The construction sector should prepare for the possibility of sustained price pressures, according to Turner & Townsend’s latest UK Market Intelligence Report.
In the 12 months leading to April 2021, the cost of cladding rose by 5.2% and, according to the report, materials costs will continue to rise.
High demand for safer, compliant materials following the Grenfell Tower fire – along with Brexit’s impact on the supply chain – has already pushed up materials prices and this looks likely to continue with the introduction of new building safety regulations in the new Fire Safety Act (2021) and Building Safety Bill.
The report argues that the industry needs to be prepared to manage rising costs associated with new burdens and responsibilities on the sector around material sourcing, skills, design management and build processes.
While the report anticipates that some supply chain pressures will lessen in the short-term as the industry moves through Covid and Brexit-related disruption, it says that the longer-term regulatory changes “may come with an inflationary sting in the tail”.
The report also pinpoints a list of demand and supply side factors that have maintained pressure on costs since last year. The current inflationary pressure is being led by rising material costs as well as burgeoning sector demand.
Increased government investment is combining with deferred work from the pandemic, and generally improving states of the domestic and global economy to support the recovery of demand in the sector. Meanwhile, reduced manufacturing capacity, freight delays, Brexit legislation, and fragmented global supply chains are pushing up costs and tightening supply chains.
Turner & Townsend forecasts that infrastructure tender prices will rise from 1% in 2020 to 5% by 2025, with a firm pipeline of work backed by significant government investment.
Turner & Townsend UK cost management managing director Martin Sudweeks said that higher costs and tender prices are something the industry “will need to monitor and adapt to”.
He added: “But this must not become a reason to prioritise cost over quality – when it comes to factors like building safety, meeting the highest standards is non-negotiable. What matters is that businesses are prepared, and consciously control their costs and manage their risks.
“This means close collaboration and an intimate knowledge of your global and local supply chains. Now is the time to be decisive, and to listen and communicate with suppliers and contractors at every level – keeping a firm grip on the dynamics within the market.”
Turner & Townsend safety, health, environment and quality director Nattasha Freeman emphasised the impact of the new safety regulations.
“The Fire Safety Act 2021 has already set in motion a raft of changes and further, more wide ranging, amendments are to be expected when the Building Safety Bill comes into force,” she said.
“Adjusting successfully to such changes will take collective effort across the supply chain and place tough demands on the sector’s already stretched safety specialists. The cost implications could be significant, but investing in preparation, adopting new processes to evidence, compliance and upskilling, will help mitigate some of these expenses.”
In its June Construction Review Glenigan found “reasons for optimism” for the industry, with project starts up 5% on March to May 2021, and up 49% on lockdown disrupted 2020. The value of contract awards rose 77% on 2020 and 8% on 2019.
Meanwhile civil engineering starts totalled £3.24bn, 26% up on the previous year and 63% higher than two years ago. Growth was largely skewed by major projects and main contract awards increased 62% against the previous year.
However detailed planning approvals fell 69%, despite underlying approvals being 27% higher than the previous year.
Infrastructure starts climbed 27% against the preceding three months to stand 29% up on a year ago.
Glenigan’s economic director Allan Wilen said: “Encouragingly, further growth is expected with both main contract awards and detailed planning approvals strong. However, supply and cost of materials may dampen the pace of growth for civils and the wider sector. Further progress will be needed over the summer to bring construction activity back to pre-pandemic levels.”
Department of Civil Engineering https://www.ibu.edu.ba/department-of-civil-engineering/