UK construction clients should swiftly finalise and activate their risk management strategies before the end of the Brexit transition period, according to Turner & Townsend.
The global professional services business’ latest UK Market Intelligence Report highlights the negative impact that Covid-19’s second wave and Brexit uncertainty is having on recovery in the construction sector, with a V-shaped recovery no longer likely.
The report recommends that clients must act now to avoid a disrupted start to 2021. Regardless of whether the UK secures a deal or not in the coming days, Turner & Townsend warns of the risk of import delays and cost increases as a new trading relationship with the EU beds in.
The reports calls for clients to map out and scrutinise detailed risk management plans and other provisions for business continuity in the final weeks and days of 2020. This includes understanding critical EU dependencies on construction programmes – assessing how reliant the supply chain is on labour from overseas, and also what proportion of construction materials and components are sourced from the EU.
Tariffs and checks imposed on EU imports will push up costs and cause border delays, while securing labour supply may require greater preparation and forethought to comply with new overseas recruiting and immigration policies. Clients will need to agree how these risks are shared with their supply chain and ‘wargame’ different scenarios to identify potential pinch points.
While the winter resurgence of Covid-19 and renewed lockdown restrictions are placing further strain on demand, the impacts of the end of the transition period could offset some of the deflationary pressures on pricing. Turner & Townsend forecasts negative tender price inflation of -1.0% for real estate in 2021, as growing competition in the occupier and commercial sectors puts pressure on margins. In infrastructure, government spending on defence, transportation and roadbuilding is seeing more secure pipelines of work, and tender prices are forecast to increase 1.5% next year.
Paul Connolly, UK managing director of cost management at Turner & Townsend said: “The construction industry has been relatively resilient during a turbulent 2020. As we make our way out of the current downturn, the speed and strength of the sector’s growth demonstrates that it will be one of the core drivers of economic activity.
"The upcoming end to the Brexit transition period with Covid-19 related restrictions still in place in the UK and around the world, leaves significant uncertainty left to be navigated as we move into 2021. Clients must act quickly now to ensure that impacts to continuity are mitigated. This will require an in-depth assessment of existing risk management plans and continued close collaboration with every level of the supply chain.”