UK construction clients need to maintain close visibility throughout all levels of the supply chain as the industry focuses on getting back to work, according to Turner & Townsend.
The company’s latest UK Market Intelligence Report warns clients to adopt agile strategies and remain alive to the risk of supplier insolvency, material shortages and contract liabilities as the industry prepares for an easing of lockdown restrictions.
Through analysis of past recessionary data alongside the most recent forecast from the Office for Budget Responsibility (OBR), Turner & Townsend projects that tender prices could deflate through to 2022 Q1 before inflating thereafter.
This hypothesis – tracking trends seen from comparable ‘shock’ recessions – uses tender price performance during the 1990s as an indicator of the largest reduction in tender pricing during a recession.
However, the report cautions against assuming a firm forecast, pointing to the supply-led nature of the current Covid-19 crisis being ultimately different to the demand-led nature of previous recessions.
Despite inevitable reductions to demand and Brexit uncertainty further paring back investment, there is potential for inflationary pressures to counterbalance deflation. Demand may not reduce across all sectors of the construction industry, with infrastructure, defence, health, life sciences and logistics expected to show strong growth.
Furthermore parts of the supply chain could see reduced capacity from insolvency, lower on site productivity due to social distancing measures and disruption to domestic supplies and imports of construction materials.
In response to the uncertainty, Turner & Townsend is advising clients to support supply chains and increase scrutiny for signs of distress, being prepared to move quickly to change strategy and protect projects. The latest UK report includes practical steps that clients can take to increase visibility of and monitor programme performance.
Paul Connolly, UK managing director of cost management at Turner & Townsend said: “As the UK construction sector becomes one of the first industries to emerge from lockdown, much will depend on wider market confidence. While OBR reporting points to a severe downturn as one scenario, robust demand going into the pandemic and government backing for key projects could act as a catalyst for parts of the sector to recover.
“What is clear is that clients need to support supply chains and assess where vulnerabilities lie, allowing for project plans to adapt and advance under a ‘new normal’ environment.”