As construction project costs continue to rise, Carol Massay, head of construction at the Access Group, explores how digital systems can help businesses manage their budgets
The issues that affected the climb back to prosperity for construction companies following the pandemic, such as lockdowns, material and labour shortages and subsequent rising construction project costs, have been exacerbated by the current conflict in Ukraine. Less than a month ago, various reports were citing construction company collapses increasing dramatically, with many going into administration, and projects being abandoned or put on hold.
The surge in the price of energy and fuel alone raises the ante by more than 30%, hastening the demise of well-known companies throughout the UK, unless alternative sources of fuel are established. Material shortages from some countries will increase, and that which can be delivered will face soaring costs in transportation. Workers will also demand higher pay to cope with the expected increase in living costs. Overall, the rapid rise in the cost of construction may well outstrip the ability of contractors to keep pace unless they learn to keep better control of their construction project costs.
Changing demographics will also affect the industry, with higher commuting costs encouraging greater adoption of part-time commuting, or WFH, with a reorganisation of office space in cities. Electrification can go both ways, with either car ownership declining and an increase in domestic urbanisation, or an expansion of housing construction in the suburbs and wider countryside.
If you can still afford to drive around the country, you may see major housing developments around every town, an indication of higher numbers of projects in progress but, as evidenced by the demise of companies like Midas in the West Country, projects are either being cancelled, or their time scale to completion being extended.
Digitalisation and digital twins
Now, more than ever, the industry has to rise to the challenge. As Carol Massay said prior to the current dramatic events and responding to a report from CECE, the Committee for European Construction Equipment: “The massive variety of requirements across different projects, limited budgets and remote nature of projects present challenges around implementing digital technology to scale.
“However,” she added, “the huge number of stakeholders, from estimators to contractors to designers, means that the speed of digital transformation must increase for the industry to keep pace with demand.”
Carol also referred to a statement made by Andrew McNaughton, chair of an ICE-commissioned review, which looked at the causes of high-profile infrastructure projects that are suffering from severe delays and spiralling construction project costs, who said: “It is abundantly clear that continuing as we are is not an option.”
McNaughton explained that “it is systems – automated, interdependent and reliant on technology, rather than structures – which provide the services such as mobility, sanitation and energy that we all rely on. Increasingly, major new or expanded infrastructure services, such as transport or clean energy, are delivered by complex construction projects bringing together physical assets, technology and digital information such as BIM or digital twins”.
Within the last couple of weeks, the task just got immeasurably harder – and global warming, net zero carbon and similar issues just got put on the back burner. The imperative to digitise is now crucial.
Loss of control of complex construction projects is causing the collapse of companies
Carol said that it is the lack of control of complex construction projects that is causing the collapse of so many construction companies. With the rising costs of materials and resources, and dwindling income from delayed projects and bills to pay, contractors build up their portfolios to attract additional funding yet end up defaulting and ending up in administration. Robbing Peter to pay Paul – i.e. extracting funds from one project to shore up another – is the thin end of a very steep wedge.
Construction project costs are rising. Imported materials – such as steel, timber, cement, aggregates, plastics and roof tiles have already seen double-digit rises in cost and increased delays in delivery. The global supply of construction materials will now have to be reconsidered.
The energy industry is also in turmoil. Weaning the economy off Russian oil and gas requires a commensurate increase in alternative supplies – and a greater focus on renewables such as wind and solar, or nuclear energy. Even fracking is being reconsidered. The rise in petrol and diesel prices is sending delivery costs soaring, adding another level of cost to a project.
How can you maintain construction projects with a digital system?
With reference to the ICE report, McNaughton is entirely right, Carol said. Complex construction projects can only be maintained by the effective use of digital systems. Furthermore, up-to-date project information needs to be available to feed business analysis, predict possible outcomes and disseminate the results and the decisions to team members in real-time.
This is the basis of Access Group’s Construction Management solution – in particular, its cost value reconciliation (CVR) process. It is now more essential than ever to keep track of monthly expenditure and revenue, and that finance directors are kept abreast of project cash flows. Carol suggests, though, that this is just one part of a “golden loop” (the ICE report’s terminology), which sees data driving planning, project delivery and asset management, feeding back into future planning.
Effective construction management provides steps that ensure the full benefit of such an information flow, such as dashboards that provide full visibility of trends, and up-to-date information on projects, with the production of frequent reports that highlight concerning trends.
The two-way flow of information is also a critical element, with on-site mobile apps capable of submitting key data to ERP and finance systems. (Incidentally, Carol mentions the growth of engineering and management skills that can take advantage of such technologies. Does that outweigh the shortage of skills in other areas? Will that bridge the gap between antiquated spreadsheets and user-friendly, tech-led systems on site?)
Contracts for construction projects will have substantial cost increases in future
As vital as it is to keep a track of construction project costs, the next major shake-up is going to be in the process of tendering for projects. Every contract that will be signed in the future will have substantial cost increases legally factored in, with the expectation that they will rise dramatically. Fine-tuning figures to produce the lowest cost solution – with the lowest projected profit margin – will not be worth the candle and the focus must shift towards making every project financially viable. That means staying flexible enough to handle future disruptions to the industry, whether locally, or globally, initiated.
It’s not all bad news, though. With the prospect of huge infrastructure projects in the pipeline (sorry for the inappropriate pun) as we gear up for a massive shift in energy supply, material costs and shortages, distribution and transport realignments, and demands to progress building projects more quickly, the construction industry is not short of work. Instead, it can meet the challenge if companies can take advantage of the latest digital technology that we already have at our disposal.
Learn about the Access Group’s Business Health Dashboard
The Access Group has added to the management of financials in its construction management solution by partnering with Experian to fine-tune the performance of its customers and mitigate risks within its portfolio. Experian is a multinational credit reporting company that provides business-to-business data services, helping companies improve their financial position by harnessing their data – such as keeping an eye on the payment histories of their customers to more accurately forecast cash flows and reduce credit risks. This has been implemented to alleviate the chronic late payment situation within the industry, which cites an average of 12 days, causing a shortfall of £5.9bn within the industry – a significant contributor to the cash flow difficulties highlighted above.
The partnership enables Access to combine commercial business information with financial information and to segment the data to reflect separate business needs throughout multiple projects. It provides another layer of information within the single source of truth that underscores a company’s construction management solution.
Experian data is available as one of the dashboards within Workspace and will be updated on a monthly basis, the refresh cycle is considered to be adequate as business data doesn’t change dramatically mid-month – but it can provide sufficient accurate information to establish trends over time.
Find out more about Access Group’s Construction Management Software or submit your details here and one of their construction software experts will be in touch.
Carol Massay
Kishen Raja
Business Development Manager
Tel: +44 1206322575
Kishen.raja@theaccessgroup.com
*Please note: This is a commercial profile
