Resilience to recovery: The future of UK construction
Resilience to recovery: The future of UK construction
Rapid inflation has meant that some firms have risked trading at a loss as fixed price or longer-term contracts, which may have been agreed years ago and which have no provision for price increases, no longer reflecting the actual cost of delivering the work. While some contractors have avoided this by having price escalators built into contracts from the start, many others have been forced to go back to clients to attempt to amicably renegotiate contracts. And this is something that is set to continue.
Re-negotiation Selling assets
Payment relief
When we asked our respondents what steps they’d be taking over the next 12 months to preserve or improve their cash position, the top answer was contract re-negotiation (23%).
A fifth (20%) plan to sell off assets, including plant, in favour of leasing. While this releases cash and may be a temporary strategy for funding operations, it does mean that businesses could face a new monthly burden of finance costs.
Other strategies to protect cash position included electing not to pay pension additional contributions (21%) – a reference to enhanced director and/ or shareholder pensions, rather than regular employee pensions – and deferring VAT and tax (15%). These are both moves that may only provide short-term relief.
Chris Everett, Chartered Quantity Surveyor and Managing Director at CCi
“Looking back over the last year, there have been a range of causes for contractor disputes.
“The Building Safety Act is still generating fire-related and defect-related issues in both design and workmanship. For example, when defective cladding is being stripped off buildings, we’re finding shortcomings in fire barriers and compartmentalisation that has to be corrected. This includes both defective design and workmanship issues. “Modular construction is also proving to be a difficult industry. Because modules are made ‘just in time’, any delays on site mean the manufacturer can’t get them out of the door and their production stops. “And there is still a legacy from COVID, with projects that began in or before 2020 and 2021 now coming to an end and final account. That has led to some very complex disruption claims, which can be difficult to substantiate and resolve. “Inflation has also caused numerous disputes where contractors have sought to renegotiate unviable contracts, though this is now easing as escalation clauses are standard in construction contracts. However, there is the chance of negative inflation on some types of materials going forward, so firms should ensure that clauses only cover an upward escalation to avoid an obligation to return money.”
Section 2
Money matters
Contracts, costs and capital Perhaps the biggest challenge for construction firms in recent years has been the unprecedented increase in costs.
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