Womble Bond Dickinson’s Managing Associate, Lisa Dromgoole, discusses what the construction sector can do to be as prepared as possible for shortages and delays of building materials, brought about by COVID-19 and Brexit.
Womble Bond Dickinson
The UK construction industry manufactures and uses an incredible amount of materials each year, producing around two billion bricks, over 70 million square metres of concrete blocks and 30 million square metres of roof tiles per annum. However, in a year where the construction industry has faced unprecedented challenges owing to the COVID-19 pandemic and the Brexit process, we have seen shortages in supply of construction materials, and this can cause significant delay and disruption to construction projects.
A recent survey by the Federation of Master Builders (FMB) found the critical issue facing constructions firms to be the rising cost of materials.
The survey reveals that nine in 10 builders face increasing costs, and are experiencing a lack of materials such as timber, plaster and roof tiles. There are also particular concerns over supplies of white goods for homebuilders, plumbing items, ironmongery, tools, natural stone and more.
Despite huge production levels, the UK remains a net importer of materials – with roughly 60% of imported materials used in UK construction projects coming from the EU, and with congestion at UK ports already causing serious delays, it’s no surprise that concerns are running high. Even with a quota-free and tariff-free trade deal now in place with the EU, increased administrative costs and additional bureaucratic processes at the major ports could lead to short or medium term disruption.
With margins already tight, this is likely to have a significant impact.
In addition, COVID-related import delays, new operating procedures to maintain safety and a glut of PPE materials that are reported to be causing freight blockages are just some of the issues which have caused some unloading times to increase by a number of weeks.
The next 12 months are crucial for the sector, with fierce scrutiny of import/export operations around our major ports. How will that impact the availability and cost of materials post-Brexit and what can the industry expect moving forward? Ultimately, what can you do to get your business as prepared as possible?
It’s important not to panic. The best approach is to make a full assessment of your business in light of this changing environment and take steps to improve readiness for different outcomes.
Here are some of the key areas that construction company leaders should focus on:
Stay on top of the latest guidance
Make it part of your daily routine to stay on top of the latest Government guidance and make any necessary changes regarding importing goods as soon as possible. It is inevitable that the construction industry will encounter problems this year, so it is important to think ahead, identify and manage the risks.
Take time to understand how any changes could impact current or future projects, in terms of cash flow, project timeframes, quality, profit margins and contracts. It’s sensible to re-assess the probable volume of work and adjust your budget as things become clearer. Remember to also review your clients’ vulnerability to any economic slump. Doing this will help set your company up for success when things do return to normal.
Review your pool of sub-contractors
Review your supplier pool and consider if you may need to source alternative or additional suppliers. Ask yourself how your sub-contractors are managing the challenges of the last year, including financially.
Diversify your supply chain
The sector has a long and fragmented low-margin supply chain, and was part of the economy that was likely to be quickly and heavily impacted by the pandemic. Factory shut-downs during the first lockdown and stockpiling of materials created a backlog, but with recovery in mind, it’s in the interests of all in the sector to help stabilise the UK supply chain as well as ensuring your projects are able to run as smoothly as possible. Responsibility falls to all to ensure the supply chains are managed and that industry competence and UK credibility is maintained.
Reach out and collaborate with your supply chain to understand the viability of contract terms and make an assessment as to the need for any renegotiations.
Gather as much data as you can to create a supplier dashboard of UK suppliers and imported materials. Continuously explore potential disruption and risk and assess how your project controls, risk management and governance processes could handle any changes to suppliers.
Think about vulnerabilities in your supply chain and how they could impact you financially and legally – consider cashflow, loan repayments, terms and contracts. How can you overcome or mitigate any disruption caused by any of these issues?
Work with suppliers to agree fair payment terms to ensure sustainability of UK supply chain and to future-proof needs.
Lisa Dromgoole is a Managing Associate in Womble Bond Dickinson’s Edinburgh office and leads the construction offering in the firm’s Scottish offices. She has over 16 years’ experience in the construction industry, specialising in dispute resolution for a wide variety of public and private sector clients.