Turner & Townsend warns businesses to secure resilient supply chains as tender price forecasts point towards a rise of 8.5% in 2022
Inflation within the UK construction sector is already soaring, and the crisis in Ukraine has only exacerbated this. According to Turner & Townsend, businesses should focus on securing a resilient supply chain and guarding against further shocks.
The global professional services business’ latest UK Market Intelligence Report (UKMI) shows significant upward revisions to its quarterly forecasts – particularly the inflationary predictions for 2022. This is being driven by rapidly rising energy costs as the impact of the war in Ukraine resonates through global supply chains.
What do the numbers say?
Turner & Townsend’s central forecasts for tender price rises in 2022 now sit at 8.5% for real estate and 6.0% for infrastructure. This is considerably higher than that of the Winter 2021/22 predictions of 4.5 and 4.0% for the same period.
Of course, the conflict in Ukraine has had a significant near-term impact on inflation, but the root of the inflation is much more layered. This exceptional level of inflation links back to the pandemic and Brexit disruption.
Despite the fact that there was relatively little direct reliance on oil and gas imports from Russia, the nature of the global market means that elevated energy prices are at the heart of the latest spike. Monthly indices for crude oil, diesel and premium unleaded increased by 99.4, 33.8 and 30.5% month on year in March alone. This had been felt by logistics costs and materials with energy-intensive manufacture processes such as brick, cement and steel.
Although Turner & Townsend’s analysis points to a sustained impact from these multiple factors through 2022, it indicates that there will see a settling of conditions thereafter. Long-term tender price forecasts for 2025 are at 4.0% for real estate and 5.0% for infrastructure.
Businesses must keep ‘cool heads’ and secure resilient supply chains
The new UKMI report suggests that businesses must keep ‘cool heads’ in the face adversity. The pressure may be on but companies must act pragmatically. It calls for flexible procurement and greater collaboration with the supply chain. Ultimately, businesses must get the basics right. This means clear planning that factors in time for early engagement with suppliers, better understanding and apportioning risk and maximising value over hitting target costs.
Turner & Townsend have also warned that the major risk to the industry as a whole is that inflation distracts from the vital work being done by businesses to achieve and target wider goals such as Net Zero, driving productivity gains or embedding social value into their operations.
They also one to make it clear that if tender prices continue to rise rapidly, there could come a tipping point at which early-stage projects are put on hold and more and more clients may postpone their capital investment decisions. Pointing to how the industry has navigated the disruption of the past few years, the report makes the case for immediate cost pressures to be considered as part of a programmatic approach to capital investment that targets these systemic challenges.
‘Now is the time for calm, clear and programmatic thinking’
UK managing director of cost management at Turner & Townsend, Martin Sudweeks, said:
“Now is the time for calm, clear and programmatic thinking – focusing on setting up projects for success with full recognition of challenging cost pressures and a plan to manage them that starts with getting the basics right.
“Contract scrutiny needs to be front and centre. Businesses must avoid panicked procurement in the hope of locking-in pricing, instead taking time to eliminate ambiguity that can be a bigger risk than inflation itself.
“This is about picking the best team and ensuring you have capable and resilient contracting partners. Clients should map out the supply chain and identify weak links, then work to eliminate risk and where necessary share the burden of disruption. Those that successfully diversify their supply chains and build strong relationships with trusted suppliers will maximise resilience and benefit most long-term.”
