The outlook is improving
The Construction Products Association predicts that the sector will grow by 3.4% in 2014.
Confidence is much higher at present compared with previous years, with both the RICS and ICAEW confidence surveys reaching record highs.
Supply constraints leading to inflation
Supply constraints, both in terms of materials and labour, are the sector’s most pressing issue. The construction industry has seen capacity drastically reduce during the recession. Material price hikes and long lead-in periods for bricks have been widely reported within the press, but the problems are much more widespread than this. As the order books fill up, contractors are struggling to find subcontractors willing to tender, as they are already at full capacity.
As a result, tender prices are set to increase year on year, with the BCIS forecasting a 3.8% increase in 2014, 4.1% 2015, 5.5% in 2016 and 7.4% in 2017.
Procurement is the other issue affecting many construction projects at present. As order books fill up, contractors will naturally start to become more selective on the tenders they choose to submit, opting for higher margins and less risk. The industry is starting to see contractors declining design and build style procurement, and moving more towards risk sharing and two stage tendering.
The days of tendering to a number of contractors and transferring all the risks appear to be over for the foresable future. Instead we will see the sharing construction risks, tendering on full and complete construction design information, and reducing the contractors tendering costs.