October 2021 construction industry

October 2021: The current state of the construction industry

20th October 2021   |   Jamie Barrett   |   Reading Time: 6 minutes

With the last quarter upon us, what has 2021 meant for the construction industry?

As we’ve discussed in previous articles, there can be no doubt that the construction industry has enjoyed a buoyant marketplace in the wake of the Covid-19 pandemic. With lockdowns ending there was a sense of renewed optimism and confidence both within the industry and for clients. There was urgency to move forward with stalled projects and to get new ones off the ground, leading to a sharp upturn in construction output. 

As time has passed though, and as we have seen in many other areas of day-to-day life, the inevitable impact of supply v demand has slowed the construction industry’s recovery. Earlier this month the ONS reported a further reduction in construction industry output, which has been in steady decline since April (with the exception of a small increase in June). 

As we head into the last weeks of 2021, what does this mean for the construction industry and what can the industry do to change the direction of the industry?

Challenge 1: Post Pandemic Reality

It’s fair to say that when the pandemic first hit and businesses were ordered to work from home, all industries went through a rapid period of extreme change. In fact, many workplaces implemented home working processes in a matter of weeks that would have taken years in normal times. 

More recently companies have had to adapt again, introducing new ways of working with many choosing to implement hybrid working arrangements. For construction projects where many different companies are often involved, the sheer variety of working patterns and practices being applied by each company has inevitably meant projects are being delivered differently.  

Remote meetings and collaboration can easily be considered a double-edged sword as the ease of meeting remotely has, in some cases, reduced the appetite for meeting on site. In turn, this can impact on the ability for all parties to see project progress first-hand and hinders the natural collaboration and communication that happens when people are physically in the same place. 

And, of course, it’s not just about the professional teams. Onsite contractors and subcontractors have had to adapt to increased safety measures and challenges such as maintaining social distancing in the sometimes confined spaces within buildings under construction, or working in smaller teams.

It should also be remembered that the practical changes to working practices are in addition to the enduring uncertainty around bubbles, lockdowns, self-isolation requirements and so on. Whilst we have seen many of the restrictions being lifted in their entirety, the impact of them will take longer to overcome. People have different appetites to risk which will continue to affect the decisions made by both individuals and companies during the coming months. 

The way ahead

Managing projects and delivering professional services for construction projects in the current climate requires all parties to be pragmatic and solution focused. Over the years the construction industry has become far less adversarial than it once was. Now, more than ever, there is the need for contractors, consultants and clients to  work together to achieve project goals. 

Challenge 2: Contractors are too busy

The restart of projects that stalled during 2020, increased client demand and a desire to ‘fill the order books’ in order to recoup lost income means that many contractors now find themselves overstretched and over committed. 

Many are too busy juggling their current workloads to tender for future projects, which will adversely impact their future pipeline. Meanwhile others are unable to provide a responsive service which means that, if projects hit bottle necks, they lack the agility to adapt their delivery programme in order to keep projects on track.  

Normal market forces means that when demand is high but supply is low, prices will inevitably increase – (before taking account of any increases to goods or materials). This means that clients are facing higher tender prices which, in turn, puts their budgets under pressure and the future of some projects hangs in the balance. 

In combination this is a precarious situation for the construction industry.

Alternative procurement routes

Considering alternative procurement routes for your project is an option to tackle this particular challenge. For example, construction management offers an attractive alternative to engaging an expensive and over committed main contractor to deliver your project. 

Construction management offers financial gains for the client which will help to offset increased costs of goods and materials. And, due to the way construction management projects are programmed, you and your appointed Construction Manager, have greater control over delivery timescales. 

Challenge 3: Longer Lead-in Periods

Currently, projects planned before March 2020 are suffering the impact of reduced availability of construction materials. Some of the worst affected materials are steel, cladding and timber. The longer lead times were not anticipated during the programming phase and projects are having to be reprogrammed – often with uncertainty over when materials will be available.   

When you factor in external challenges such as the shortage of HGV drivers and rising fuel costs, project overruns are unavoidable and will further impact the capacity of contractors and subcontractors to move onto pipeline projects, resulting in a ripple effect of delays.

Planning ahead and reducing risk 

A worldwide shutdown of manufacturing means it was inevitable that we would see supply chain challenges arising once the construction industry reopened. 

Contractors will be actively seeking to reduce their own exposure to the increased cost of goods and materials. This means that clients have a pivotal role to play in reducing delays. Letters of intent from the client will enable the early placement of orders, even before contracts are finalised as will making prompt payment for materials off site. 

Challenge 4: Rising Materials Costs

As we touched on above, in addition to longer lead times, pricing volatility and the rising cost of materials are increasing project risk profiles. In some areas, steel for example, prices are increasing so rapidly that quotations are only valid for very short periods – in some cases, as little as 24 hours. 

Earlier this year due to a lack of data, RICS suspended the publication of some subsets of the TPI used by cost managers to forecast project finances. In addition, in August, the RICS published a five year BCIS forecast which indicated that tender prices were under pressure from the combined forces of sharply rising material prices and longer lead times. 

Coupled with the general warnings around inflation, logistics and transportation issues and rising production costs, cost uncertainty is becoming a significant area of concern across the construction industry. Cost managers are wary of using the standard TPI due to market fluctuations and the risk of inaccurate forecasts. 

Prudent cost management is essential

Robust cost management processes are critical to project delivery and budget control in the current climate. The Construction Leadership Council is calling for a return to fluctuating cost contracts, and the introduction of new contract clauses to enable cost increases to be shared, as it becomes increasingly clear that price rises cannot be absorbed by contractors and must be passed on to the client. 

Cost managers have a key role to play in keeping a keen eye on budgets as projects progress and working with the wider team to identify efficiencies wherever possible. Value engineering exercises will help clients manage their budget in an uncertain period. Although care must be taken not to compromise on build quality to prevent a long term detrimental impact on ROI. 

Challenge 5: Skills Gaps and Shortages

Skills gaps have been a challenge for the construction industry for many years with various initiatives seeking to turn the tide. On a general level, there is a shortage of skilled and experienced tradespeople, and even professional roles such as Quantity Surveyors and Building Surveyors are in short supply. 

The construction industry is well known for being physically demanding and, historically, has failed to support its workforce as well as other industries. This means that less young people are entering the industry leading to an ageing workforce. 

Combine these factors with the effects of Brexit (a loss of skilled foreign workers) and the pandemic (which has seen people have the time to reflect and reassess their personal situations, seeking to achieve better work/life balance), it’s clear that the construction industry now has an urgent need to address skills gaps and shortages in order to increase productivity.

Improving education and support

Apprenticeships & training schemes, improved H&S standards and the initiatives of many leading construction firms to make construction an appealing career choice for young people is a great start. But the industry must go further. 

Relying on the efforts of a relatively small proportion of the industry will not have the necessary impact on the considerable skills gap and shortage facing construction right now. New people take time to learn and gain experience which means that young people entering the workforce now will make a difference in years to come. 

Right now, the imperative must be on improving the retention of experienced construction workers. 

An industry-wide commitment to create better working conditions across the board might sound like a pipe dream. But if the industry is to thrive, it’s a necessity. 

How Evolution5 can help you?

Evolution5 is a professional consultancy offering construction management, project management, quantity surveying, employer’s agent, contract administration, principal designer and CDM advisor services for projects across London and the South East.

Our agile and responsive team is well equipped to deliver innovative solutions with particular experience of complex projects. 

If you have a construction project and would like to explore how the team can help you, click the button below or call 023 8040 5073.