What are the main concerns for the industry as it moves into 2017?
The construction industry is teetering on the brink. This is not new. Ever since the Latham and Egan reports ,(for those of us who can remember back that far) there have been calls for reform. The most recent comes in the guise of a report on the construction industry written by Mark Farmer and commissioned by the Construction Leadership Council. Its message is stark: “modernise or die”.
So what, in particular, has caused such a serious amount of consternation and what are the main concerns for the industry as it moves into 2017?
Brexit, naturally ; cash flow , of course. But perhaps the most important practical difficulty is that of the much publicised skills shortage. In his Autumn Statement, the chancellor prioritised investment in infrastructure and housing, with promises of large scale funding through the new Housing Infrastructure Fund and of support for a programme of major road schemes in the North. But who on the ground (literally) is actually going to build the hundreds of thousands of homes (affordable and otherwise) which have been demanded by politicians and social commentators alike?
Who on the ground (literally) is going to build the hundreds of thousands of homes (affordable and otherwise) which have been demanded by politicians and social commentators alike?
The skills shortage is potentially a huge barrier to the hoped for growth of our economy. It is certainly not lessened by predictions that the effect of a “hard” Brexit (that is, where a points-based system which could operate against unskilled or semi-skilled labour is introduced) would be to reduce the construction workforce in the UK by around 215,000 EU migrants. Even a “soft” Brexit (which could involve quotas) would apparently mean that around 135,000 EU workers would not be available to replace those already leaving the industry.
Two other factors have been recognised as contributing to “a potentially disastrous loss of labour”. Firstly, that construction workers in the UK are getting older. The CITB has reported that an estimated 400,000 will be of retirement age within the next five years. Secondly, sharp-elbowed parents view the construction industry as having an image problem and have been accused of encouraging their children to pursue careers in (any) other sectors. The challenges and rewards of designing, building and project managing schemes to meet vital housing and infrastructure needs are being largely overlooked.
The lack of a suitably trained workforce is likely to contribute to the rising cost of labour and to add to the already recognised hike in the cost of materials resulting from the fall in the value of sterling. While initiatives such as encouraging greater use of technology to mitigate falling numbers, the apprenticeship levy or in-house training programmes started by enterprising companies, have been contemplated in an attempt to avert manning issues on site, it is probably inevitable that not only will tender prices increase, but also claims may escalate.
Is it possible to anticipate and cover these potential stumbling blocks in advance in our building contracts and allocate risk to the party or parties best able to absorb it? What sort of mechanisms should be contemplated by those entering into construction projects today? Maybe (if demand outstrips supply) costs plus or guaranteed maximum price contracts will become more popular. Perhaps fluctuation clauses (often deleted from standard forms) will be reinstated. The extension of time and loss and expense clauses in lump sum contracts may need extra scrutiny to obtain a balance between the parties in the changed climate; and items such as provisional sums will still need to be carefully defined.
These are just some of the factors which will exercise the minds of the contract drafters going forward in these uncertain times. But, however clever we are with the words, it remains to be seen whether any steps taken from now onwards to ensure that there will be a sufficient workforce to turn those words into actions will be successful, or whether such attempts to alleviate the skills shortage and the Brexit effect will simply be too little too late.
Stephanie Canham is head of construction at law firm Trowers & Hamlins