the processes on the “Client” public sector side.

Aside from the fundamental changes of contractor and consultant contracts which were introduced in 2007, some examples of other areas of change which clients are likely to have to implement in 2011 include:

a) The introduction of a Project CoordinatorThe project structure allows for the identification of a Project Coordinator. The Project Coordinator will be the main promoter and practical leader of the project, and has the pivotal roles of liaising between the Design Team and the Management Team; of engaging with all the stakeholders; and of implementing the decisions of the Sponsoring Agency.

b) Formalisation of approach to Risk and Value Management Risk and Value Management have existed and played a role in projects over the last number of years however these procedures introduce a more structured and formal approach to their adoption.

c) Procurement StrategiesThe introduction of Design and Build contracts in Pillars 1 and 2 opened the door for the use of Design and Build for public sector projects.

The Guidance Notes in Pillar 4 reinforce this by stating they are appropriate where design constraints on the contractor are at a minimum, and the contractor may respond to output requirements in innovative ways, and thus present greater opportunities for delivering better value for money.

d) Post Completion Performance EvaluationsUnder the new Guidance Notes, all works contractors and consultants should be assessed in accordance with the performance and timeframe details contained in their contract. These assessments may subsequently be used as reference material in relation to suitability assessment of the contractor for future projects. The implementation of this new Framework, produced by the Department of Finance, has been made mandatory since May last year (Circular 06/10). Arising from this it is likely that audits will be carried out and it will be important for the public sector to be seen implementing these softer type issues as well as the fundamentals of using the correct contracts.

20 | Industry Developments

Tomás Kelly Regional Director The Capital Works Management Framework

Understanding Specialist ContractorsThe standard of Mechanical and Electrical (M&E) specialist contractors in this country has traditionally been very high and many of the Irish contractors would punch well above their weight when compared with their UK and international counterparts. These specialists play a vital role in the successful delivery of any large and complex building.

To many, the field of Engineering Services can be seen as a black art of complex systems and processes that bear little resemblance to the less sophisticated building shells in which they reside.

Furthermore, the specialist industry that has evolved to deliver the design and installation of these systems is seen by some as a “clique” that operates outside of rest of the industry.These views and attitudes can lead to distrust and frustration which have been further exacerbated by the aggressive tendering conditions that the new government form of contract and the weak market conditions have generated.

The net result is that many of the larger household names in the Mechanical & Electrical contracting world are at loggerheads with some of the main contractors and are declining to bid for work. Instead

they are focusing on international opportunities or some of the larger industrial clients where they can secure direct appointments.

In the short term it is generating opportunity for the small-to-medium-sized subcontractors. The long-term impact on the industry, however, is concerning. The concern is that main contractors will run into difficulties in delivering such buildings if they do not have the right sub-contractors in place.

In order to address this issue all parties need to play their part. The specialist contractors need to “de-mystify” the whole area and be more transparent in their dealings with main contractors. Main contractors need to rebuild some of the key relationships with the trade and take a more long-term view when entering into contracts. Clients and their advisors need to avoid the “race to the bottom” on tenders and instead concentrate on value for money rather than lowest tender cost.

At Davis Langdon we have a specialist Engineering Services Team who understand the technology and know the market. We can guide clients and design teams through the issues demystifying the “black art” of M&E costs and procurement. With the right approach to procurement it is

possible to get highly competitive tenders and still use the best contractors. This approach will deliver value for money at the tender stage, protect quality and ensure successful delivery.


Eoin Dunphy AssociateUnderstanding Specialist Contractors

Recruitment embargo In 2009, the government ordered an indefinite public sector jobs embargo. The only exceptions to the recruitment freeze are key personnel in the health and educational sectors. The move, which was implemented to cut the public sector pay bill, is estimated to result in the loss of up to 4,500 jobs a year across the entire public sector through natural wastage & voluntary redundancy/early retirement.

The recruitment freeze clearly has implications for public sector bodies seeking to undertake construction or development projects. A lot of organisations in the public sector have experienced reductions in personnel in the last two years and the double whammy that a lot of the personnel who have left/taken early retirement held a lot of the knowledge and expertise in project delivery.

Combined with this reduction in resources there has been an increase in the volume of work. Whilst the number of projects has been reduced due to cutbacks, the Capital Works Management Framework has clearly set out additional roles and responsibilities and the formalisation of some tasks such as risk and value management. The net effect of the recruitment embargo and the implementation of the CWMF is that the model of project delivery

is changing with an increasing use of project management consultancies who are charged with managing project delivery and leaving the public sector personnel to formulate policy.

Reform in Public Sector Assets and Facilities Management Property is the government’s second most expensive asset after its staff and the requirement for government to rationalise its estate and improve ways of working is equally as pressing as the need to instigate public sector reform in human resources and business operations.

Of course there have been forays into reviewing the government estate in the past, most notably the recent decentralisation programme.

Unfortunately at a time when the government has invested in increasing its property portfolio, the opportunity to release the more expensive city centre accommodation has been greatly diminished.

At a macro level it is likely that reforms can be achieved in the medium term with a planned programme. At a micro level (individual department or organisation/body) reforms and efficiencies can begin to be achieved at a quicker pace.

Understanding the cost of operation per building and across a whole property portfolio is essential and a “first step” in establishing a plan for change.

