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Market overview

The services market place has been greatly affected by the downturn in demand for commercial office space. This is particularly the case in London, where there still remains a large amount of vacant office space. The slowing in this sector has forced the services sector to diversify from its traditional workplace. However, this diversified marketplace is now looking extremely healthy, with a significant number of potential and live commercial, residential, leisure and retail developments within London and the South-east, which are complemented by many major publicly funded health and education schemes.

Recent wage-rate and working condition agreements 鈥� such as the Major Projects Agreement negotiated by the unions in relation to the Heathrow Terminal 5 project 鈥� are likely to lead to an increase in overall tender price level, although many services contractors have expressed the opinion that labour will not necessarily be attracted away from other areas to work on the major projects such as Terminal 5. There is still the potential, however, for other key schemes to be subject to wage-rate agreements similar to that at Heathrow, which will almost certainly drive labour costs upwards.

Specialist Q&A

Hills Electrical & Mechanical has 15 offices across the UK and has a turnover of 拢80m and 500 employees. It specialises in all types of mechanical and electrical work for a wide range of sectors including commercial, education, health and leisure 鈥� 鈥渁nywhere there鈥檚 a building really鈥�, as group chief executive David Hills puts it. Here he gives a flavour of the state of the market.

Which sectors are currently busy?

Education is coming to the fore and health is very busy too, as the government is throwing money at this. Commercial work is ongoing 鈥� it鈥檚 not booming but it hasn鈥檛 fallen to pieces either. Retail is ongoing too 鈥� reports of a retail downturn are too recent to have fed through to developers, and anyway, if retailers lose market share they tend to spend money on their buildings to get it back.

Which is your least favourite sector?

Health isn鈥檛 something we particularly like. It tends to have multiple agendas in that one department wants the work doing but the other doesn鈥檛 have the money. You never quite know which specification you are working to.

How鈥檚 the office market in London?

It鈥檚 quite busy 鈥� office blocks are going up and we are doing work at Canary Wharf. We have also done a category A fit-out on 16 floors of Swiss Re because, although the building was completed some time ago, Swiss Re found they couldn鈥檛 let it unless they did some enabling works. There are another six floors to do 鈥� we are hoping we get to do that too.

Have you been affected by the Major Projects Agreement at Terminal 5?

Not directly. There seems to be a cut-off point between the wages at T5 and the rest of the world. There are people who would rather earn less and not have to put up with the aggro and conditions at T5. It鈥檚 highly unionised, and not everyone likes unions. We鈥檝e just hired a Scottish project manager from T5 who took less because he wanted to go back home.

Haven鈥檛 wage rates gone up at all then?

Yes, electricians鈥� wage rates have gone up by about 60% in the past four to five years. The trouble is this increase is not reflected in their productivity. We have raised our price to compensate but the trouble is we are in a competitive market 鈥� we are being squeezed at both ends by employees and clients.

Has this affected your margins?

We lost 拢2.5m last year as we had the commercial pressures of wage increases on the one hand and tender prices on the other, plus we wanted to turn over 拢100m, which isn鈥檛 the name of the game. This year we are getting our act together and we will break even.

Any current trends in the sector?

What London does today, the rest of the country does tomorrow. In London you won鈥檛 see anything made on site as everything is prefabricated, but by the time you get to Scotland everything is made on site. The consultants drive it and they are a lot more progressive in London 鈥� further north it鈥檚 more traditional. This is also driven by cost 鈥� prefabrication is more expensive but this is more than offset by lower site labour costs.

What鈥檚 going to be the next big thing?

The next big thing will be integrated buildings, where one set of cabling carries the signals for all the building鈥檚 systems such as alarms and emergency lighting, rather than separate circuits. There are potentially enormous savings with this and systems can be controlled remotely over the internet. For example, you can detect whether a student has turned up their heating too high. The technology has been around for years but people are only just beginning to sell it. And innovation is risky 鈥� if it goes wrong, fixing it is difficult so people stick to tried-and-tested systems.

