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Gateway to the Games
Contract Journal – 16 November 2005

Plans for the regenertaion of the Thames Gateway were well established when the news broke that London was to get the 2012 Olympics. Will this accelerate the much-needed change in the region, or will efforts be refocussed on the Olympic sites at the expense of further-flung projects? Mark Smulian investigates.

Is it possible to have too much of a good thing? The construction industry is about to find out in the Thames Gateway.

A regeneration boom has been gathering pace for the past few years, putting pressure on construction labour and materials supply.

Then on 6 July demand for the industry's services took a sudden upturn with the announcement that the Olympic Games would be held in London in 2012, mainly on gateway sites.

And there will be a further £1.4bn of construction work if the planned London Gateway port goes ahead, as now seems likely.

Can the industry find the manpower to deliver all this? And even if it can, will the Olympics so skew public investment that other projects recede further into the future?

The problem is simple. Most construction projects have target completion dates that everyone concerned tries to meet. If they fail, there are costs and tricky negotiations and the project gets completed a bit late.

But someone has to be running round the Olympic stadium brandishing a torch on the opening day in 2012.

Excuses that the stadium is incomplete because a subcontractor failed to turn up would cause a national humiliation.

Just as the industry cannot fail to deliver the Olympics on time, nor can the government.

And since almost everything in the Thames Gateway depends on public infrastructure investment, there must be fears that ministers will divert funds to Olympic projects to meet the deadline.

It is too early to say whether public investment and construction industry capacity will be sucked out of the rest of the gateway and into the gaping maw of the Olympics site at Stratford.

But there are fears that it will, even among enthusiasts for the games.

Ian Lindsay, acting chief executive of Kent Thamesside, the regeneration agency for north Kent, says: "We were thrilled to get the Olympics coming to London and we are now looking forward to the opportunities we can find.

"But as far as public investment goes it is a double-edged sword. There are opportunities but there is also a concern, though it is early days, that the Office of the Deputy Prime Minister's Thames Gateway budget and the budgets of the regional development agencies could become focussed on Stratford.

"We have got to be grown up about this and recognise there might be short-term pain for long-term gain."

His opposite number on the Essex side of the gateway, Mary Spence, expects substantial opportunities for local construction firms at the Olympic site.

She says: "I have heard of concerns, but we are still looking at the opportunities.

"One of the main beneficiaries would be the construction industry itself as we have a lot of small firms here that one would hope will get a share of the work."

Essex could also see a hotel building boom. "Teams and spectators might want to stay in London, but it is a sight easier to get to the Olympics from Basildon than, say, Hammersmith," Ms Spence notes.

Kent Thamesside has long been planning for sufficient construction capacity to meet the demand for local projects, which include Eastern Quarry, Land Securities' 7,500 new homes plus commercial and employment development.

"The Olympics has got to have an impact on construction labour demand, but that is already a problem in the Thames Gateway," Mr Lindsay says. "We have launched Construct Kent Thamesside to train people for long-term construction jobs and we have begun to get local apprenticeships.

"But there is such a huge set of developments that the construction labour force cannot all be recruited locally, or even in the UK, and you will see workers coming here internationally, from eastern Europe and so on."

That point is echoed by Alan Wilen, economics director of the Construction Products Association, who notes, "London has access to an international labour market".

Mr Wilen does not think that materials manufacturers will face any serious difficulty in trying to service both the Olympics and the other gateway projects.

Labour supply will be less of a problem if the whole supply chain is integrated early on, he believes.

"If you look at national construction capacity the Olympics is perfectly manageable," Mr Wilen says.

"We estimate that when you break it down into the key elements like the stadium and the village it is about £2.5bn of work over five years.

"So that adds about 0.5% to UK construction output as a one-off increase. That is relatively modest, and some elements will be freed up when the Channel Tunnel Rail Link is completed."

The CPA is anxious to see manufacturers and materials suppliers brought early into project planning and design so that as much detail as possible is tied down in advance and labour requirements can be planned.

Ray Pearse, development director of Development Securities agrees.

His company's projects include a 1.6m sq ft business park in the Royal Docks.

"There are mixed messages," he says. "The construction industry should have the ability to absorb it because the industry in the south east is worth about £1bn a month, so the Olympics seems something that could be absorbed.

"The difficulties come where they always do in the availability of certain specialist subcontractors and supplies. What is absolutely key is getting the supply chain right."

Projects planned for the Olympics site lend themselves to innovation, and off-site prefabrication will be critically important to spreading the load across the industry, he says.