To maximise efficiencies, greater space sharing can be achieved and involves a transition from the concept of “my desk” to “our space.” Significant cost savings are possible through reduced rental costs, running and FM costs and disposal receipts, and over the whole life of the building or tenancy these can often outweigh any capital construction and fit-out costs in establishing a new or re-modelled environment. As fiscal constraints tighten, even more than before, clients will need to brave the approach of “spend to save.”


Stuart GriffinAssociateRecruitment Embargo

Gregory Flynn Regional DirectorReform of Public Sector Assets and Facilities Management

Reviewing Insurance ValuationsFalling tender prices, witnessed over the last two-to-three years, have been raising interest amongst property owners and managers about the current level of insurance coverage on their portfolios. In particular, the level of insurance cover may well exceed the current rebuilding cost with the consequence of higher than necessary insurance premiums. Good practice dictates that insurance reinstatement cost assessments be reviewed at regular intervals throughout the life of a property. This is particularly relevant in times of fluctuating tender prices as have been experienced in the last three years.

In addition to building costs, allowances for professional fees included in the Reinstatement Cost Assessment may not reflect current market conditions. Consultant fees have experienced sizeable decreases in the recent past, therefore, these too will need to be reviewed to ensure an accurate assessment of overall reinstatement cost. Of course other factors may have arisen requiring insurance valuations to increase. These could include changes to regulations such as improved energy performance requirements necessitating higher specification materials.

Therefore, the reinstatement cost calculation will need to be informed by an up-to-date cost database and based on sound professional judgement.

The accuracy of the Reinstatement Cost Assessment is directly dependent on reliable and up-to-date information relating to the property. Property owners are continuously altering, upgrading and extending their portfolios, therefore, accurate calculations of floor area are critical as they are a key component in the overall cost assessment. The delineation between landlord and tenant responsibilities is important. Each property within a portfolio will need to be reviewed on an individual basis with regard to insuring obligations to ensure the responsibilities between landlord and tenant are clear and accounted for in the assessment.

To take account of changes being made to properties and the importance of establishing a sound basis for insurance valuations, combined with the need for reliable cost data and market knowledge, it is essential that insurance valuations are regularly renewed — in the current climate it can often be a win-win situation.

Value for Money Requirements The need to achieve value for money from construction projects has never been so important. In the public sector, the reduction in the Public Capital Programme in Budget 2010 will see a heightened need to achieve more with less. This drive for efficiency requires careful proactive management to ensure that returns are maximised on capital investments. There is also a growing need to ensure that the risk of not achieving the business case objectives is actively managed.

Value Management provides an effective process for maximising value in line with the employers’ and end users’ requirements, and fulfils the first of these requirements. Risk management fulfils the second requirement as part of effective project management, by providing a process for managing risk. Value and Risk Management can be employed as an integrated process at strategic stages and decision points throughout the project lifecycle. However, there is greater potential for improving value and reducing or mitigating risks in the earlier stages of a project.


David JohnstonAssociateReviewing Insurance Valuations

Jason Hobson-Shaw AssociateValue for Money Requirements

It is essential that Value Management concentrates on optimising benefits and costs rather that the traditional value engineering approaches where costs are reduced with a resultant loss of benefits.

The area of risk transfer has certainly been a major discussion point in relation to the Works Contracts with contractors of the view that too many risks are been passed to them and/or that insufficient information is made available to allow them to adequately assess and price the risks. The more formal and structured approach to risk management at the early design stages identified in the guidance notes should result in a more considered approach to risk allocation and the appropriate investigations and assessments being carried out in sufficient time for inclusion in tender documents.

In public sector projects, the need for Value and Risk Management has been recognised and endorsed in the new Capital Works Management Framework (CWMF). The CWMF sets out detailed requirements for implementing robust processes for Value and Risk Management at key stages during a project lifecycle. This should be seen as a positive step in formalising these requirements to ensure a level of consistency of approach by project teams.

NAMA — it’s all about the numbers…


€71bn 145

€4bn

2

2

c.€24bn- €10bn = €14bn

€99.9m

€1.1bn

worth of property loans transferred at a price paid of €30bn ~ 58% discount

Business Plans to be reviewed by NAMA in 2011

12MoU’s close to completion with the 30 top borrowers

44 the number of receivers appointed to date

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loans yet to be transferred from AIB

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coalition parties opposed to any further transfer of loans to NAMA

potential shortfall in Bank Stress Test

11the number of top borrowers that it is expected that enforcement action will be taken against

€1.1bnloans relating to P

addy McK

illen

price paid for Montevetro building by Google

worth of loans transferred from AIB at start of 2011 at a discount of 60%

Yes, it certainly has been a year of the numbers! What else would one expect given the scale of the unprecedented loan transfer underway in the state.

In our Annual Review last year we stated that NAMA planned to have all loans transferred by mid-2010. We commented then that this was ambitious and we’ll repeat our call again this year and estimate that it will most likely be by the end of 2011 or even early 2012 before we see all loans transferred. This also depends on what the coalition parties negotiate with the EU in relation to the bailout.

