Opinion

Weathering the perfect storm

Materials shortages, but rising demand – how can construction ride out the current challenges? By Matt Brooker

The last 18 months have been a turbulent period for the industry and there looks likely to be plenty more stormy weather ahead. Product price increases have hardly been surprising after the disruption to production of material and components during the pandemic, exacerbated by the recent Suez Canal blockage.

There have also been regulation and governance changes as a fallout of the Brexit hangover that affect the import of material into this country. Unless our government continues to recognise the European Product Safety Mark on 1 January 2022 all imports into the UK will be subject to our own new standard, the UKCA Certificate. This brings with it the concern that suppliers will focus on alternative markets outside of Britain rather than put their materials and products through a new testing and compliance regime.

Combined with the lack of raw materials and supply chain delays, there is an increase in global demand driven by China and the USA’s public spend programmes, not to mention the UK’s. In this perfect storm, with supply unable to meet demand, the inevitable result is price inflation – in the cost of materials, components and equipment – and longer lead-in times.

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“We could see a reduction in fixed price periods, additional price risks, increased construction programmes reflecting supply risk and contractor and supply chain failures”

How will the construction market react to this? We could see a reduction in fixed price periods, additional price risks, increased construction programmes reflecting supply risk and contractor and supply chain failures, as costs increase in excess of the fixed price allowances.

Here are six questions that construction project teams should be asking:

On existing projects where does the burden for these increased costs and
delays sit?
Is this a temporary state that will level out or is this a sign of long-term construction inflation?
How do we work with design teams and clients to ensure that we can still meet their overall value aspirations as prices are rising?
How can we help designers innovate and produce solutions that still work within the constraints that we find ourselves?
Will price inflation lead to schemes being cancelled? What is sensible advice on tender returns and risk transfer?
What can we do to ensure that we remain as resilient as possible for the foreseeable future?

The answer to that last question is that we should stay close to the supply chain and maintain a united front. Discuss with designers, architects, planners, contractors and suppliers what alternative design solutions may be available that offer mitigation to price increase and supply risk. Work collaboratively, stay informed and gather the information that will help us work through these industry challenges together.

Someone far smarter than me once said: “Forecasting is really easy until you start talking about the future.” If the last 18 months have taught us anything, it’s that there will be curveballs along every journey.

Matt Brooker is national head of sectors from RLB.