There are many risks to consider in construction, none so pressing as those that Brexit and the COVID-19 pandemic highlighted. But the industry has been known for failing to plan ahead for possible risks. Not all risk can be foreseen, but for issues that can be mitigated against, it is vital in the current climate to plan for the future while reducing risk.
Construction has recently seen a lot of pressure on material lines, particularly with the high metal index, global shipping constraints and price increases impacting clients’ bottom line. Consequently, the industry has been hesitant but there have been signs that it is on the road to recovery.
The residential market is incredibly fast-paced, so the lack of materials has had a big impact. Other risk factors include the shortage of skilled labour, a retiring workforce and an inflation in house prices not seen since 2004. During the first months of the pandemic, many European labourers returned home and the older workforce, because of lockdowns, have had little opportunity to pass on their skills and knowledge to younger workers.
Innovate to mitigate
Businesses that are bouncing back quickly in the face of a skills shortage are those innovating to use less workforce and still offer the same output. There appears to be a general move towards modern
methods of construction (MMC) that use less labour in response to the steady move away of European labour. This was happening even before Brexit.
Any company wanting to innovate and future-proof their interests is finding that now is the perfect time to do this. The government is providing a wide range of initiatives to support the construction industry, including a super deduction policy, whereby you can offset your capital investment against your tax. This could also be the time to invest in MMC and building factories while it is cheaper to invest in.
To mitigate the costs of current projects, it’s important to look at what stage the project is in. It may be possible to change elements of the design, even at a late design stage, by switching materials. It’s also vital to consider using fluctuation clauses, but these need to be in the contract to start with. These can mitigate any significant changes in prices.
Most important is efficient supply-chain management, especially early engagement and planning for the future. Where there are delays in supply and delivery, proper planning can account for this delay. Issues that need to be addressed at the same time are stockpiling and fix pricing. Again, early engagement with suppliers is key. The advantage of having good relationships with the whole of the supply chain can alleviate any issues around competition for materials.
The car and white goods industries have an advantage over construction in that they know years in advance what materials they need, and suppliers will prioritise regular customers rather than occasional ones. Construction is less likely to be able to look as far into the future at the moment, so for the industry to be more resilient, we will need to see more forward planning, especially as we enter a period of higher economic volatility post-Brexit and Covid.
Risk management and ownership
Risk has historically been with contractors, contributing to unsustainable profitability levels amongst main contractors in particular. For example, in 2017 the average profit margin for the top ten main contractors was -0.5% - this is not a sustainable industry model, and we are seeing pressure for more sharing of risk with clients. Some contractors are initiating this already by applying risk clauses in their contracts.
Risk is something that could be diminished with better collaboration, sharing the burden, early engagement and openness throughout. It’s not an easy thing to do, but it’s also not impossible.
“Businesses who are bouncing back quickly in the face of a skills shortage are those innovating to use less workforce and still offer the same output.”
There exists a delicate balance of responsibility to be made here. It’s important to look at what risk you are pushing down the pipeline, while also checking the sustainability of the risk for your pipeline. Are you checking that your main contractor and suppliers can deal with that risk?
Key steps to take to lessen risk
Steps to take to prevent potential constraints in the future include improving data collaboration and sharing information, especially on price fluctuations; better collaboration and early engagement with your supply chain; improving contractor risk by better planning and increasing profitability; and investing in MMC to answer the issues of forward planning, labour shortages and quality control.
All this will take time to build, but the benefits in profitability and quality will reap rewards for contractors and clients alike. It’s important to start making these changes now. We weren’t prepared for either Covid or Brexit, but if we take lessons learned from them and implement consistent planning throughout, we can mitigate risk for the next crisis.
With more collaboration and supply chain engagement come lower risk.
“With more collaboration and supply chain engagement come lower risk.”
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