So what has it meant for our industry? The property advisors have had a very busy year and in a lot of cases their accounts are now showing a profit. The majority of the developers are in limbo waiting to submit their business plans or await the outcome of their fate following the various levels of credit review. Those consultants that were heavily reliant on the construction phase of development in the private sector during the boom years are the hardest hit. Currently they are either seeking work in other markets or have downsized and waiting patiently, on a skeleton staff. The contractors are similarly placed but have picked up various work out schemes mainly for receivers put in place by the Banks/NAMA.

As we have stated before, the outflow of construction activity from NAMA is not so much dependent on NAMA’s work rate or success, but demand in the marketplace. The two are obviously inextricably linked but nobody is going to start a new hotel in an under-populated area even if NAMA did approve it or indeed had the resources to make it happen. Where the frustration does lie, however, is when there is some element of demand and the funds are held up in the application and approvals process.

It was a positive sign in the industry to see Google purchasing the Montevetro building from REO. The obvious effect is an immediate reduction in the supply in the market and hopefully a corresponding increase in demand for a similar type space in the same locality. Grand Canal Dock Offices, amongst others, should see some of the benefit of that transaction.

The main question at the moment is what effect the coalition will have on NAMA. In their programme for government, they have stated that they do not agree with it and will seek to change it as part of their bailout negotiations.


Paul MitchellDirectorNAMA — it’s all about the numbers...

Working Out of Distressed ProjectsIn the 2009 Annual Review, a lot was made of the sheer number of distressed projects that needed to be completed under NAMA’s command during 2010. Whilst quite a number of projects limped to the finish line, a lot of them did not as the cost benefit analysis returned an all too familiar “No”. Projects have also succumbed to the closer scrutiny afforded to schemes nowadays by numerous levels of review/credit committees. Even cases that require completion works to comply with statutory Health and Safety requirements have suffered and take their dubious honour of being on the “dangerous ghost estate” list.

On the schemes that have been successfully worked-out, whether through receivership or some version of intensive care, stakeholders not normally involved in such technical detail have encountered a steep learning curve. It is fair to say that it has left a lot of people asking the difference between “Self-Certification” here in Ireland and “Building Control” in the UK, from a building regulation perspective. We have seen a number of truly shocking residential schemes that have been complete, signed off, sold and currently occupied that fall far short of the standards set down

in our 1995 Building Regulations. Unfortunately, the victims in these situations are the owner occupiers who are left with the leaky homes with inadequate infrastructure, security or life safety systems.

These people are left wondering what recourse they have when the developer has gone out of business and their negative equity home requires significant funds to put things right.

A mature approach is required by all parties in this situation including the owner, the receiver/NAMA/ bank and the local authority. As tends to be the case in a lot of the more serious situations, the fault lies with a party that does not have the capacity to deal with its rectification. Parties charged with cleaning up the mess from a financial perspective are carrying out significantly more technical due diligence before taking on any hidden liability in these cases.

Whilst much of 2010 was taken up with reviewing schemes and taking action from an insolvency point of view, it is unlikely that there will be much change in 2011. Apart from schemes that have a clear business case, it is likely that the only funds spent on distressed projects will be the €5 million announced by government for the “dangerous” ghost housing estates.

In viable projects it is likely that NAMA or the respective bank will move to secure a return and either carry out the minimal works to secure successful disposal or “sell as seen” but in either case there must be someone at the other end to take the product out.


Neil McBethAssociateWorking Out of Distressed Projects


Public sector — Reduction in the Public Capital Programme in Budget 2010 will see a heightened need to achieve more with less

Grangegorman Development

Grangegorman Development

HSE Mental Health Replacement Facility, Grangegorman

Regional Developments

Global

The results of Census 2011 will undoubtedly make interesting reading and may signal the likely trend in the distribution of construction output going forward

Regional Developments | 29

OverviewIn 2010 we saw the virtual completion of the main inter-urban routes from Dublin. These significant projects, which have been primarily delivered over the last ten years, are probably amongst some of the most visible physical examples of the significant investment during the Celtic Tiger era.

The direct impact of these vital motorways, coupled with the investment in upgrading the rail links, has resulted in bringing the regions closer together and, importantly, made doing business in the regions more sustainable. Notwithstanding these closer links there remains distinct regional variations and subtleties in respect of sector emphasis.

Typically the spread of construction output matches the distribution of the population across the country. With the increasing urbanisation of the country this results in the vast majority of output being concentrated in the major cities and towns. As a result circa 40 – 45 per cent of output is in the Greater Dublin Area (Dublin, Kildare, Meath & Wicklow).

It is expected that construction output will continue to follow the broad distribution of the population. The results of Census 2011 will undoubtedly make interesting reading and may signal the likely trend in the distribution of construction output going forward.

SectorsLooking at the sectors in the regional context, whilst there may be some chinks of light, the overall outlook remains weak.

