The challenges ahead

John Roberts highlights some of the issues facing the construction sector

It is now more than six months since the UK decided to leave the EU and a degree of buoyancy has returned to the market. Some of the major UK house builders, such as Barratt, have reported ‘business as usual’. And when asked in a survey carried out by Gibbs and Dandy last October, more than two thirds of building trade professionals (69.5 per cent) said they were optimistic, while only 12 per cent were pessimistic.

Many infrastructure projects planned prior to the Brexit vote, such as Hinckley Point C, HS2 and Heathrow Airport have now all been given the green light. Thiswill have a major positive knockon effect for the contractors, manufacturers and suppliers vying for this business. At the same time, as the industry focuses on the year ahead, the sword of Brexit uncertainty will hang over the market throughout 2017 and mixed views remain about the medium to long-term prospects. Clearly there are still a lot of unknowns.

Brexit signals growing pains
Following Brexit, the Construction Intelligence Center (CIC) significantly revised down its forecast for growth in the construction industry for 2016. The CIC now expects construction output to have contracted by 0.2 per cent in real terms compared to the pre-Brexit projection of 3.4 per cent growth. It predicted that 2017 will be even worse, with the industry set to record a second consecutive year of decline with output contracting in real terms by 0.9 per cent (down from four per cent growth previously), as the UK starts the two-year process of negotiating its exit from the single market.

Government infrastructure pipeline under pressure
The UK Government has recently announced a number of key initiatives to help the construction industry through the National Infrastructure Commission (NIC). This includes a £2.3bn local infrastructure fund to boost house building across the UK, a £23bn National Productivity Invest Fund and an undertaking to sponsor a new study on how emerging technology may be able to improve infrastructure productivity.

However, a question mark still hangs over a number of major projects, such as the London Gateway port in Essex, operated by Dubai’s DP World, which opened in 2013 and is still only half complete. While infrastructure is likely to remain an attractive segment, pressure on government budgets, spending priorities and investor caution could still threaten project implementation.

Terror proofing buildings and construction sites
A key concern for developers will be the adequacy of buildings and constructions sites to withstand a terrorist attack. With more high profile mega projects such HS2, Heathrow’s third runway and new nuclear builds, greater attention is needed to ensure the project and surrounding buildings are fully protected against the potential threat of attack.

Extra-resilience measures need to be incorporated in the design of not only the buildings being constructed but also the project site itself, which in some cases could be spread over huge areas and differing work fronts. The Canary Wharf estate is a prime example of the layered system of defences in place to protect buildings away from their footprint, aiming to stop threats before they get close. The inner layers are designed to stop vehicle bomb attacks – while the building itself has been made tough enough to withstand major explosions and mitigate any damage that might be done.

Skills shortage – bridging the talent gap
The new apprenticeship levy will see £2.5 billion invested in apprenticeship training by 2020, via a levy paid for by employers in England with a payroll of more than £3m and charged at a rate of 0.5 per cent of their annual pay bill.

However, recent research from Arcadis, carried out by the Centre for Economics and Business Research, suggests that a ‘Hard’ Brexit could lead to the UK losing up to 215,000 construction workers, while a ‘Soft’ Brexit could see the industry lose 136,000. Overall, the UK’s workforce will have a shortfall of 3.1 million workers by 2050 if skills shortages are not addressed.

A severe lack of skilled professionals (rather than uncertainty over the UK’s exit from the EU) is clearly a major threat to the UK construction industry, as what was once a skills gap is fast becoming a skills gulf. Regardless of the impact of Brexit, global and domestic opportunities in construction mean that a skilled and flexible workforce will be vital to the UK construction industry’s future performance and competitiveness. Ensuring that the right programmes are in place to attract and retain a skilled workforce is essential to the growth of the industry.

New technology, new risks Robotics, drones, the ‘internet of things’, 3D Printing and modular construction methods are changing the face of the project site at an unprecedented rate. The same digital and technological changes to the built environment may also bring their own solutions to the current skills shortages.

The degree to which technologies are positively revolutionising a typical construction project will be accompanied by an equally dramatic shift in a project’s risk profile. While some risks will likely lessen in severity, the new or evolving risks created by stateof- the-art technologies may outweigh the old if they are not properly managed.

For example, if 3D printed and prefabricated modular buildings are subpar when ’put together’, this could have serious safety implications. And as the lines between human work and machine work start to blur, so may the lines between product liability and professional liability cover. The threat of cyber attacks will also rise as web based and interconnected tools become the new norm in construction.

Supply chain exposures The number of UK suppliers that went out of business in 2016 is another issue for the construction industry. This included some major players such as Hewden (Crane Hire company) in November 2016, with the loss of over 350 jobs and raises concerns as to the future of specialist contractors, subcontractors and other suppliers.

The fall in the value of the pound is thought to have had a direct impact on some of these companies, not only driving up costs of imported raw materials but now also filtering through to higher energy and fuel costs. The sector will remain exposed unless the UK government is able to provide greater certainty over Article 50 and the industry is able to manage cost pressures.

A recent ‘Barometer Poll’ by Construction News saw 82 per cent of contractors advise that they had seen a supplier go bust on at least one project over the previous 12 months.

Modern risk: cost or catalyst While the current outlook for 2017 is cautious, the challenges ahead will present both risks and opportunities. Risk management is the bedrock of the construction industry and those companies with a strong and stable workforce, who embrace new technologies and understand the modern risk profile of a project will be in a far stronger position to improve their competitiveness and realise profitable growth than those who allow themselves to be blindsided by hidden risks and cascading costs.

John Roberts is UK Construction Industry Leader at Willis Towers Watson. Willis Towers Watson is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. It designs and delivers solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals

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