Are you seeing shortening of supply chains, i.e. more UK suppliers being used rather than European or further afield, in order to have confidence in materials being supplied on time.

We are seeing that clients and design teams are trying to better understand supply chains – understanding the route of delivery for materials and products. To mitigate materials issues, UK suppliers are being increasingly used but there are often still links to other countries which need to be considered. It is key to understand lead in times from the supply chain and consider product selection based upon their advice on availability. Early orders can be considered to mitigate delivery issues.

Do you think current inflation is cyclical or structural? Will it peak and rebound or keep its upward trend over time?

See the next answer.

Shortages of materials and labour are generating significant localised inflationary pressures on tenders and contracted works do you believe that as supplies return to ‘normal’ these will become deflationary to return values to the ‘norm’ or whether they will stay high and your projected 3% inflation run from these current raised levels?

Questions two and three are similar questions and the situation will be dependent on the course of the pandemic, particularly during the autumn and winter. If the situation returns broadly to “normal”, then it is envisaged that the materials situation will improve within around a year - at the moment, there is an inflationary spike following the slowing of the market in 2020. With materials there is an imbalance of supply and demand following the pandemic, particularly as many economies are investing in infrastructure and construction projects to assist with recovery. Shipping issues and labour are also contributing to inflation. Following recovery from the pandemic, it is expected that inflation will return to more typical growth rates e.g. hot market and inflation or recession and reduction in inflation. However, labour shortages are anticipated to be a continued problem for the construction industry, and this will be an ongoing burden for construction costs.

At what level of construction tender price inflation do you see customers postponing projects and what sectors do you feel are likely to be most affected?

We have seen that over the past year generally project approvals have slowed, and whilst there are higher materials prices and levels of contractual risks due to shortages, clients are often currently benefitting from there being a competitive market following the pandemic — assuming that their tender documents are robust and risk allocation is appropriate. As construction activity increases and more tenders are released as confidence grows, it is likely that inflation will continue – albeit returning to more typical levels. Postponing of projects is more likely for sectors which have been uncertain during the pandemic, such as commercial or retail, however latest feedback we are seeing is that activity is increasing in these sectors again – for instance commercial projects adapting to hybrid working practices and retail wanting to attract people to stores where there is typically a higher spend. The viability of projects and decision to tender very much needs to be made on a case-by-case basis in any event. 

What suggestions do the panellists have for graduates who will be graduating in post-COVID scenario and what should the core areas of focus be?

For those graduating now it remains critical to build relationships and to try and gain as much experience as possible. Professional qualifications remain important so try to pick out an employer with structured training to help to continue your learning. Sustainability and achieving net zero carbon targets will be a key challenge so any understanding of this will be beneficial as well as learning about digital tools.

Author
James Garner

James Garner
Senior Director - Head of Insights and Analytics

Nicola Herring

Nicola Herring
Associate Director, UK Insights and Research Lead