Of contractor respondents to our Spring survey, 78% said they had declined to tender a project due to the selected procurement route or tendering strategy and conditions remain challenging.

There is little appetite for single-stage Design and Build, particularly for high project values and longer projects with high exposure to market conditions.

Feedback from main contractors is that they struggle to get the supply chain to price Design and Build projects without quantities. Quote validity remains a challenge.

Some contractors also raised concerns about an increase in pre-qualification processes involving large amounts of information and requiring time allocation of personnel as they request project-specific feedback on cost, programme and procurement.

Others raised that a limited pipeline of opportunity follows some pre-qualification processes and that, at a time when skills are in demand, a quick alignment and consideration of how to streamline information is required.

The Construction Innovation Hub has developed the Value Toolkit to support the Construction Leadership Council’s Procuring for Value report, assessing suppliers by best value rather than the lowest price.

Claims

Only 35% of respondents to our Summer survey had made or seen claims concerning the Russia-Ukraine war, a figure up just 1% from our Spring report. However, many are expecting to receive them due to the challenges caused.

The volatility arising from the crisis has aggravated issues of the COVID-19 pandemic. Although much of the supply chain has become savvier regarding cost escalation, the significant increases will cause challenges, particularly for those delivering projects negotiated before the issues emerged.

Some contractors take a more contractual approach on projects to recoup margins/reduce the burden of additional costs.

There is a mixed picture from recent data. A report by EY-Parthenon highlighted that the number of profit warnings by FTSE-listed construction and material companies in the first half of this year matched the current record low of 8%.

Figures from the Insolvency Service show that whilst insolvencies remain high, the number of construction firms collapsing fell 9% in the month to May, 349 in the month, down from 384 in April — significantly less than the recent peak of 419 insolvencies recorded in March.

However, Equals Money has warned that one in five manufacturing and construction companies are concerned that they will not survive the current conditions. Up to 90% of business leaders reported cashflow issues stemming from supply chain disruption, energy prices, interest rates and late payments.

Some contractors have implemented more frequent pay regimes to protect the supply chain. Mace recently told Building magazine that it is paying some of its smaller subcontractors, such as bricklayers, dry liners, painters and decorators, fortnightly. Sir Robert McAlpine also started making weekly payments for some of its supply chain, expressing the need for the industry to “support each other”.

Building magazine also reported that developer Capital and Counties has begun to review its terms and conditions to see whether these can be improved to create better relationships and enhance performance.

Overheads and profit

From our recent surveys, respondents’ perception is that overheads and profit levels are generally steady.

The increased use of index linking, provisional sums and fluctuations clauses for volatile materials is helping to protect margins. Typically, when these are agreed, overheads and profit levels are in the normal range.

For projects which contractors perceive to carry more risk, higher risk allowances are built into tender prices. This is not only by the main contractor but also the supply chain, who try to hedge their position on the pricing of materials and products.

Mitigation steps