With industry output slowing, contractors can help clients to mitigate the impact of rising prices, says Scape’s Mark Robinson
The construction industry has had the wind in its sails for much of the past 18 months, admirably leading the nation’s post-covid recovery and driving much-needed economic growth. At times, this sustained and often accelerating growth has flown in the face of wider market conditions.
For example, long-term supply issues around labour and materials – as well as the Omicron variant – did little to deter new orders in the second half of last year and the early months of this.
However, with the conflict in Ukraine driving up energy prices and exacerbating supply bottlenecks, it is clear that the sector is becoming less able to outrun inflationary pressures. Indeed, with the overall cost of projects going up – by 20% in some circumstances – and contractors understandably unable to provide long-term pricing certainty, developers and commissioning organisations are naturally considering how best to invest their infrastructure budgets.
This is particularly the case in the public sector, which has the dual challenge of driving community regeneration and securing value – monetary and social – for the public purse. Public investment is vital to ensuring that the UK is able to meet the evolving needs of the post-covid economy, particularly in those regions that have been promised so much in terms of levelling up their respective communities.
Within this context, it is important that contractors and their clients are working in harmony. Put simply, contractors cannot be expected to absorb the upward trajectory of material prices, particularly when critical materials such as rebar have increased year-on-year by almost 50%.
At the same time, public organisations need the confidence to continue pushing forward with projects knowing that they will be delivered to time and budget.
Keeping projects on track
For those in the midst of project delivery, our advice is to bring all parties around the table to address cost concerns as early as possible. In doing so, project teams can openly reflect on the market forces at play and seek alternative approaches – including changes to specification – that still enable the client to achieve the desired outcome.
Ordering critical materials early is also recommended. The Bank of England has made clear that inflation is unlikely to plateau before the end of the year, so a pragmatic approach to securing resources is a good way to limit exposure to further cost increases.
From a client perspective, firms should also be alive to how inflation will affect willingness to approve new projects. We have long promoted the values of robust, efficient and accelerated procurement through our frameworks – something that has become more attractive as clients look to manage inflationary risk. Many public sector organisations are also increasingly considering batching the procurement of projects which, with the support of the right contractor, could halve the financial impact of overall costs going up.
All this points to the increased need for contactors to be supportive in terms of the feasibility of projects. By helping clients and engaging them early, the industry can foster deeper, less transactional relationships that ensure projects are procured effectively and with a timeline of further inflation in mind.
Equally, it helps to facilitate conversations around risk management and the allocation of responsibility should costs increase. This way, clients are more likely to approach projects with eyes wide open and make more effective choices at the point of procurement.
Mark Robinson is Scape Group chief executive