The aftershocks of the pandemic and subsequent periods of economic difficulty have made real estate and infrastructure delivery harder to achieve. Rising material prices and interest rates, a constrained supply chain and a severe skills shortage have led to a capacity crunch in these sectors.
In Turner & Townsend’s latest market reports, the Summer 2023 UK Market Intelligence report (UKMI) and the 2023 International Construction Market Survey (ICMS), we found that construction capacity is a major concern for the industry. A lack of resources is driving construction price inflation. The pressure is particularly potent in the UK, where inflation is being “levelled up” across many regional markets outside of London.
At the same time, we are seeing greater public spending on healthcare, education and infrastructure. An extra £2bn has been ring-fenced by the government to improve schools, while infrastructure funding has seen a 15.2% increase from 2020 to 2021 as the country adjusts to a post-pandemic economy.
Delivering this pipeline will require the construction industry to ultimately recruit, train and upskill more people. However, it also calls for better procurement across supply chains, improved productivity and a need to embed digital approaches.
Understand risk and deliverability
Procurement is, naturally, one of the earliest steps in the built environment lifecycle but there needs to be a shift in how it is approached within the industry. A culture shift when it comes to procurement will allow for wider risks to be mitigated. Our current reporting shows that contractors are attempting to battle rising costs by tendering on multiple projects, but this is ultimately causing contractors to be spread too thinly and creating issues with viability.
Early engagement and deeper insight within the supply chain will be key. Clients should be implementing collaborative contracting frameworks that will proportion risk across delivery partners and mean that there is greater understanding of pinch points.
Along with rigorously examining contractors’ financial statuses – especially as suppliers face high interest rates and reduced access to good finance – this will also help to identify potential skills gaps and lock in the availability of key personnel. Understanding the capacity of supply chain partners will improve the viability of programmes and speed up delivery.
Integrating digital solutions can aid in easing construction’s capacity crunch
Beyond procurement and within the actual delivery of the project, the industry needs to be more efficient in its methods – and digital-led strategies can be this solution.
It is vital that the industry thinks more creatively and innovatively as we look to deliver the country’s social and economic infrastructure. Construction needs to improve its data management and real-time reporting metrics so that we can continually assess the progress and performance of projects.
The step towards a digital-first approach is to treat data as an intangible asset class that can be efficiently collected in real time, available instantly and easily presented. If the sector can have this trusted data at its fingertips, the benefits will trickle down the supply chain to drive cost savings, boost productivity and embed innovation.
Digitalisation can unlock the pathways to a greener and more productive future
Digitalisation can help design the pathways to these goals and better track performance against set milestones as we look to breed methodical programme planning into our delivery.
In our research with the UKMI and ICMS, we’ve seen how the sector is having to deal with wider economic issues that many industries are also struggling with. High inflation, rising interest rates and a shrinking workforce due to post-pandemic early retirement have been difficult to manage but construction has always been able to adapt to headwinds and keep driving forward.
We’ll need to do this once again but if we can embrace innovative approaches to procurement and digital strategies, we can unlock a greener and more productive future.
Martin Sudweeks
Managing director of UK cost management
Turner & Townsend
Tel: +44 (0)20 7544 4000
