Winter 21/22 UK Market Report
Tender, contracts and claims
In line with our reports in 2021, confidence has continued to return with increased levels of tendering activity. Over half of contractor respondents said that tender opportunities had increased over the past quarter and 50 percent see the number of tender opportunities increasing at the beginning of 2022. Of non-contractor respondents, 45 percent see tender opportunities increasing in the first quarter. This long-term trend reflects similar data, such as the IHS Markit/CIPS UK Construction update published in January 2022 which noted higher levels of work recorded for 19 consecutive months.
Survey respondents indicated that the top five sectors for current tender opportunities are:
- Residential including student accommodation (40%)
- Public sector (34%)
- Health and care (29%)
- Energy and infrastructure including aviation (26%)
- Commercial offices, refurbishments and fit-outs (26%)
Pressures and volatility in the market are making contractors more selective in the opportunities they pursue, and it is important to engage early with contractors to ensure that they are aware of the project and/or have the capacity to tender. Design information and tender documentation should be robust and well-considered and changes during the tender period and post-tender should be minimised. Steps also should be taken to ensure that risk is correctly allocated to the party best able to manage it. This may mean sensible conversations regarding risk sharing between contractor and employer, depending upon the context and the length and material make-up of the project.
Analysis undertaken by nPlan, a company that uses machine learning to identify potential delays, has shown that nearly nine in 10 large construction projects (over £100 million) are behind schedule following disruption from the COVID-19 pandemic. Almost a quarter are shown to be more than 250 days delayed, and in comparing programmes that were completed before and during the pandemic, it showed that delays had doubled.
Costs associated with prolonged programmes, additional costs for COVID-19 precautions and increased material price costs may see the supply chain under substantial pressure, particularly where fixed prices were agreed before significant issues emerged. There remains concern that these pressures may lead to a more contractual approach being taken by contractors, sub-contractors and suppliers on some projects to recoup margins/reduce the burden of additional costs.
The effect of pressures on companies is demonstrated in the latest release from The Insolvency Service, which recorded 1,486 registered company insolvencies in December 2021. This was 20 percent higher than the number registered in December 2020 and 33 percent higher than the number registered in December 2019 (pre-pandemic). Due to increased costs and debt burden, it is thought by many that construction faces a decisive start to the new year, with an uptick of construction-related insolvencies since September 2021 when government support measures such as the Coronavirus Job Retention Scheme ended. Chris Davies, DRS Bond Management director, said to Construction News recently “There are an awful lot of companies up and down the supply chain that are just about managing”.
From difficulties finding replacements in order to finish projects to causing an imbalance in the market, the impact of insolvencies can be enormous. The Construction Playbook acknowledges this, and ‘Resolution Planning and Ongoing Financial Monitoring’ is included as one of 14 key policies, recognising that ‘although major insolvencies are infrequent, we need to be prepared for the risk to continuity of critical projects posed by the insolvency of key suppliers’.
