黑洞社区

The furore over the university tuition fees hike was probably the biggest single cause of the Liberal Democrats鈥� near-death experience at the recent general election. The construction industry, though, has cause to feel more warmly about the controversial higher education funding mechanism. Since the fees were raised to 拢9,000 in 2012, the pipeline of construction work has increased significantly in the university sector. According to figures supplied by 黑洞社区鈥檚 sister organisation Barbour ABI, contracts awarded by higher education institutions rose from 拢2.1bn in 2012-13 to 拢2.5bn in 2014-15.

David Cotton, business development manager at Bam Construct UK, says there is 鈥渘o question that the future market within the construction sector is one of stability and growth鈥�. Richard James, universities sector manager at Willmott Dixon, agrees: 鈥淭he scale of ambition of the sector is phenomenal. We are regularly seeing framework competitive bids for 拢200m plus, and that鈥檚 across the board.鈥�

But, with tuition fees capped at current levels and inflation rising, for how long can the sector continue growing? And, with increased competition across the board for construction鈥檚 services, how attractive are universities as clients to work for?

Turning point

Willmott Dixon鈥檚 James identifies the government鈥檚 move on tuition fees as the turning point for university capital expenditure. By freeing universities from the whims of grant funding, they can plan ahead with a lot more confidence. Steven Jenkins, head of higher and further education at EC Harris, says fees provide universities with a longer-term view about funding. 鈥淏efore they had one-off grants, now they have long-term income streams.鈥�

In addition, this year has seen a lifting of the cap on the number of students that universities are allowed to enrol. 鈥淭his is the first year we鈥檝e had the cap off numbers. The feedback I鈥檝e had is that it has attracted extra numbers into the sector,鈥� says Sue Holmes, chair of AUDE, the association for university estates directors.

This uplift has been further fuelled by uncertainty over whether ministers will lift the cap on the level of tuition fees, which has been in place since the 2012 increase. Students appear to be putting off thoughts of a gap year until after graduation in order to take advantage of the capped fees. 鈥淪tudents are jumping because of uncertainty over whether fees are going to go up,鈥� says Holmes, who is also director of estates at Oxford Brookes University.

鈥淲e鈥檒l see a bulge which is welcome because we know that we have a decline coming over the next five years,鈥� she adds, explaining that due to a drop-off in the teenage population, the number of potential tertiary education students won鈥檛 recover to their current levels until the early to mid-2020s.

But even this decline in the overall student cohort won鈥檛 necessarily inhibit the sector鈥檚 appetite for construction projects. Again, the key factor is the introduction of tuition fees, which means that universities will have to compete harder to attract the shrinking student population.

The scale of ambition of the universities sector is phenomenal. We are seeing framework bids for 拢200m plus across the board

- Richard James, Willmott Dixon

Universities now pay the Times Higher Education Supplement鈥檚 annual student experience survey the kind of attention once devoted to academic research papers. And the quality of students鈥� experience will be swayed by the quality of the facilities on offer, like libraries and student union facilities.

鈥淚f you are spending 拢45k on education, you will want a reasonable environment to live and study in,鈥� says Jonathan Stewart, head of public sector at Gleeds, who argues that upgrading facilities is 鈥渆ssential鈥� rather than 鈥渄esirable鈥� spending these days for universities.

Philip Watson, UK design director at Atkins, agrees: 鈥淭he move from state-funded to private institutions has really upped the ante. If the place looks shabby and grimy, it makes a difference, so they have had to up their game.鈥�

James agrees: 鈥淧ower has shifted towards the student and they are demanding a lot more from the facilities.鈥� Watson adds that good looking buildings increasingly play a role as marketing tools for universities. 鈥淭hey need the brochure shots to market themselves.鈥�

Mairi Johnson, Aecom鈥檚 education sector global lead, says: 鈥淭hey [universities] see architecture as part of their brand and want to be seen as future looking - they really value good design.鈥�

This commitment to high-quality design is one of the reasons that universities are seen as attractive clients. 鈥淒oing these large jobs for universities has always had a cachet, and contractors want to have their names associated with these projects. There is no shortage of interested contractors,鈥� says Watson, who adds that staff are motivated by working on university projects because they offer a clear social benefit.

