TURNER & Townsend is calling for stronger project controls and upfront programme planning to combat a sector-wide capacity crunch.
The call comes as ‘cooling demand, high insolvencies, risk-averse contractors, and loss of market confidence’ could create further pressures for the industry, the firm explained.
In its Summer 2023 UK Market Intelligence Report, Turner & Townsend points to slowing new orders, low new work construction output, and high labour and material costs as causes for concern when set against a backdrop of inflation and supply chain contractions.
In response to these issues, the consultancy has slightly increased its tender price inflation forecasts for real estate, up to 3.7% and 2.7% in 2024. The predictions for infrastructure tender price inflation in 2023 are unchanged from the spring forecasts, at 5.5%, but with lower private investment than pre-pandemic levels and the recent resequencing of major projects by the UK Government, this could mean a cooling effect longer term, and so the 2024 estimation has been revised down to 4.5%.
Turner & Townsend added that these forecasts are driven by a series of factors. The total number of construction insolvencies rose by 9.7% in the year to Q1 2023, with falling output combining with increased input costs to tighten margins. The downward trend in output is expected to continue through 2023, with a predicted 6.4% fall in part due to declining new housing starts. At the same time, the price of materials has increased by 4.7%.
Further impact stems from skills shortages and insufficient labour pool – leading to delays and increased costs. Total construction employment in Q1 2023 contracted by 1.9% on the previous quarter, with vacancies still at a ‘historically high’ rate.
The new report acknowledges the headwinds facing construction firms and the supply chain. Turner & Townsend has set out its advice to mitigate the impacts mainly of flatlining client demand and reduced industry capacity. The business is calling on clients to review procurement strategies, take greater control of the design stages, adopt more collaborative contracting frameworks, and identify and share potential risks.
Alan Sinclair, director of infrastructure, Scotland at Turner & Townsend, said, “The construction industry in Scotland is continuing to feel the aftershocks of the pandemic and global inflationary pressures, but the current outlook goes beyond that – and government and industry need to face up to the structural problems our sector is facing. The region wants higher growth, and a greener, more productive economy.
“Construction is at the heart of achieving that. But it will remain hard to achieve while we face underinvestment in skills and capacity, and a lack of clarity on a future pipeline of committed projects across the region.
“For firms in the eye of the storm, putting the right procurement and digital strategies in place will be essential to mitigating the risks. Skills gaps must be identified early, and the availability of key personnel locked in.
“Contractors’ financial status must be rigorously evaluated, along with better management of data and real-time reporting to continually assess the progress and performance of projects. The construction industry in Scotland faces a very difficult climate, but as the last few years have shown, we are resilient, and our ability to innovate and creatively rethink our ways of working will help us emerge ever stronger.”
