Put up the wind break

Construction activity continues to increase, with 52 percent of respondents to our survey saying that tender opportunities had increased in the past quarter and 43 percent forecasting that tender opportunities will increase over the coming quarter. This continues a trend of increased optimism over the course of the year.

Whilst the outlook for construction is more positive than earlier on in the year, the industry continues to face significant challenges. Materials issues continue and the Department for Business, Energy and Industrial Strategy’s (BEIS) ‘All Work’ material price index increased by 24.1 percent between February 2020 (pre-pandemic) and August 2021.

Wider societal issues such as the shortage of heavy goods vehicle (HGV) drivers and rising energy prices impact construction. Of contractors who responded to our survey, 83 percent said that delivery issues are affecting their projects. It's also noted that surcharges for energy and transport are now starting to be seen from suppliers.

While 91 percent of contractor respondents to our Autumn survey said that site productivity is between 61-100 percent, only 41 percent said that productivity is between 81-100 percent, compared to 70 percent in our Summer report. This fall aligns with Office for National Statistics (ONS) data which indicated a reduction in construction output in July and August 2021, with anecdotal evidence received suggesting that this is due to the rising prices of raw materials such as steel, concrete, timber and glass, as well as the difficulty of sourcing these materials for jobs. There is concern regarding rising COVID-19 case numbers and 91 percent of contractor respondents said that the Construction Leadership Council’s (CLC) Site Operating Procedures and Branch Operating Procedures continue to be followed on their projects despite them becoming reference documents from July 2021 with the easing of restrictions.

Labour issues have become more apparent over the last quarter, with 81 percent of contractor respondents saying that they had experienced issues with labour supply and 93 percent saying that they had observed increases to labour rates in their region in the past quarter. ONS data shows that construction vacancies have continued to increase with both the highest increase between reporting periods and the highest number of vacancies, 43,000, occurring between July and September 2021.

There is concern that these pressures will impact the government’s ‘build, build, build’ agenda, which is needed to support economic recovery following the pandemic and help the UK meet the necessary transition to meet net zero carbon (NZC) targets. With Glasgow the host city of the 26th UN Climate Change Conference of the Parties (COP26), all eyes are on the UK to lead the way. However, 75 percent of respondents to our survey felt that ongoing materials issues would have a detrimental impact on the ability to build more sustainably.

Our recent LinkedIn poll clearly demonstrated the conflict between the need to transition to lower-carbon products and financial viability; 47 percent agreed that the red diesel subsidy for off-highway construction machinery should be ended as planned in April 2022, but 40 percent of respondents thought that the end of the subsidy should be postponed due to the level of commercial pressures contractors are facing.

Weathering the storm examines the construction industry’s journey over the past quarter, looking at the impact of inflation. We address contractual, tendering and claims scenarios that stakeholders may face, and look ahead, sector by sector, giving an account of market activity, risks and opportunities.

With 48 percent of survey respondents seeing the issues with materials/products supply continuing to mid-2022 and 31 percent thinking that the issues will go on for longer, these challenging conditions will undoubtedly continue for the remainder of 2021 and into 2022. Our teams located across the UK remain your constant advisors to support your growth. We hope Weathering the storm will prove a useful guide to aid your decision making as you move ahead through the coming months.