Hot topics

Part L of the 好色先生TV Regulations

The tightening of thermal performance standards in Part L of the 好色先生TV Regulations has improved the prospects for more environmentally friendly solutions such as displacement ventilation and underfloor air-conditioning systems. This is because cooling loads have decreased, thanks to the use of cladding systems with better thermal and air infiltration performance. However, this trend has not led to the disappearance of more traditional fan coil units and variable air volume systems. The service sector is now bracing itself for the next revision of Part L, which comes into force in 2006 and will dictate higher standards of energy efficiency than at the moment.

Tendering

Contractors have become more targeted in their approach to tendering, concentrating on projects where there are existing relationships with clients and consultants. They are monitoring and programming their workloads to improve the likelihood of success on these projects. Some contractors have also reduced tendering costs where repeat workload from clients has allowed them to foster continued relationships.

Technology

The drive to increase efficiency and profitability and achieve an optimum design solution is, as ever, a key concern and there appears to be a definite trend in the market to use up-to-date technologies including 3D modelling, prefabrication and modularisation for design and installation. Clients are also demanding flexible designs that incorporate a degree of future-proofing to take account of new technologies, as they need to be able to adapt their buildings to embrace new working methods and business requirements.

Security

Recent world events and the effects of international terrorism have resulted in an increasing awareness of security requirements both in securing buildings and in their inherent design.

Developers are tending to reconsider their basic CCTV and access control system provisions to ensure that internal and perimeter access round developments is more tightly monitored. Airport-style security, including metal detectors and X-ray machines, is now appearing in new-build office developments. In addition to this, designers have reviewed services provisions 鈥� for example, by removing low-level air intakes to avoid the threat of toxic gas contamination.

Raw material costs

The increased demand for the supply of copper 鈥� particularly from nations such as China, with its programme of industrialisation 鈥� is likely to raise the price of this commodity. This will result in increased material costs for copper pipework and cables with a knock-on effect for the costs of mechanical and electrical services in the domestic market.

Costs

Cost drivers

Since services costs can add up to 50% of the total project value, it is essential to understand what the cost drivers are at all stages of the design process so that a continual evaluation process can be implemented. Services can be divided into the following elements:

• Public health services
• Mechanical services
• Fire protection services
• Electrical services

Typically, the cost drivers affecting M&E services are:

• Fire precautions, such as sprinkler systems
• Requirement for air-conditioning
• Type of air-conditioning system
• Flexibility of air-conditioning installation
• The type of development and the stage at which services are incorporated 鈥� for example, shell-and-core or category A or B
• Location 鈥� this also affects the specification
• The developer or occupier type, such as a 鈥済reen鈥� client requiring innovative energy-saving schemes.

Experience is the best way to price mechanical, electrical and plumbing (MEP) systems, so it is a good idea to undergo market testing with those specialists thought to be most appropriate to the project. Failing this, the following information in the tables can be used to get an idea of costs. It is critical that conditions such as site constraints, client expectations, architects鈥� and engineers鈥� intentions and performance requirements are considered when putting an overall price to an MEP system.

Costs basis

Research carried out on a range of typical office shell-and-core tender returns shows details of the average build-up to the average tender. This should help to understand where costs appear high on a specific project and may help highlight areas where a value-engineering exercise could be considered.

The cost breakdown detailed below relates to a high-quality London office development completed to a category A finish with a gross floor area of 20,500 m^2. The installation is based on a four-pipe, fan coil air-conditioning system, cooling, lighting and small power. Loads and provisions are as specified in accordance with standards set in the British Council for Offices specification.

The costs in the model are based on packages procured by construction management. Costs are current at first quarter 2005 price levels. The costs of the trade contractors鈥� preliminaries are excluded, as are external services, below-ground services, tenant enhancements to the base build specification, fit-out works beyond the scope of category A works, specialist services to computer rooms, data cabling and IT equipment, the construction manager鈥檚 fees, on costs, professional fees, contingencies, design reserves and VAT.

