Inflation: Limiting the impact on your construction projects
Throughout an extended period of economic uncertainty, public sector procurement has continued to serve as a catalyst for growth in local communities. It is also clear that current market conditions will place sustained pressure on project performance, specifically, the impact of inflation and the challenge it represents for both clients and the delivery marketplace.
To date, SCAPE delivery partners and their local supply chains have performed admirably in managing the pressures related to the cost and availability of labour, materials, fuel and energy.
However, it’s clear that current economic conditions and the effect of the ongoing conflict in Ukraine have exacerbated these issues, meaning that industry operators are less able to provide long-term certainty on input prices and delivery times.
According to BEIS latest figures published April 2022, costs for some critical buildings materials are climbing to record highs. For example, in February 2022, the costs for rebar had increased year on year by 44%, fabricated structural steel by 36% and a 45% increase in particle board. Imported plywood has grown by 29% and pre-cast concrete products have grown by 26%.
The reality of these pressures cannot be ignored. Nor can they be passed to contractors to absorb or mitigate against after the event. It is entirely unreasonable to ask a contractor to commit to sustained fixed price arrangements in this climate, however there are steps that can be taken to confront and limit the impact of these pressures.
In 2021, all SCAPE projects were delivered to both time and budget. This was achievable through our unique collaborative model that prioritises the earliest possible engagement with delivery partners. In order to maintain this performance, we are committed to helping you to confront these market conditions as soon as possible. So, we recommend that you consider the following steps to avoid any unnecessary and difficult conversations as your project progresses:
- Early engagement is fundamental to discuss the details and potential pressures that might lie ahead in delivery. This must be powered by an open and honest conversation, that will help to surface any potential challenges early and as a team, locate the best-fit strategy to move forward.
- Consider the specifications of your project and reflect upon the realities of the market forces to which you are exposed. Are there alternative approaches you could take that would reduce your exposure to these risks but still achieve the same results you seek? Our teams will support you in understanding how other public bodies have responded to similar challenges.
- Order any critical materials as early as possible. The upward trend of materials prices is unlikely to plateau for some time. As such, it would be entirely pragmatic to consider ordering at a programme level at your earliest opportunity to limit your exposure to future cost inflation.
- Consider the appropriate allocation of risk. In your early engagement, we would advise that you take an open and transparent approach to risk, the likelihood and the impacts of these risks and consider carefully where and how each risk will be best managed as a team. Please also bear in mind that your Delivery Partner cannot shoulder sole responsibility for addressing elements that are outside of their control.
By maintaining our commitment to collaboration and the supply of clear, practical advice, we will do what we can to help you mitigate the challenges created by inflation and ensure your projects deliver the performance you expect.
If you are concerned about the impact of inflation on the delivery of your project, please do not hesitate to speak with your SCAPE project lead who, alongside our highly experienced delivery partners, will help you to find the best way forward.
Source: BEIS dataset (Accessed 6th April 2022)
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