Materials Crisis

Mark Spence, Managing Director of the Construction Employers Federation, examines the impact of rising costs on the industry…

We need a new word. ‘Unprecedented’ no longer has the impact it once did and the recipients of various calls for action are growing weary of reading how this thing or that thing is unprecedented. 

Nevertheless, the outworkings of the current material shortages and price increases mean that construction businesses are reporting once in a generation cost increases and pressures that, if left unaddressed, threaten sustainable businesses and ultimately livelihoods.

Maybe we should start to adopt the clinical nomenclature and refer to ‘waves’ of crises for the construction industry?  We endured the first wave of Covid shut-downs, supply chain interruptions and introduction of ever-changing SOPs.  Last summer CEF negotiated local mechanisms with CPD to allow contractors to seek at least partial redress for the impacts of a global pandemic beyond our control.  This summer we are again working with CPD to deliver a viable mechanism to cover the current circumstances which are, if anything, more threatening to business sustainability.

We are now firmly in a second wave of unrelenting cost increases and fluctuating supply side issues.  In my interviews with the media, I have been careful to avoid the use of language such as ‘volatile’ costs, because that suggests there may be swings in costs, whereas to date the reality is that costs are moving in only one direction, upwards.  Having engaged with experts in these matters who build the BCIS indices, there is little certainty as to what the future holds and current forecasts show the rate of increases only starting to plateau in Q1 2022.  The even more worrying trend is that there does not, at this stage, appear to be a forecast of costs falling back to any sort of ‘norm’.  This is a vital concern for future pipeline as all budgets previously agreed will no longer give cover to the procuring authority to commit public funds. We have urged the Dept of Finance to consider the processes for derogation of responsibility in these matters to allow pragmatic decision making and prevent a seizure in our local pipeline of public contracts.  We have also urged the inclusion of inflationary mechanisms in all new contracts to provide cover for such situations now and in the future.

For those engaged in commercial work, a market already decimated by the pandemic, the issues are equally threatening and much more dependent on individual relationships with clients and strength of contractual terms.  For contractors carrying out home improvements or facilities management, or those in the supply chain of larger contractors, the issue is how to deliver on prices given in good faith and having to rely upon working in partnership and under sub contracts to ensure viability of the work being undertaken. 

Perhaps developers and housebuilders might be viewed with jealous eyes as having some opportunity to pass on additional costs to purchases.  However, despite a recently buoyant market, there is always a natural ceiling to house prices which we may be beginning to see, beyond which homebuyers cannot raise funding and leading to decisions having to be taken about continued viability of new phases.

No corner of the construction industry is untouched, suppliers and manufacturers are occupied with protocol bureaucracy and sourcing new relationships to address reduced choice as one in five GB suppliers have withdrawn from supplying NI, through either choice or ignorance of the protocol requirements.  This scenario risks becoming worse when conformity marking legislation 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 additional layer of bureaucracy and cost may be 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.

So what is the industry to do to protect itself in these uncertain times?  We are renowned for our resilience, perhaps too much so as we absorb the impact of various pressures that arise as part of daily business.  The current circumstances however are unsustainable for an industry that was left directionless by an absent Assembly for three years followed by a pandemic during which pipeline stalled and then resumed in bursts. 

The procurement model upon which we have relied upon has been shown to no longer be fit for purpose, contractors in GB have contractual remedies in their contracts which NI procuring bodies have seen fit to delete or chose not to include.  CEF has demanded their reinstatement and a more robust contractual model to take us forward, future-proofed for any future ‘unforeseen’ series of circumstances.  We are working together to manage a scale and range of risks that only eighteen months ago would have seemed fanciful and unnecessarily dramatic.

Ultimately construction is a core economic industry, central to all government investment in society and it is now time we were treated as equal partners for the betterment of the built environment.

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