Readers should note that adjustments must be made to the costs to account for variations in specification, procurement type, programme and market conditions. Any adjustments of costs for location should take into account local variations in labour and materials.

Procurement

ProcurementIt is paramount to implement the most appropriate strategy for the procurement of MEP services. This will clearly demarcate responsibility for the work, ensure a better financial return and simplify life for the contractor. It also ensures optimum performance for the client.

There is an increasing trend for main contractors to work with preferred M&E contractors. Not only does this improve working relationships but it also means the M&E contractor has an input into the building design. Early involvement is becoming more important because of the increasing use of prefabricated components. The M&E contractor can advise where such components can be used and the building can be designed to accommodate these. Once the design is finalised the M&E contractor can submit a fixed-price tender for the work.

Lead times

For major projects, lead times on mechanical packages are about 16 weeks and on electrical packages about 13 weeks. Smaller projects tend to have a shorter lead time, typically six weeks.

However, according to a number of MEP contractors, lead times might soon be reduced 鈥� in the short term at least. Short-term capacity is set to be filled with the unlocking of several major construction and regeneration projects and where large commercial projects that had been delayed are now starting to 鈥済o live鈥�.

For many of the larger MEP contractors, PFI contracts are making up a sizeable proportion of their work and lead times become less relevant. On PFI work, the MEP contractor can be involved with the scheme from a very early stage and so has time to develop the design and value engineer it with the consortium, often over several months.

Although lead times for MEP work have stayed reasonably static during 2004, because of rapidly increasing base material prices and the prime cost of labour (both hourly paid operative and managerial/technical staff) the static market is still driving down costs and margins. With an anticipated increase in workloads through 2005 lead times may shorten still further.

Credit: BAA

Design considerations

An early key decision for any client in the construction process is the choice of how the internal environment is controlled. The critical questions are:

Base build

• What type of air-conditioning?
• How much will it cost?
• How much space is needed for plant?
• How will it affect the programme?
• What effect will it have on other trades?
• Where can savings be made?
• How will it be procured?

Fit-out

• How little needs to be changed?
• What can we get away with?
• Do we need a services consultant?
• What will it cost?
• How long will it take?

What are the options?

• Fan coil units
• Variable air volume
• Induction unit systems
• Variable refrigeration volume
• Chilled ceiling and chilled beams
• Displacement ventilation
• Mixed mode systems
• Natural ventilation

Which system to choose?

The choice of system greatly depends on a number of key factors:

• Space availability
• Capital and installation costs
• Running cost
• Localised heat loads
• Fresh air requirement
• Optimisation of lettable areas and densely occupied areas
• Marketability
• Flexibility
• Controllability
• Impact on aesthetics
• Sustainability issues and low running costs.

Prefabrication

Prefabricated components are being increasingly used for M&E installations. The benefits include better quality installations, reduced construction programme and reduced site waste. It also reduces the risk of things going wrong on site because of unforeseen circumstances with a knock-on effect on costs. However there is a downside. Prefabrication is not a cheap option; plus there can be hidden costs in the form of increased amounts of steelwork, general preliminaries and testing.

A full cost appraisal should be carried out of any proposed prefabrication work at the earliest stage.

Types of prefabricated component

• Plantroom modules Units are constructed within a factory environment ensuring a fast and effective means of production. A high level of quality is possible with in-house fabrication of modules, incorporating plant and equipment, steelwork base frames, bonded cladding systems, pipework, electrical, insulation and BMS systems.
• Vertical and horizontal service modules Service frames and multi-service riser modules comprise modularised framework manufactured off site and may incorporate access flooring, multiple services, insulation and labelling. Each module is delivered complete, tested and ready for craning into position on site.

