Cogent Associates Managing Director Kevin James shares some insights into the challenges facing the construction industry in a post-Covid environment, in the current issue of The Public Sector Magazine – recommending due diligence reviews on the supply chain for all public sector projects and how an understanding of the factors affecting a project is key to determining viability and value for money.
Managing Director of Cogent Associates Kevin James explains, “We are engaging with clients at a time when the industry is facing a whole new set of challenges, post Covid and as a consequence of Brexit. Discussions are focused on the direct impact this will have on their projects progressing, considering construction is experiencing skills shortages, material shortages, inflationary increases, regulatory changes, as well as increased insurance premiums and claims.
“Contractors are dealing with immediate shortages in the supply of steel, timber and cladding and some are quoting a 10% increase in tender prices. Skilled labour is in short supply – AHBI is reporting that over 10,000 wet skilled resources left the country during Covid and have not returned – and there are reports that some are remaining on PUP payments rather than returning to work. While both public and private sector clients compete for the same limited resources, the construction industry is simply not in a position to deliver on previous commitments. It is essential therefore that project & cost managers reassess the supply chain with effective and ongoing due diligence exercises.”
Awareness and a detailed understanding of the factors affecting a project is key. For example, clients who have not yet appointed a main contractor may face less interest from contractors and the likelihood is that they will incur increased costs. This affects both viability and “value for money” assessments. Similarly, those who have appointed design teams and contractors face the financial uncertainty of claims for prolonged delays during Covid 19.
Knowledge and visibility of what is coming down the line is more necessary than ever to proactively manage risks and reduce any negative impact.
“The months ahead will be very challenging and proactive measures can help to alleviate the burden. Fundamentally however, regulatory reform is needed to provide the flexibility required to respond, in particular public procurement rules and the Capital Works Management Framework (CWMF). For example, the residential sector is predicted to deliver 16,000 of the required 33,000 homes in 2021, however the time required to procure individual firms or multidisciplinary teams, to complete the design process and procure the contractor is too complex and too long, making it difficult to scale up to meet the predicted levels of social and affordable housing.” James continues. There is no flexibility in the tender award process to allow for legitimate price increases, such as the escalating material costs that contractors are facing at the moment, which is resulting in them having to withdraw their tender offer. If this is permitted to continue it will negatively impact on the governments’ ambitious Capital Expenditure programme.
“Equally, the planning process, which has been subject to much debate, does not provide the surety needed by clients to manage programme risk. As such, resulting delays lead to increased commercial risk, affect viability and compromise quality.
Further clarity and decisiveness is required from Central Government for the replacement to the Strategic Housing Development planning process, which will be crucial for the delivery of the current pipeline and future growth.
“Whilst the norms have been challenged and we have been forced to transition, there are encouraging developments within the construction industry as it continues to embrace innovation and technological change. Great strides have been made in the development of modern methods of construction, as well as sustainable and energy efficient design principles and practices.
The full article is available on page 120 of The Public Sector Magazine.