Construction firms face difficulties due to ‘once in a generation’ hikes, survey shows
Nearly all construction firms in Northern Ireland are running short of materials such as timber and steel as they grapple with price increases which are putting jobs and companies at risk, an industry body has said.
The Construction Employers Federation (CEF) said builders were reeling from “once in a generation” cost increases and fluctuating supply side issues.
It carried out a ‘state of trade’ survey of 80 firms with a combined turnover of £1.5bn late last month.
Nearly 80% of the firms said they were seriously impacted by rising material costs, while for 38%, the hit was critical.
It’s estimated that raw material costs are up between 15% and 50% as a result of the impact of Brexit and Covid-19.
And 98% of firms surveyed said they had experienced a shortage in materials, which was a serious problem to 69% of them.
As well as timber and steel, roofing, doors, glazing and plastics and pipes were all in short supply.
Mark Spence, managing director of the Construction Employers Federation, said there had been a slump in sentiment since Christmas.
And while the impact of the pandemic had been tough, he said the most recent challenges were raising even more fundamental questions about the survival of firms.
He said there was no prospect of prices for materials falling back to normal levels – putting pressure on firms’ ability to fulfil contracts.
Many public sector tenders do not take into consideration rising raw material costs, or other unforeseeable changes, in the overall agreed tender value.
But Mr Spence said: "This is a vital concern for future pipelines of public sector work as all budgets previously agreed will no longer give cover to the procuring authority to commit public funds.
“In our urgent discussions with government, we have requested that they speedily consider these matters to allow pragmatic decision making and prevent a seizure in our local pipeline of public contracts.
"We have also urged the inclusion of inflationary mechanisms in all new contracts to provide cover for such situations now and in the future.”
Mr Spence said contracts should be “future proofed” for unforeseen circumstances.
“We are working to manage a scale and range of risks that only eighteen months ago would have seemed unnecessarily dramatic.”
But he said the stakes were also high for builders engaged in commercial work.
“For contractors carrying out home improvements or facilities management, or those in the supply chain of larger contractors, the issue is how to deliver on prices given in good faith and having to rely upon working in partnership and under sub-contracts to ensure viability of the work being undertaken.”
Mr Spence said the challenges the industry faces were greater than the one-off price increases after the Brexit referendum and the impact of the onset of the pandemic combined.
“While the reasons for it are many and varied, the on-the-ground reality is of a sector that urgently needs supported in order to remain sustainable”.
Around 70% of firms reported lower profit margins than the year before.