"A lot of construction should be taken off site," says Mr Pearse. "It could be prefabricated elsewhere and the Olympics site itself would be more an assembly yard than a traditional site.

"The key is to get things fixed with designs early and then don't get into a back-end loaded programme."

Mr Pearse is concerned that the nature of the Olympic work will drive up tender prices, quite apart from any labour or materials problems.

"There are strict deadlines and anyone working there will be under scrutiny, so contractors will want to reflect that in prices," he says.

How much of a problem will labour supply be?

Mr Wilen points out that the broad heading ‘construction' covers many things.

While the Olympic projects require a great deal of building capacity, the giant trans-London Crossrail scheme, for example, is mainly civil engineering.

That troubled project is now expected to go ahead but may well not be complete in time for the games, and the government has gone to great lengths to claim that it is not essential to the games' success.

However, much of its construction work is likely to overlap in time with that on the games.

Another huge project in the gateway that will largely demand civils' expertise is London Gateway – a container port to be developed on the old Shellhaven oil refinery site in Thurrock.

This will require, as a spokesman for developer P&O Ports put it, "a very large flat area of concrete".

The £1.5bn project cannot go ahead until P&O has concluded a wrangle with the Highways Agency over the method and costs of linking the port to the nearby M25.

Once that hurdle is cleared, it will require about £540m worth of civils work and the use of equipment worth £260m to get the first two berths open. This is because the major cost of the whole project is to dredge the river to clear access for the largest ships.

After that, further berths will open as demand requires, and another £750m is due to be spent on developing warehousing and a business park.

"It is almost all civils work and a lot is port-specific," she says. "We are creating a flat area for handling shipping containers.

"The first berths should be open by 2008 and the whole project complete by 2015 so it will overlap with the Olympics but we think what we need is specialised and so the games should not have a terribly big affect on us."

Bellway and English Partnerships' Barking Riverside will have 10,800 new homes and supporting infrastructure by 2025, and is one of gateway's largest projects.

Its director Clive Wilding says: "Skills in surveying, project management and contract negotiations are already in shortage and the Olympics will create further problems.

"The real difficulty is the shortage of management resources and that will be a bigger problem than shortages of skilled site labour, which can be lessened through increased use of prefabrication."

John Herman, head of regeneration and development at Newham Council, which covers most of the Olympic site, says capacity and investment are "certainly issues for us because we have the Olympics cheek by jowl with Stratford City and a major regeneration project at Canning Town.

"It means that for the best part of a decade one end of the borough is going to look like a building site."

The council has a PFI deal to replace old council housing at Canning Town and regenerate the town centre.

"The time frame means that 7,000 homes have to be built at the same time that Stratford City and the Olympics are going on," Mr Herman says.

He hopes that planning gain deals – section 106 agreements – will provide jobs for local people, such as the 400 apprenticeships promised at Stratford City.

"The construction industry is pretty good at finding the capacity needed and training will be built into everything we do," he says.

"There is no Plan B as far as the local authority is concerned, it all has to happen on time, but the construction industry is adept at solving problems."

Nothing but optimism radiates from Arup director Mark Bostock, who led the firm's work on the Olympic cost benefit analysis in 2002.

He explains: "The rationale of the Olympic Games is regeneration, and if the benefits do not exceed costs I will be very disappointed."

Sydney's games in 2000 cost £8bn but returned benefits in the ratio of 2.5:1, "which I regard as a good benchmark for London".

Mr Bostock has little time for those who see the Olympics as problem for the industry. "I would argue very strongly that right now in 2005 we should step back and say ‘we have won this opportunity so how do we capitalise on it'," he says.

Major projects

London Gateway - £1.5bn port and warehousing complex in Thurrock.

Stratford City - on 180 acres of rail lands adjacent to the Olympic site. Due to offer 6.5m sq ft of commercial and retail development, 4,500 new homes, 2.000 hotel rooms, schools and health centres.

Crossrail - £10bn (not all in the gateway), long-promised but not yet certain cross-London heavy rail tunnel.

Docklands Light Railway extension to Olympic Games site - £110m.

Eastern Quarry – 7,500 homes in new villages adjacent to Bluewater retail park.

Barking Riverside - 10,800 new homes by Bellway and English Partnerships.

Gardiners Lane South – 70 hectares mixed use site for which English Partnerships seeks a developer.

Kent Thameside – regeneration of area between Dartford and Gravesend, first phase of rapid transit to open in February.

Thurrock – new urban development corporation gained formal planning powers in October.

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