Dublin46%Mid-West/Midlands15%Southern24%Connaught & North West15%

FIGURE 3 Distributions among regions

ResidentialPrivate residential development from a commercial point of view is at a virtual standstill. Banks and receivers are slowly completing a limited number of “Ghost Estates.” Similarly, a small number of projects are progressing through planning generally aimed at retaining site values rather than for immediate development. Significant stock exists in a combination of complete and stalled conditions. In 2010, the Department of Environment, Heritage & Local Government carried out a nationwide survey of all estates where developments were either commenced in the last three years, or completed in the last three years but with a vacancy rate greater than 10 per cent. The map shows the 2,846 developments (15 per cent of which were active) surveyed. The key findings were;

– There are 78,195 dwellings in the developments surveyed that are complete and occupied;

– 23,250 dwellings are complete and vacant;

– 9,976 dwellings are near complete;

– 9,854 dwellings are at various early stages of construction activity from site clearance, foundations up to wall plate level; and

– there is planning permission for a further estimated 58,025 dwellings that have not commenced and are therefore not posing any immediate construction or site specific difficulties.

30 | Regional Developments

CO. CORK

CO. MAYO

CO. GALWAY

CO. KERRY

CO. DONEGAL

CO. CLARE

CO. TIPPERARY

CO. MEATH

CO. LIMERICK

CO. CAVAN

CO. SLIGO

CO. OFFALY

CO. LAOIS

CO. WEXFORD

CO. WICKLOW

CO. ROSCOMMON

CO. KILDARE

CO. LEITRIM

CO. WESTMEATH

CO. WATERFORD

CO. KILKENNY

CO. MONAGHAN

CO. DUBLIN

CO. LOUTH

CO. LONGFORD

CO. CARLOW

Estates surveyedNumber of units per estate

0-5354-152153-355356-899900-2314

John O’Regan Director

One-off housing continues as individuals with available funding take advantage of low site costs and building prices. New social housing is also at a standstill with the exception of a number regeneration projects such as in Limerick.

Commercial and RetailWhilst there have been no significant new developments undertaken there has been some activity across the regions from major retailers such as Tesco, Lidl and Aldi. Retail fit-out continues in the budget-conscious end of the sector which has seen increased activity in contrast to the general trend. Similarly activity in the corporate fit-out market is often driven by restructuring and efficiency drives.

Multi-national/Foreign Direct InvestmentThe marginal bounce in the global economy, Ireland’s increasing competitiveness, tax structure and highly educated workforce are continuing to provide a steady flow of projects across the regionsThe key growth areas have been:

– Pharmaceutical

– Bio-Pharma

– Bio-Medical

– Medical Devices

– ICT

– Digital Media

– Data Centres

– Call Centres

These areas have all experienced an amount of activity and are showing increased signs of growth. Typically the projects are upgrades, re-fits and fit-outs of existing operational facilities.

The available stock of existing units of suitable size, quality and location is limited and will be quickly used up as demand continues.

Examples of significant announcements in the last six months have included:

– Intel — Kildare

– Valeo — Galway

– Fidelity — Dublin and Galway

– Quest Software — Cork

– PayPal — Dublin

– Citi — Dublin and Waterford

PublicAs highlighted earlier, the distribution of construction tends to mirror the population distribution. This is, in part at least, derived from the need to provide certain services in close proximity to the population. In this regard, the education sector has seen ongoing development in primary and second level schools across the country,

although expenditure is projected to drop in 2011.

Major projects completed in 2010 include Terminal 2, the Aviva Stadium and the National Convention Centre in Dublin.

There has also been significant investment in the third level education sector (which is essential if we are to continue to attract the international investment mentioned above) with a particular emphasis on science and technology. Among the projects completed or under construction in 2010 include:

– New Engineering Building, NUI Galway

– Bundle of three research buildings, NUI Galway

– I.T. Building UCC

– World Academy Building, UL

– New Medical School, UL

– Science City, Phase 1, UCD


Infrastructure As stated at the start, there has been a significant number of motorway schemes completed in 2010, particularly on the western seaboard. Among the schemes which have dramatically improved the journey times are:

– The Limerick Tunnel: 10 kilometres of dual carriageway including the 675 metres Limerick Tunnel under the River Shannon. The tunnel took four years to construct at a capital cost of €605 million and was delivered within budget and ahead of schedule. The tunnel has the capacity to take approximately 40,000 vehicles out of Limerick city centre.

– The new 22 kilometer M18 Motorway: This new motorway will save approximately 20 minutes during peak commuting times between Limerick and Galway. The scheme also represents the completion of another section of the Atlantic Corridor, which is the strategic route linking Letterkenny to Waterford, through Sligo, Galway, Limerick and Cork.

– The M7 Motorway (Limerick to Nenagh & Nenagh to Castletown Co Laois): The opening of this scheme brought about the completion of the M7 Dublin to Limerick inter-urban motorway which

improves overall road safety and assists in providing consistent journey times.

– M50 Upgrade: Looking ahead, the 57 kilometres M17/M18 Gort to Tuam motorway which is at the preferred bidder stage will make another significant addition to the Atlantic corridor route.

In the same region the Limerick to Galway rail line has been officially reopened, with trains travelling between the two cities for the first time in 34 years. The re-opening of the rail link comes after €160 million was spent upgrading the Ennis to Athenry line.

With the majority of the motorway network now in place, 2011 will see the start of a reduction in investment in roads. That said, other areas of civil engineering may see increased investment in the renewable energy sectors though to date the schemes are typically small and infrequent. With the western seaboard presenting good opportunities for exploiting our wind, wave and tidal resource, it is imperative that the necessary structures are put in place to make the business model work and also to provide a return for the state. Despite its very public difficulties the Corrib Gas terminal and pipeline is ongoing.


