Thank you to Ken Parkin at Construction Alliance North East for organising such a comprehensive summit on the materials shortage and price rises the construction sector is experiencing. It was an information-packed two hours but we have put together a roundup for anyone who missed the event on Tuesday 24^th May.

The big picture

The first speaker was Nick Boyle from the Builders Merchants Federation (BMF) who gave an overview of the supply lines feeding into the UK construction industry in 2022 and related product availability issues from the Construction Leadership Council’s monthly Product Availability Statement which is available to view in full each month here.

Briefly:

• Timber is generally in stock but certain types will soon cease to be available as they come from Russian sources.
• Cement is in stock but demand is high and longer lead times may reoccur later in the year.
• Roof tiles are still in high demand too with lead times ranging from 24-41 weeks.
• We have a UK deficit of bricks due to demand outstripping supply and are awaiting new facilities to ease this in 2023/4.
• Aircrete blocks have recently undergone supply chain restructuring which has had a positive impact on supply generally.
• Boilers/electrical systems are in intense demand and materials such as neon used in their manufacture primarily comes from Russia.
• Steel lintels are still in short supply but some global easing in availability is evident for steel overall.
• Road haulage is easing with record numbers of HGV drivers taking their tests so the driver shortfall has reduced from 100,000 to 65,000.
• Shipping rates have dropped 25% from the start of the year but sanctions on Russia are impacting global shipping and the container crisis is still creating issues in delivery schedules and unpredictability.
• Direct imports from Russia and Ukraine account for only 1.25% of UK building products but indirect exposure is likely to be far higher – the CLC is still assessing the overall impact of the conflict.
• Plastics are experiencing shortages in some areas
• Paints and Coatings are affected by raw material availability due to lockdowns in China and the war in Ukraine
• Insulation boards are becoming harder to obtain
• Tools, screws, fixings and sanitaryware are still subject to delays and volatile pricing due to shipping ports in China suffering lockdowns and subsequent bottlenecks.

In addition to these strains on the supply chains, rising energy costs are also impacting prices across the board.

Nick advises that we must adapt to this situation and accept it as “the new normal”, keen to communicate the idea that the industry must speak as one voice on this issue if we are to get through it and demand early engagement from clients in order to plan as accurately as possible.

Steve Wheller, Preconstruction Director at BAM Construction was also explicit in his description of materials price rises, presenting a series of graphs to show the increase in prices over the last two years and pointing out that firms are already unwilling to agree fixed prices, preferring to decline tender opportunities instead in this time of huge market uncertainty.

The consequences of rising prices

Speaking for the private sector, Neil Pickup from ASK Real Estate Ltd described how when prices rise, eventually viability is lost and projects are placed on hold. Historically this has turned inflationary markets into recessionary ones as contractors scramble to fill dwindling order books. Needless to say, the prospect of looming recession is on everyone’s minds and Neil gave the impression that the mood in the private sector is currently cautious at best.

What’s at stake

James Butcher of The National Federation of Builders was able to present the regional contractors viewpoint, making up as they do the vast majority of the NFB’s 600 members. He was unsparing on the risks to the industry of this worsening problem, pointing out that we are in for more disputes and costly contractual defaults arising throughout the chain. Quality will suffer as value engineering becomes more frenetic. Projects will be deferred or cancelled – already, some of the NFB’s members are halfway through jobs that they can’t afford to complete and are looking at the costs of defaulting. Inevitably, some SMEs will fail and cost the local economy income, jobs and investment – essentially financial instability across the construction sector is not a good situation for anyone.

Work together

James and the NFB’s key message is ‘Work Together’, a call for all parts of the construction industry to be honest with each other and work together to balance their risks between companies in order to survive. His list of practical advice to keep in mind over the coming months includes the following:

• Be robust in tendering
• Be prepared to say no to protect yourself from risk
• Ensure your cost planning is based on up-to-date data and conversation with suppliers. Check against the BEIS Monthly Building Materials and Components Index and err on the side of caution
• Increase information exchange with clients, subbies and suppliers, be detailed, ensure there are no surprises
• Build trust – work on your relationships
• Unusually, James suggests buying stock in advance for situations where risks can be minimised

Steve’s mitigation measures also included:

• ‘Top-to-bottom’ relationships with the supply chain (one commenter reiterated this later saying they have the expertise to value engineer but are frustrated that they’re not allowed near the decision-making process)
• Customer communication – sharing understanding and risks, regular Project Status updates with supply chain
• Flexibility of specifications – this has to be communicated to clients and architects to work
• Maximising the use of local/UK firms and products to reduce risk of imported materials being subject to transport cost increases or reduction in availability

What the public sector can do to help

Representing Gateshead Council, Peter Udall, Strategic Director of Economy, Innovation & Growth, presented a portfolio of investment in Gateshead and is well aware of the construction industry’s importance to the region. He also stressed a collaborative approach must be taken between the construction industry and local authorities, particularly calling for more Early Contractor Involvement in order to potentially amend designs to factor in product shortages or increased costs. A comment was later made that this can be costly and impractical for contractors to engage in given the already protracted process of procurement as a whole, especially for the region’s SMEs.

On this point, our MD Matthew McCarrick had a lot to say. “The portal/framework approach to tendering is unfortunately an anonymous race to the bottom. It is the exact opposite to the collaborative approach that Egan and Latham wrote about in their respective reports when I was still in short trousers. It’s worrying that the industry has somehow regressed so far that now when one tenders for a simple package of work with the Local Authority you have to be party to hundreds of queries from other contractors, answered in an untimely manner by a civil servant working flexi-hours from their bedroom. The rapidity of change facing the construction industry today, in terms of increasing materials prices as well as all other aspects, has totally outpaced that of public sector procurement and made tendering Local Authority jobs a waste of time for many.”