After fighting through the pandemic, construction remains under financial pressure. Here, The Access Group explore how cloud-based construction software could be the solution to the industry’s woes
Construction is an industry under stress. Pressure has been building for some time and, for many, the breaking point is uncomfortably close, but could cloud-based construction software be the solution?
The Red Flag report from business recovery specialist Begbies Traynor published in January showed 75,825 construction businesses reported “significant financial distress” during the final quarter of 2021. The industry was second only to services as Britain’s most distressed sector.
The report warned a “debt storm” that has been building up for years but had been largely held back by measures to give companies breathing room, as well as government support during the pandemic such as furlough payments and tax reliefs, could now cause a flood of insolvencies.
Julie Palmer, a partner at Begbies Traynor, said: “Businesses that have bravely battled through the pandemic could not start to fail as the pressures they face become too much.
“The lag effect of the economic fallout from Covid, plus significantly higher inflation has created a perfect economic storm for many companies, particularly the UK’s SME sector, which will undoubtedly drive insolvency rates even higher.”
The precarious market conditions facing construction were highlighted on 8 February when Midas Group, one of the country’s largest privately owned construction and property services companies, appointed administrators, blaming the pandemic, rising costs and ongoing shortages of labour and materials.
This news came as Turner & Townsend warned that after powering the UK economy through the pandemic, the construction’s industry’s recovery as we now (hopefully) emerge on the other side remains “finely balanced”.
Its UK Market Intelligence Report (UKMI) shows central forecasts for real estate and infrastructure tender price rises in 2022 are 4.5% and 4% respectively, up from predictions of 3.5% for both in autumn 2021.
The forecasts strengthened despite cooling growth in construction output rates and were instead fuelled by cost-push inflation driven by labour and material shortages.
The data showed contractor confidence fell from Q2 to Q3 2021, as at the same time, the Office for National Statistics (ONS) reported a 0.9% quarterly fall in construction output. Meanwhile, construction material costs rose by almost a quarter (22.7%) in the year to November, according to the Department for Business, Energy & Industrial Strategy, and the ONS said that construction vacancies jumped by 43.3% from Q2 to Q3 2021.
Turner & Townsend said the pressure on labour costs, alongside material price rises, put construction in a vulnerable position, underlined by a 18.6% rise in insolvencies in the sector in Q3 2021, according to the Insolvency Service. This translated to a year-on-year increased for Q3 of 80.2%.
For many construction firms, the pressures the pandemic brought to bear on the economy and society as a whole have been piled on top of longstanding, industry-wide problems that meant there was already little breathing room.
Low productivity, skills shortages, strained supply chains and tight margins have become all too familiar themes.
Industry must adopt digital and MMC to survive economic turmoil
The UKMI urged the industry to focus on driving efficiency and productivity now, embracing digital tools and Modern Methods of Construction (MMC).
Martin Sudweeks, Turner & Townsend UK managing director of cost management, said: “If we want to maintain the trends in growth we have seen and continue construction’s role as the economy’s powerhouse then we need to enact change – and fast.
“One route to achieving this is by driving better productivity via digitalisation, MMC and an outcomes-focused approach to major projects and programmes. Industry adoption of these strategies has been piecemeal for too long, particularly in digital, despite its potential for transformational change. Construction businesses that embrace the digital tools at their disposal and hold fast to a long-term programmatic approach will be those that should prosper in the months and years to come.”
The problem of silo working
Digitalisation and Modern Methods of Construction can certainly offer a wealth of opportunities to boost efficiency and productivity – but they are not, on their own, a silver bullet for all of the industry’s ills.
The most sophisticated software, such as cloud-based construction software, or manufacturing methods can still be hampered and hamstrung by a lack of coordination and collaboration.
For far too long, construction has been guilty of “silo” working – and thinking – both within and between organisations.
Put simply, silo working means people, teams or companies that are working towards the same objective – the design and construction of a building or infrastructure – do not share information.
Silos can be created by attitudes – feelings of “them and us” between departments and functions – and processes, such as project managers being responsible for keeping a scheme on budget but not being involved in setting that budget.
Silos are also created by UK construction’s long history of adversarial relationships between clients, designers, contractor and suppliers – who are kept separated by traditional approaches to procurement, which tends to fixate on lowest initial tender price rather than value, outcomes or performance.
