The Difficult Outlook
Brexit, COVID-19, the war in Ukraine and the resulting energy crisis, have created an especially difficult environment and have led to unprecedented delays and rising material and labour costs.
These factors are threatening construction projects. AECOM’s Market Forecast Q4 2022, UK and Ireland, revealed more than a 9% increase in building input costs in the year to September 2022, along with a nearly 10% rise in tender prices.
Low growth, high inflation and rising interest rates are bad news for the construction industry. This naturally impacts demand and is delaying or deferring spending and investment. Many constructions projects are being paused while contract issues and other challenges are worked through. Fixed price contracts that were signed in 2019 are most likely to come under particular strain in the current climate.
Our research shows that many contractors are now looking for inflation price escalation mechanisms or fluctuation provision clauses, though understandably employers are less enthusiastic to take on more risk. A domino effect then occurs where contractors then attempt to pass on risk to sub-contractors, who in turn are more susceptible to financial distress.
Obviously, the further down the supply chain you get, the less well placed those parties are to take that risk, because they're usually much smaller companies with much more fragile balance sheets.”
Adrian Bell, Co-head of the Infrastructure, Construction and Energy (ICE) Disputes Group