Greater Dublin and NE60%South17%Connaught and NW10%Mid West/Midlands 13%

FIGURE 4 Regional Breakdown of construction output 2010(e)

MarketInsolvenciesAs mentioned earlier, one of the starkest examples of the downturn has been the huge increase in the number of insolvencies. Whilst this trend is a nationwide phenomenon, the majority of the 1,763 insolvencies in 2010 were in the Greater Dublin and North East region. See pie graph opposite.

This is indicative of the tremendous strain the industry is under across all the regions and since the last quarter of 2010 we have started to see a reduced number of expressions of interest in projects arising from the reduced number of competitors. In addition, those remaining are being more selective about those that they bid for because of the costs involved in tendering.

PricesGenerally, because we have a relatively small market place, trends in tender price movements tend to be similar across the country, albeit actual tender rates will vary from region to region and in particular from Dublin and the other regions where a variance of 5 – 10 per cent can exist. Similarly, variances in tender rates exist between sectors in regions depending on the level of competition and the volume of work.

On balance we expect tender prices to start edging back upwards by approximately 3 per cent in 2011.

Regional SpotlightFigure’s 3, 4 & 5, which are Davis Langdon estimates, based on the DKM Review & Outlook estimates for 2009, set out the estimated breakdown across the regions in 2010.

As we can see in figure 5 there are differences between regions in terms of the proportions of their output derived from the various sectors. Examples of these variances would be a comparison of the private non-residential sector which represents 19 per cent in the Dublin region versus 4 per cent in the Midland region.

Similarly the public social infrastructure sector represents as much as 14 per cent in Dublin compared to 8 per cent in South East.

DublinAs the capital city and main economic centre Dublin has seen a number of significant Celtic Tiger era developments come to completion last year (Aviva Stadium, Terminal 2, Convention Centre etc).

Whilst the developments in 2011 and the coming years are likely to be of a smaller scale, it is inevitable and indeed necessary that we continue to invest in vital national infrastructure such as the National Paediatric and Maternity Hospital’s and in our university sector.


Residential construction

Private non-residential

Productive infrastructure

Social infrastructure

Total Regional output

6000

5000

4000

3000

2000

1000

0Dublin Mid West /

MidlandsSouthern Connaught /

North West

FIGURE 5 Sector breakdown of regional construction output 2010(e)

Cork Ambitious plans for the large areas of Cork docks now have to be put on the long finger until demand and funding returns. However, some commercial activity continues with the Beamish and Crawford site progressing through planning.

The private medical sector has seen growth with the completion of a number of extensions to private hospitals and a number of primary care centres. The Bon Secours group continues to be the largest provider with plans to further improve its facilities in Cork and Tralee.

LimerickThe other significant development in the region was the announcement in June 2010 of the government’s approval for the First Phase Implementation Proposal for the Limerick Regeneration Programme. This announcement, if carried through by the government, will be a massive boost for the construction industry and the region.

Galway Sections that have enjoyed significant activity include the multinational companies that benefit from the cluster of technology and medical-based companies in the Galway area.

In the education sector, National University of Ireland (NUI) Galway continues to roll out its significant development programme.

Sligo After a period of frantic construction activity, Sligo has had a very stagnant year. Positive signs exist for the future, including ongoing development at Sligo IT and Abbott. The inclusion of the estuary bridge in the new Sligo development plan also opens the area to planning and development.

Northern Ireland Similar to the rest of the island of Ireland, Northern Ireland has been affected by the combination of the global credit crunch and the restricted public sector purse for capital expenditure.

The public sector is being looked at to provide stimulus to the economy and by implication the construction sector. In this regard, there have been some welcome announcements recently such as the significant investment in the Northern Ireland sporting sector. This announcement included £60 million for Casement Park, £61 million for Windsor Park and other stadia and just under £15 million for Ravenhill.

The Department for Regional Development has also recently issued its “Shaping Our Future — Regional Development Strategy (RDS) 2025 10 YEAR REVIEW” for public consultation 10 year which places strategic significance to the development of Communications, Renewal Energy and Waste Management Infrastructure. The Investment Strategy for Northern Ireland (ISNI) Information Portal provides important access to information on capital procurements that are planned and being delivered.

Private sector investment across all sectors, including offices, industrial, retail and regeneration has struggled due to unavailability of funding. In addition, Northern Ireland has also been affected by NAMA and this continues to be an issue.

In overall output terms the industry has seen output drop from £3.2 billion in 2009, to circa £2.5 billion in 2010, and is likely to remain flat in 2011.