With most projects being “one-offs”, teams that are strangers to each other have little time to build trust, while often having to navigate conflicting aims and increasingly complex information, systems and procedures. This breeds an atmosphere of defensiveness, finding fault and disputes, hardly conducive to sharing information or risk.
Silo working can result in wasted time and effort on needlessly duplicated work, teams relying on incomplete or out-of-date information and a lack of clear lines of communication and responsibility. It also means inefficient or flawed processes persist because there is no opportunity for a fresh pair of eyes to spot where changes can be made.
The construction industry must ‘Modernise or Die’
As Mark Farmer noted in his 2016 report Modernise or Die: “The construction industry’s ‘collaboration problem’ is at the root of its change inertia. It prevents itself scaling up, sharing risk more appropriately and creating more business plan certainty. The industry is currently conditioned to using adversarial margin protection and expansion tactics. This underlines the tensions that often exist between the industry and its clients that prevent more acceptance of collaboration within industry and between industry and its clients.
“Industry-wide adoption of digitisation through media such as BIM is predicated on collaboration. The BIM model sits at the heart of any project and only functions fully if traditional design and construction barriers are broken down by multi-party liaison and working.”
All of this can hit the bottom line, which is bad enough, but at its worst, siloed thinking can even have dangerous consequences.
Dame Judith Hackitt’s Building a Safer Future report highlights the dangers of silos
In her landmark report Building a Safer Future, Dame Judith Hackitt specifically highlighted how damaging silos can be.
“We must … begin thinking about buildings as a system so that we can consider the different layers of protection that may be required to make that building safe on a case-by-case basis,” Dame Judith wrote.
“Some of the social media chatter and correspondence I have read while I have been engaged in this review shows how far we need to move in this respect.
“The debate continues to run about whether or not aluminium cladding is used for thermal insulation, weather proofing, or as an integral part of the fabric, fire safety and integrity of the building. This illustrates the siloed thinking that is part of the problem we must address. It is clear that in this type of debate, the basic intent of fire safety has been lost.”
Replacing silos with cloud-based construction software solutions
Silos are an age-old problem with no overnight solution but, with construction companies folding at such alarming rates, it is arguably more important than ever that the industry makes the effort to break down barriers holding back change, allowing businesses to win projects and build faster, on time and to budget.
Much of the change will be cultural, with buy-in from the top, to promote communication and collaboration, the sharing of information to realise the value of data, and an emphasis on investment, learning and development.
Technology has a role to play. As Mark Farmer noted, successful BIM adoption is built on a collaborative foundation, yet any companies are still working with a mish-mash of different programs and systems, such as Excel, Sage, Salesforce and Adobe, a setup that does lend itself to easily locating, tracking and sharing the right information with the right people.
However, integrated, cloud-based construction software solutions, from companies like The Access Group, allow companies to budget, track, tender, project manage and manage staff both on site and in the back office via mobile apps from a single dashboard.
This makes for easier communication and collaboration between teams and the client, ensuring the right people have access to the right information, ultimately enabling project teams to leverage data to design more intelligently and deliver buildings more efficiently and sustainably.
How can the Business Health Dashboard from The Access Group help you?
More than 75,000 construction firms could be at risk of collapse due to a mix of inflation, cash-flow squeezes and shortages of materials, according to Begbies Traynor earlier this year.
How do you avoid being one of these companies?
First you must understand how much of your debt is at risk.
You can do this with a Business Health Dashboard from The Access Group. They’ve partnered with Experian to support the performance of its construction customers, to help them identify credit exposure and the risk of outstanding debt within its portfolio.
Get an accurate picture of outstanding debt and associated payment risk in one single view. Supporting you to make more informed decisions as to the strength, performance and creditworthiness of your new and existing customers and suppliers.
The Business Health Dashboard from The Access Group provides another layer of information within the single source of truth that underscores a company’s construction management software.
Companies can gain full visibility of all processes, identifying areas where productivity could improve, risks reduced and margins boosted, helping the entire construction cycle run more efficiently.
How can Access Construction help?
Access cloud-based construction software enables you to accurately estimate contracts, manage your projects with clear visibility and control your costs. Book a demo with one of the Access Construction team today.
Content from The Access Group’s ebook, ‘Is there a financial crisis in construction?’
