CEF Managing Director looks beyond the Materials Crisis

Mark Spence, Managing Director of the Construction Employers Federation, welcomes Government support on materials costs and looks to the future of the industry...

Mark Spence looks beyond the materials crisis.

The industry has spoken, and, to be fair, the NI Executive has heard, listened and produced a set of principles for assisting construction through this tumultuous period.

Since raising the issue of rising costs at the Procurement Board in February, CEF has been pushing the materials agenda in the media and across devolved government to the point where in the closing days of June a draft paper was shared by the Department of Finance as an enabler to public sector clients to begin to entertain the claims of contractors. The final Procurement Advisory Note 01/21 with some, but not all, amendments was released with fanfare in late July by the Finance Minister Conor Murphy, whose very considered statement recognised the stress the current situation places on contractors.

Minister Murphy said: “Covid-19 has had a huge impact on the availability of construction materials, with global demand, product shortages and delivery delays leading to market volatility and increased prices.

“Government contractors are experiencing escalating costs and delays in getting materials which they could not have foreseen when they tendered for government work. I have listened to the concerns of the construction industry and want to do everything in my power to ensure there is no risk to the completion of important projects.

“I am pleased the Executive has agreed my proposals to make provision to manage delays in supplies and to include mechanisms in existing and new contracts to make allowances for inflationary prices. This will provide vital support to our construction industry which will play a key role in our economic recovery while also ensuring important government projects such as schools, hospitals and infrastructure projects are delivered.”

Crucially, this PAN was endorsed by the Executive, so every Department and the CoPEs that sit under those Executive Ministers is obliged to implement the Note. This is a key difference from previous guidance notes issued by Dept of Finance and gives contractors a consistency across government that has often been elusive.

Is PAN 01/21 comprehensive and does it fully restore the costs absorbed to date by contractors? No. But it does represent the most progressive stance taken by any government in these islands to date. Scotland produced a Policy Note at the same time for its government clients which is less specific about costs and focused more on conflict avoidance. There has been no similar guidance produced to date for contactors in England and Wales.

CEF welcomes this vital lifeline for local contractors who for many months have been shouldering the escalating burden of unforeseen global price increases and material shortages whilst ensuring public works continue to be delivered.

We particularly welcome the Minister’s recommendation for all new government contracts to provide protection from such external factors in the future. NI construction employers are essential partners to the Executive in delivering every aspect of public services and have continued to do so throughout the pandemic.

These proposals start to address the previous imbalance of risk in taking on government contracts and can assist in ensuring continued delivery of public investment in infrastructure. The PAN will be reviewed in September to gauge how effective it has been and for how much longer it should apply. We will be collating feedback from the industry in the intervening period.

Beyond the current situation, we are all now beginning to look ahead to what we believe may be a new plateau of input costs, not reverting to what has been before, but stabilising around a higher level. This new, higher level of costs will inevitably lead to a reduction in the number of opportunities that can be tendered within a finite and stretched public purse.
Already the Ulster Bank PMI for July has shown a decrease in output and opportunities, and strangely even a drop in employment in a sector that is struggling to fill vacancies.

Certainty is the desired position for all businesses, but it is improving efficiency in procurement by clients and delivery by contractors that will make the difference between an industry that just survives and one which can actually lead the recovery for NI post-pandemic. The commercial market continues to limp along and uncertainty around costs has shelved some investments and delayed others. Domestic residential improvement works are slowing as summer passes and staff return to office working and house sales are gradually slowing from a frantic pace in early summer.

We have one more hurdle on the horizon in the form of the supply issues that may arise from conformity marking legislation that will require GB manufacturers who wish to sell into NI to gain either the CE or the new UKNI conformity in addition to the new UKCA. This will add an additional layer of bureaucracy and cost enough to further limit choice. It is also unclear at this point where the burden of monitoring will fall between contractors, suppliers and statutory authorities.

On a positive note, construction remains a core economic industry in NI, central to all public investment in society and, as the Ulster Business Top100 recently showed, we can be significant contributors to export and job creation. It is also encouraging to see our industry continue to demonstrate diversity in the workforce, pursue practical measures for carbon reduction and deliver social value as integral objectives within ‘normal’ contracting.

The future of the industry is its people and we are gradually but relentlessly addressing the staid and frankly unattractive image of construction for a new generation who should instead be made aware of modern, flexible and exciting opportunities in an industry with a huge range of possibilities.

Maybe it is in the hardest of times that change becomes necessity and the industry takes another leap into its future.

For more information on the Construction Employers Federation,
T: (028) 9087 7143
E: mail@cefni.co.uk