University of Limerick: The Irish World Academy of Music and Dance

NUI Galway, New Engineering Building

Indicative Building Costs

Professional

Indicative Building Costs | 37

€ per square metreHealthcareHospitals 1,575–2,400Primary Care Centres 1,300–1,650Nursing Homes 1,100–1,600

EducationPrimary Schools 930–1,100Secondary Schools 930–1,100Third Level 1,300–2,400

Commercial Offices - Shell & Core (Landlord Fit-Out) 1,200–1,750 - Owner Occupier 1,400–2,300Offices Fit-Out - Basic 325–450 - Medium 450–700 - High 700–1,050 - Top 1,050–1,800Shopping Centres - Shell & Core 625–1,000 - Mall 1,250–2,300 - Fit-Out 750–1,200

ResidentialApartments 1,100–1,500Apartments (12-16 storey) 1,500–1,950Social Housing 850–1,150Sheltered Housing 950–1,450Housing (suburban housing) 800–1,000

IndustrialWarehouse / Factory Shell 500–600Factory (Basic) 600–850High Spec Factory - Shell & Core 800–1,200 - Fit-Out 650–1,100

LeisureHotels - 3\4 star 1,200–1,850 - 5 star 1,950–3,000Swimming Pools 1,600–2,000 (60% wet/40% dry)

Car Parks Single Basement 500–800

Multi-Storey 350–500Double Basement 700–1,100

The figures quoted are for mid-range buildings in the Dublin area at January 2011 prices. Due to the volatile nature of the current market and the low tenders being received, it is possible that tenders will be received, outside of these ranges. Professional advice should be sought for specific projects.

The Davis Langdon Indicative Building Costs should NOT be used for fire insurance valuations or for residual valuations for funding purposes.

If you require a valuation for fire insurance or more specific information, please contact Davis Langdon.

When considering building costs you should check if costs include:

– Value Added Tax

– Professional Fees

– Inflation

– Fit-Out

– Landlord Fit-out \ Landlord Credits

– Furniture

– Planning levies, Fees & Charges

– Demolition

– Abnormal Ground Conditions

World Construction 2011

Knowledge

Construction market overview2010 was another difficult year for construction globally. Overall, world construction spending declined for the third consecutive year, falling by 1 per cent to $4.4 trillion. World construction spending growth is not set to return until 2011, although it is forecast to be below 1 per cent overall. 2012 is expected to be more positive, with growth approaching levels (5 per cent) not seen since the beginning of the recession.

On a regional basis, only Asia saw positive construction spending growth through 2010, although the levels of growth have slowed as a result of the wider recession.

Nevertheless, Asia has not witnessed the declines evident in the other global regions.

China for the first time has overtaken the USA and was the largest national construction market in 2010. China is also expected to be one of the fastest growing markets through 2011 (figures 6 & 7).

There were some large regional differences throughout the year. Construction spending in Western Europe was the most affected with a contraction of -2 per cent, with the most significant falls occurring in Spain, Portugal, Greece and Ireland.

2012 is expected to be more positive, with growth approaching levels (5 per cent) not seen since the beginning of the recession

World Construction 2011 | 39

China

USA

Japan

Germany

Italy

France

Brazil

UK

Korea

India

Mexico

Spain

Australia

Other countries

0 100 200 300 400 500 600 700 800 900

US $bnFIGURE 6 Global Construction Spending 2010 (US $bn)

Indeed, recent forecasts suggest that there may be a more fundamental shift occurring in the balance between construction spending in Western Europe and Asia (figure 8).

Our review of world construction in 2010 and outlook for 2011 concentrates on the five main trading blocks, namely: Africa, the Americas, Asia Pacific, Australasia, Europe and the Middle East.

EuropeIn Europe, construction spending declined by 3 per cent in 2010, following the 9 per cent decline in 2009. In Western Europe, construction spending in Spain (-15 per cent) and Portugal (-12 per cent will continue to be among the worst affected, with little prospect of any improvement over the next few years. However, conditions elsewhere are looking slightly more optimistic with some growth expected in Poland, Germany and the UK, although the recovery is likely to be a slow one.

On a more positive note, construction spending in Turkey looks relatively robust, with growth approaching 5 per cent through 2011 with similar levels expected in 2012.

Overall, construction spending growth is expected to remain largely static in Western Europe

through 2011. Any recovery is likely to be led by countries in Central and Eastern Europe, in particular Poland (9 per cent), the Czech Republic (9 per cent) and Hungary (8 per cent).

Middle EastConstruction spending in the Middle East declined in 2010 (-2 per cent) although the outlook for 2011 is beginning to look more promising, with construction spending growth likely to reach 3 per cent. Any growth is likely to be led by work resuming on projects that had been suspended rather than any major new schemes.

The UAE (principally Dubai) was the hardest hit by the slowdown and faces the most prolonged and subdued recovery. Dubai’s recovery is largely conditioned by how quickly the excess supply of

property (generated by the rampant speculation during the mid–2000s) can be absorbed. However, one major infrastructure project of note in the region is the construction of the Gulf Cooperation Council (GCC) railway, with the first phases in the UAE expected to begin imminently.

Conversely, construction spending in Saudi Arabia (the largest construction market in the region) remains relatively robust despite the problems elsewhere in the region. Indeed, given recent events in North Africa (Egypt, Tunisia and Libya), Saudi Arabia is likely to benefit from the expected increase in oil prices, which often translates into increased construction activity.

Asia PacificIn Asia, construction spending growth (7 per cent) continues to outstrip all other global regions.

40 | World Construction 2011

FIGURE 7 Global Construction Spending Growth 2010-11 (% change)

15

10

5

0

-5

-10

-15

US

A

Chi

na

Ger

man

y

Fran

ce

Bra

zil

UK

Kor

ea

Indi

a

Mex

ico

Aus

tral

ia

Oth

er

coun

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s

Japa

n

Ital

y

Spa

in

% c

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e

Indeed, most country markets in Asia didn’t experience a recession, only a slowdown in rates of growth.