Mechanical, electrical and plumbing suppliers鈥� directory: 20 key players

ABB Barrett & Wright
Deben House
1 Selsdon Way, City Harbour
London E14 9GL
Tel 020-7515 5511
Fax 020-7515 5551
www.inviron.co.uk

Axima 好色先生TV Services
Westmead House
Westmead, Farnborough
Hampshire GU14 7LP
Tel 01252-525 500
Fax 01252-525 588
Email webmaster@axima-uk.com
www.axima.com

Briggs & Forrester
Bembridge House
Bembridge Drive, Kingsthorpe
Northampton NN2 6LZ
Tel 01604 720 072
Fax 01604 720 357
Email sales@briggs.uk.com
www.briggsandforrester.co.uk

Crown House Technologies
5th Floor Centre Tower, Whitgift Centre
Croydon CR9 0AU
tel 020-8603 5500
Fax 020-8726 7847

Emcor Drake & Scull
Thurston Road, Great Barton, Bury St Edmonds
Suffolk IP31 2PJ
Tel 01359-233 044
Fax 01359-232 998
Email emcor_info@emcorgroup.com
www.emcorgroup.com

Gratte Brothers Group
2 Regents Wharf, All Saints Street
London N1 9RL
Tel 020-7837 6433
Fax 020-7520 8100
Email gbg@gratte.com
www.gratte.com

Haden Young
44 Clarendon Road, Watford
Hertfordshire WD17 1DR
Tel 01923-296 390
Fax 01923-296 300
Email headoffice@hayden young.co.uk
www.hadenyoung.co.uk

Hills Electrical
Marian House, 105 Carlton Road
Nottingham NG3 2FB
Tel 0115-948 3805
Fax 0115-948 3816
Email admin@hillelec.plc.uk
www.hillelec.plc.uk

Lorne Stewart
Stewart House, Kenton Road
Harrow, Middlesex HA3 9TU
Tel 020-7132 2000
Fax 020-8732 2091
www.lornestewart.co.uk

Meica Services
Edison House
33-35 Woodthorpe Road
Ashford, Middlesex TW15 2RP
Tel 01784-229900
Fax: 01784-229901
Email info@meica.co.uk
www.meica.co.uk

Michael J Lonsdale
City Point, Temple Gate
Bristol BS1 6PL
Tel 0117-373 6914
Fax 0117-373 6917
Email contract.us@mjlonsdale.co.uk

Mitie Engineering Services (Eastern)
Tintagel House, London Road
Kelvedon, Colchester
Essex CO5 9ER
Tel 01376-570 400
Fax 01376-570 560
Email enge@mitie.com

MJN Colston
Staveley House, 11 Dingwall Road
Croydon, Surrey CR9 3DB
Tel 020-8686 5577
Fax 020-681 3114
Email tbell@stavely.co.uk
www.staveley.co.uk

NG Bailey & Co
Cutler Heights Lane, Bradford BD4 9JF
Tel 01274-682 856
Fax 01274-651 126
Email business.development@ngbailey.co.uk
www.ngbailey.co.uk

Pheonix Electrical Co
Yeoman House, 63 Croydon Road
London SE20 7TS
Tel 020-8778 9666
Fax 020-8659 9386
Email pecl@phoenix.co.uk

Rosser & Russell
Astral House, Imperial Way
Watford, Herts WD24 4WW
Tel 01912 205 800
Fax 01923 202 105
www.rosserandrussell.co.uk

Rotary Southern
Rotary House, Breakspear Road
Ruislip, Middlesex HA4 7ST
Tel 01895-674 264
Fax 01895-630 673
Email info@rotarysouthern.co.uk
www.rotarygroup.com

Shepherd Engineering Services
Mill Mount
York YO24-1GH
Tel 01904-629 151
Fax 01904-611501
www.ses-ltd.co.uk

Skanska Rashleigh Weatherfoil
West Lodge
Station Approach
West Byfleet
Surrey KT14 6NG
Tel 01932-791 800
Fax 01932-791 810
Email skanska@skanska.co.uk
www.skanska.co.uk

T Clarke
Stanhope House
116-118 Walworth Road
London SE17 1JY
Tel 020-7358 5000
Fax 020-7701 6265
Email info@tclarke.co.uk
www.tclarke.co.uk