The construction industry also has other, less altruistic reasons for wooing the higher education sector. Watson points out that the university budgets tend to be bigger than those for school projects. And the size and scale of universities means they often bulk large within their local construction markets. EC Harris鈥� Jenkins says: 鈥淭hey have huge buying power, influence and impact on the construction market.鈥�

Rupert Goddard, partner in architect Sheppard Robson, says contractors will often cut university clients greater slack owing to potential repeat business. He says: 鈥淭here鈥檚 still eagerness among contractors to compete in the sector because it鈥檚 seen as much more resilient to recessionary pressures. They are a bit more pliable on these types of projects because they see it as good to build long-term relations with the universities.鈥�

Added to which, Watson says, universities are good clients as well as increasingly professional, with estates teams taking on more staff from private sector backgrounds. 鈥淭hey are fairly direct appointments so you will be working for the people who will be managing, operating and using the building, which is pleasing, rather than working for a developer where you don鈥檛 know who will be operating it.鈥�

Turning the tables

However, industry figures complain that universities have exploited their privileged position during recent years by getting contractors to shoulder a disproportionate level of project risk. Now the market is heating up, contractors are becoming more choosy about the higher education projects they bid for. Universities face the added pressure in an inflationary environment that, unlike commercial developers, they rely on fixed-fee income so cannot hike prices to absorb increased costs. Such pressures are particularly acute for those institutions that own a lot of listed buildings that cannot be redeveloped.

Roger Bond, director of estates at the University of East Anglia, says that finding the capital to refurbish the largely listed 1960s campus is a major headache. Holmes says it is becoming more difficult for universities to procure contractors to do refurbishment work.

Goddard sees a 鈥渨ind of change鈥� in the contractor-university relations, noting that one northern university recently failed to attract any bidders on a single-stage, new-build job. He says: 鈥淯niversity teams are becoming more aware that they can鈥檛 take for granted a good looking shortlist just because they are a university. The message is getting through quicker to some than others.鈥�

Gleeds鈥� Stewart agrees that universities are not immune from the pressures facing the wider market. Contractors are using their greater bargaining power by pushing for two-stage contracts, which are becoming the 鈥渘orm鈥� in the sector, according to EC Harris鈥� Jenkins.

Stewart also sees more universities considering frameworks in order to secure the involvement of contractors and swifter delivery. Contractors like these partnering arrangements because it takes in the long-term workflows university clients can offer. 鈥淏idding on single-stage design and build contracts is not the way to do it in our opinion,鈥� says Bam鈥檚 Cotton. By using two-stage and partnering arrangements, he adds that contractors can lock in subcontractors at an early stage, mitigating cost increases later on.

The question for universities though, Stewart notes, is whether they are able to generate the length and volume of work to justify such arrangements.

Going further down the partnering route, universities also have the option of forming joint ventures with commercial developers. Holmes says Nottingham鈥檚 Trent University has examined establishing a joint venture with student housing developer UPP, which would provide a student union facility as part of the deal. However, the nature of university estates offers relatively few opportunities for this kind of joint venture: facilities like research labs and libraries don鈥檛 generally generate income streams. And while the funding situation is relatively rosy now, it may soon sour unless the government takes the politically unpalatable option of relaxing its current ceiling on fee levels, Holmes warns.

The freeze means that the level of universities鈥� income has, once inflation is taken into account, effectively declined by 7-8% since the fees were introduced three years ago, she says. 鈥淲e can鈥檛 keep taking a cut in our income with a capped fee.鈥�

Nevertheless, for the time being, the higher education construction sector remains a buoyant one. Willmott Dixon鈥檚 James says that his company remains strongly committed to the HE sector. He says: 鈥淚f we have a chance of work that is attractive in terms of returns and ongoing work, we would give it our best shot.鈥