Growth in infrastructure spending continues to drive the market in Asia, this is largely a factor of continuing economic development but also the effect of various government stimulus packages, introduced during the recession, which translated into some very large civil engineering projects throughout the region.

The strongest construction spending growth in 2011 is expected in China (10 per cent) and India (10 per cent). Indonesia (5 per cent) and Vietnam (5 per cent) also offer some potential.

The latest five year plan takes effect in China this year, with a focus on economic, social and environmental sustainability through to 2015. As a result, future construction spending growth is expected to moderate from the heights of the recent past, although it is still likely to average between 8 per cent - 9 per cent per annum. Infrastructure spending continues to be the primary driver of construction spending growth in China.

AustralasiaConstruction spending in Australia is expected to grow by 3 per cent in 2011 after two years of decline. Prospects for 2012 are even brighter with further construction growth (7 per cent) forecast. Infrastructure spending is leading the re-bound and is likely to be the fastest growing sector going forward, in particular the mining and transport infrastructure sectors.

In addition, the recent floods in Queensland are expected to generate significant levels of construction spending in the immediate future as the state attempts to re-build.


FIGURE 8 Share of construction spending by region 2010-20 Source: IHS Global Insight (2010)

Western Europe32%Middle East2%Eastern Europe4%Asia37%Africa2%North America19%Latin America4%

Western Europe32%Middle East2%Eastern Europe4%Asia37%Africa2%North America19%Latin America4%

2010 2020

The AmericasIn the USA, construction spending growth is expected to return during 2011 (albeit very limited), with a robust recovery expected through 2012. This follows four consecutive years of decline which resulted in the USA experiencing the longest and deepest construction recession of any major market in the world.

All sectors are expected to remain relatively subdued throughout 2011, although a relatively strong upturn is expected in 2012 led largely by the residential sector. However, residential spending remains at historically low levels so any growth is coming from a very low base.

The USA government’s stimulus packages have helped cushion the blow to some extent, although many of these projects are long-term schemes designed to help the industry over a number of years, so their impact is not immediate.

However, there are some bright spots, in particular publicly-funded transportation projects. Plans for future high-speed rail projects between some major US cities are well developed and construction could start as early as 2012.

Further South, after a relatively flat 2010, construction spending growth (5 per cent ) is expected to return to Latin America during 2011. Most of the growth will be

lead by infrastructure spending, specifically, transport and energy projects throughout the region.

Brazil (5 per cent), Chile (9 per cent) and Peru (5 per cent) are where growth is likely to be the highest through 2011. Brazil, the largest construction market in the region, is expected to exhibit significant growth in construction spending in the near term as World Cup and Olympic development continues. In addition, growth is expected in the residential sector in Brazil as the government attempts to address the chronic housing shortage in the country.

AfricaThe recent unrest in parts of North Africa, and the threat of contagion, is expected to have dramatic consequences for construction spending in the immediate future. Construction spending in Egypt, Tunisia and Libya is expected to decline significantly through 2011 and there are likely to be knock-on effects in other neighbouring countries in the region.

However, away from the Mediterranean coast, prospects in Nigeria look promising with construction spending growth of 9 per cent expected during 2011. Furthermore, some sub-Saharan countries (Angola in particular) are benefiting from an influx of Chinese investment. However, construction

spending in South Africa has slowed post World Cup 2010 although some growth is likely in infrastructure spending over the medium term, particularly in the water, energy and transport sectors.

General OutlookIn terms of broad trends and dominant patterns of change, we are seeing a structural shift in construction demand, from developed to developing regions (figure 9). Specifically, there appears to be a shift in balance between Western Europe and Asia.

In the short-term, there is likely to be a slight recovery in global construction spending through 2011, with more sustained growth expected from 2012 onwards. Developing countries are leading the recovery. The strongest construction spending growth will again be in China and India, with some countries in Latin America and East and Central Europe also growing robustly.

In the long run there is expected to be a fundamental shift in future demand patterns as construction spending in developing regions grows significantly, largely at the expense of construction in developed regions.

David CrosthwaiteDavis Langdon, an AECOM companyMarch 2011

42 | World Construction 2011


Developed countries65%Developing countries35%

Developed countries45%Developing countries55%

2010 20202005

FIGURE 9 Share of construction spending by development status 2005-20 Source: Global Construction Perspectives (2010)

In Europe, construction spending declined by 3 per cent in 2010, following the 9 per cent decline in 2009

Singapore

Qatar Science and Technology Park

Qatar Science and Technology Park

Davis Langdon News

Multi- Disciplinary

AECOM is a global provider of professional, technical and management support services

Davis Langdon News | 45

Norman CraigEarlier this year Norman Craig concluded his 37 year career with Davis Langdon. Norman joined PKS in 1975, became an Associate in 1980, was made a Partner in 1988 and Managing Director of Davis Langdon PKS in 2005.

He worked with many of the firms leading clients and Design Teams from the Trinity Arts Building in 1980 to the Grand Canal Theatre and offices in 2010, the venue for the firms very successful 150th year celebration in March 2010.

