Materials shortages and cost increases threaten viability of construction sector
The outworkings of the current material shortages and price increases in the sector mean that construction businesses are reporting once in a generation cost increases and pressures that, if left unaddressed, threaten sustainable businesses and, ultimately, jobs and livelihoods.
These are the key findings of the Construction Employers Federation State of Trade Survey covering the first six months of 2021. The survey was conducted in late June and contained the responses of 80 Northern Ireland-headquartered construction firms with a combined turnover of £1.5bn per annum. The results reflected an industry that, after beginning to recover from the worst effects of the start of the pandemic, is now reeling from unrelenting cost increases and fluctuating supply side issues.
The key findings include:
- 30% reporting risk to the survival of their business as a result of materials shortages and unsustainable cost increases
- Without government action on costs, 89% are less inclined to bid for public contracts. 48% of which significantly less inclined, 4% withdrawing
- All respondents impacted by rising material costs. 78% seriously impacted, 38% critical
- 98% reporting material shortages. 69% of which serious, 30% critical
- Materials in shortest supply: Timber; Steel; Plastic/pipes; Roofing; Doors/windows/glazing
- 71% are reporting lower profit margins than 2019/20
- 75% are operating at full or nearly full capacity
Mark Spence, Managing Director of the Construction Employers Federation said of the survey:
“The results of our latest State of Trade survey paint in very stark terms how the period since Christmas has seen a significant downturn in business sentiment among our members.
“While the immediate impact of the onset of the pandemic in March 2020 was tough, it is the challenges on materials supply and cost increases in the last number of months which are bringing to the fore much more fundamental questions about business survival.
“This is exacerbated by the even more worrying trend that there does not, at this stage, appear to be a forecast of costs falling back to any sort of ‘norm’. This is a vital concern for future pipelines of public sector work as all budgets previously agreed will no longer give cover to the procuring authority to commit public funds.
“In our urgent discussions with government, we have requested that they speedily consider these matters to allow pragmatic decision making and prevent a seizure in our local pipeline of public contracts. We have also urged the inclusion of inflationary mechanisms in all new contracts to provide cover for such situations now and in the future.
“This is because the procurement model upon which we have relied upon has been shown to no longer be fit for purpose - contractors in GB have contractual remedies in their contracts which NI procuring bodies have seen fit to delete or chose not to include. CEF has demanded their reinstatement and a more robust contractual model to take us forward, future-proofed for any future ‘unforeseen’ series of circumstances. We are working together to manage a scale and range of risks that only eighteen months ago would have seemed fanciful and unnecessarily dramatic.
“While we await outcomes on this, for those engaged in commercial work the issues are equally threatening and much more dependent on individual relationships with clients and strength of contractual terms. For contractors carrying out home improvements or facilities management, or those in the supply chain of larger contractors, the issue is how to deliver on prices given in good faith and having to rely upon working in partnership and under sub-contracts to ensure viability of the work being undertaken.
“This is a moment of immense challenge that we can already see far eclipses the one-off price increases after the 2016 Referendum and the immediate impact of the onset of the pandemic combined. While the reasons for it are many and varied, the on-the-ground reality is of a sector that urgently needs supported in order to remain sustainable”.