UK construction clients need to keep the supply chain close as the industry prepares for an easing of lockdown restrictions, warns Turner & Townsend. Turner & Townsend’s UK market intelligence report (UKMI) for spring 2020 has warned construction clients to adopt agile strategies and prepare for the risk of supplier insolvency, material shortages and contract liabilities as the industry prepares to get back to work.
Through analysis of past recessionary data alongside the most recent forecast from the Office for Budget Responsibility (OBR), Turner & Townsend has projected that tender prices could deflate through to 2022 Q1 before inflating thereafter.
The hypothesis uses tender price performance during the 1990s as an indicator of the largest reduction in tender pricing during a recession.
The report cautions against assuming a firm forecast, pointing to the supply-led nature of the current Covid-19 crisis being ultimately different from the demand-led nature of previous recessions.
Despite inevitable reductions to demand and Brexit uncertainty further paring back investment, there is potential for inflationary pressures to counterbalance deflation. Demand may not reduce across all sectors of the construction industry, with infrastructure, defence, health, life sciences and logistics expected to show strong growth.
In addition, parts of the supply chain could see reduced capacity from insolvency, lower on-site productivity due to social distancing measures and disruption to domestic supplies and imports of construction materials.
In response to the uncertainty, Turner & Townsend says construction clients should support supply chains and increase scrutiny for signs of distress, being prepared to move quickly to change strategy and protect projects.
Paul Connolly, UK managing director of cost management, said: “As the UK construction industry becomes one of the first industries to emerge from lockdown, much will depend on wider market confidence.
“While OBR reporting points to a severe downturn as one scenario, robust demand going into the pandemic and government backing for key projects could act as a catalyst for parts of the sector to recover.
“What is clear is that clients need to support supply chains and assess where vulnerabilities lie, allowing for project plans to adapt and advance under a ‘new normal’ environment.”