Norman played key roles in developing the practice, including expanding the office locations outside Dublin, broadening the range of services offered by the firm and globalising the business through links with the Davis Langdon organisation.

He led the firm to being the first Irish professional practice to be Quality Assured and the only Construction Cost Management firm to be included in the Best 50 Companies to work for.

Under his leadership the firm grew and prospered without sacrificing the core value of integrity.

Outside the firm Norman also played key roles in education both as an external examiner to DIT and LIT . In the Society of Chartered

Surveyors he chaired the QS APC committee and is a current member of the SCS Council .

We are very grateful to Norman for all he has done for the practice over his tenure and wish him well for the future.

Introducing AECOMAs many of you will be aware Davis Langdon, an AECOM company, has completed its merger with AECOM. AECOM is a global provider of professional, technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government.

The Davis Langdon businesses in Africa, Australasia, Europe, Middle East and North America represent one separate service line of Program, Cost, Consultancy (PCC) within AECOM.

Across the island of Ireland, we now have seven offices located in Belfast, Cork, Dublin, Galway and Limerick offering Building Engineering, Design Build Operate, Environment, Program, Cost, Consultancy, Project Design and Development, Transportation and Water services. In addition, AECOM has 86 offices in 24 countries across Europe.

The synergy of bringing Cost and Project Management services to existing clients is already paying dividends. Jointly, AECOM and Davis Langdon have secured over 70 projects together in the first six months with fee income in excess of €20 million.

Globally, AECOM has received a number of significant accolades in Engineering-News Record*, some of which are listed below:

- No.1 in the Top 500 Design Firms

- No.1 in Transportation

- No.1 in Water

- No.1 in Marine and Port Facilities

- No.1 Overall Top 150 Global Design Firms

* Engineering-News Record is the most recognised publication in the engineering and construction industry. The rankings are based on annual revenue.

Our Dublin Transport office currently provides a broad range of services across the industry. Clients include government departments, Irish Rail, Local and Regional Authorities National Roads Authority (NRA) and the Railway Procurement Agency, in addition to a number of private clients involved in the development of the built environment.

Recent projects include:

- Assessment of traffic impacts of Luas Broadbridge, Luas Docklands Extension and Metro West projects;

- Development of NRA’s Traffic Management Strategy;

- Development planning for the Grangegorman campus, Dublin;

- Engineering design of the M7/M8 motorway scheme;

- Galway City walking and cycling strategy;

- Irish Rail’s investment strategy; and

- Tara St. Redevelopment.

Our local expertise is also used globally. For example, Davis Langdon professionals in Ireland are currently working with AECOM on a €7 billion masterplanning scheme in Chile, a €700 million airport extension in Eastern Europe and the redevelopment of the Grangegorman campus.

With approximately 45,000 employees around the world, AECOM is a leader in all of the key markets that it serves. A Fortune 500 company, AECOM serves clients in more than 125 countries and has annual revenue in excess of $7.0 billion.

For more information, please visit www.aecom.com

46 | Davis Langdon News

Davis Langdon News | 47

Glasnevin Museum, Glasnevin Cemetery, Dublin

6 | Introduction Bigger & Better

Davis Langdon People

Team

Davis Langdon People | 49

Paul [email protected]+ 353 1 4320460

Mark [email protected]+ 353 1 4320438

John O’ReganDirectorjohn.o’[email protected]+ 353 91 530199

Cathal BarryRegional [email protected]+ 353 61 318870

Andrew [email protected]+ 353 61 318870

Tomás KellyRegional [email protected]+ 353 91 530199

David [email protected]+ 353 21 4222800

Anthony McDermottRegional [email protected]+ 353 1 4320481

Jason [email protected]+ 353 1 4320434

Neil [email protected]+ 353 1 4320478

Gregory FlynnRegional [email protected]+ 353 1 4320498

John [email protected]+ 353 1 4320413

Stuart [email protected]+ 353 21 4222800

Eoin [email protected]+ 353 1 4320404

Program, Cost, Consultancy

www.davislangdon.com www.aecom.com

About AECOM

AECOM is a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. With approximately 45,000employees around the world, AECOM is a leader in all of the key markets that it serves.

AECOM provides a blend of global reach, local knowledge, innovation and technical excellence in delivering solutions that create, enhance and sustain the world’s built, natural and social environments. A Fortune 500 company, AECOM serves clients in approximately 125 countries and has annual revenue in excess of $7.0 billion.

More information on AECOM and its services can be found at www.aecom.com.

DL 20752 (03/11) / Designed in-house by EME Business Development

Key offices in Ireland

Davis Langdon, an AECOM Company Dublin Office24 Lower Hatch Street Dublin 2T: 353 1 676 3671 F: 353 1 676 3672 E: [email protected]

Davis Langdon, an AECOM Company Galway OfficeHeritage HallKirwan’s LaneGalwayT: 353 91 530 199F: 353 91 530 198E: john.o’[email protected]

Davis Langdon, an AECOM Company Limerick OfficeMezzanine SuiteRiverpointLower Mallow StreetLimerickT: 353 61 318 870F: 353 61 318 871E: [email protected]

Davis Langdon, an AECOM Company Cork OfficeHibernian House80A South MallCorkT: 353 21 422 2800F: 353 21 422 2802E: [email protected]

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