ECA NEWS
taking a significant gamble. The best approach is to talk openly to your clients. It can be an awkward conversation, but it’s better to say, “We can’t sustain prices fixed today for nine to 18 months,” than to take a considerable loss in a year’s time. Sharing the risk with clients when this level of inflation has not been seen for decades is better for both parties, and this is what smart contractors are looking to do already. There are already options for setting up this form of agreement in the JCT contract, for example. Prices can be index-linked to the Building Costs Information Service from RICS (Royal Institute of Chartered Surveyors). The contract can then account for fluctuations in the cost of products and
labour (or even changes in legislation). Index-linking contracts is normal in the facilities management world, where business relationships tend to be over many years and more strategic than in most mainstream construction. However, there is no outstanding reason why we cannot revive this 1970s and 1980s practice in our sector. The most important message for contractors is not to be tempted to buy into problems for the future. The construction industry is currently experiencing a high level of work, with many industry economists saying that we are above pre-pandemic levels of activity. This means that it’s relatively easy to turn down work for clients who are not prepared to engage with the risks of higher prices.
However, when the level of activity slows, it may be tempting to price projects at today’s costs to keep work in the business pipeline. However, hyperinflation will quickly wipe out any profit margin, or worse. The governments of Northern Ireland and the Republic of Ireland have recognised the problem of rapidly rising costs. As large clients of the construction sector, they have already issued ‘Share the Risk’ guidance for working with the construction sector.
“…hyperinflation will quickly wipe out any profit margin, or worse.”
www.eca.co.uk
ECA - T: Alfie Watterson, NI and ROI Regional Manager, +44 (0)7971 141911 - E: alfie.watterson@eca.co.uk
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