Infrastructure investment is crucial to the UK’s economic recovery, but it must be delivered effectively in the light of current challenges, says Turner & Townsend’s Patricia Moore.
The recent, twin announcements from the prime minister and the chancellor of the exchequer highlight the urgency with which the government is trying to kickstart our economic recovery. The complex set of challenges that the country faces though means a quick fix is a tall order. Addressing the post-Covid / pre-Brexit economic uncertainty, deep-rooted regional inequalities, an ongoing housing crisis and an ever-pressing climate emergency, will be no simple task.
The prime minister’s levelling-up agenda, which the recovery programme promises to “double down” on, has gained even greater importance than when it was stopped in its tracks by the pandemic back in March. This renewed agenda again answers the calls made by the UK2070 Commission in its final report, published earlier this year, to address the country’s stark regional inequalities. The commission will now play a vital role in scrutinising progress on levelling-up.
The decisive action outlined by the government is welcome though, so too is putting construction front and centre of this recovery. Infrastructure investment is a critical lever to pull at this time but the fleeting mentions of large-scale infrastructure projects in both speeches was notable. It is encouraging both for our industry and our communities, that the focus now is on regional projects and plans – local transport networks, new schools and hospitals, decarbonising public buildings and opening up brownfield sites for development.
Yet, whether buildings or infrastructure, the full potential of investment in communities via construction projects will only be realised if they form part of a co-ordinated plan, a national spatial plan, with strategic powers for planning and delivery at a regional and local level running alongside this. The government is understandably keen to deliver recovery at pace and so it should be - but any recovery needs to be looked at in the context of this bigger picture, as well as in the reality we face here and now.
So how can we go faster and realise this recovery? Successful delivery requires a strong construction industry. Our recent analysis of the UK real estate sector showed that the pandemic has caused an additional 15% loss in productivity across commercial construction. These problems go beyond the challenges around social distancing on site – they are systemic, with global supply chains seeing significant disruption. The data shows that the added costs of the pandemic - £600,000 for a mid-scale 32-week project – wipes out the profit margins for most developers.
Given these low margins, guaranteeing delivery of the schemes mooted in Project Speed, and the retrofitting programmes announced by the chancellor, will mean supporting greater supply chain visibility to spot and solve problems before they impact timescales and costs. Improving cash flow is critical here and if we are to get the shovel-ready projects in the ground as quickly as possible, then the government will need to look at new ways to assure market liquidity.
"Improving cash flow is critical and if we are to get shovel-ready projects in the ground as quickly as possible, then the government will need to look at new ways to assure market liquidity."
In the early stages of the pandemic measures to expedite the procurement of equipment, goods and services provided a lifeline to the supply chain. The request for public sector clients to keep paying suppliers even where services were suspended was similarly impactful. We need procurement for infrastructure programmes to remain robust but straightforward so that bidding costs stay low, accelerating the speed to market.
To strengthen payment practices, we need government programmes to take the lead by demanding swifter payments and increased digitisation, moving away from traditional financial processes which only impede efficiency. This means documenting and tracking a suppliers’ financial position across the full course of a programme lifecycle.
However, the key indicator for the strength of the supply chain is always the predictability of the pipeline. The more government can do to get projects signposted and flowing into procurement the better. Delivering on its commitments in a timely way will do much for the industry.
Both the prime minister and the chancellor also highlighted the need to tackle the skills crisis. It is critical to support the supply of high-quality labour by investing in skills at every level, from classrooms through apprenticeships, to tech colleges and the new government-backed trainee programmes. Lessons must be learned from the dysfunctional apprenticeship levy in this regard, and this now needs to be put on hold or scrapped altogether.
The focus of the investment in these skills must be closely aligned with the capabilities the industry needs now and into the future. As we move towards more agile techniques for programme management and embrace modern methods of construction and innovative design, with a targeted use of offsite manufacturing, we cannot have enough talent in these areas. Pinpointing the investment here will hasten our economic recovery, evolve our project models and create what will be one of our greatest exports.
The challenges may be many, but this is a golden opportunity for our industry to accelerate and evolve in ways that might until recently have seemed years away. As the construction industry’s biggest client, we need government to think, reset, and help us drive that change. In doing so we will “build our way back to health”.
Patricia Moore is UK managing director at Turner & Townsend.