Clients must act on supply chain risk as industry braces for Brexit
- UK Market Intelligence report points to stagnating order books, low margins and single stage tenders piling risk onto the supply chain ahead of Brexit
- Clients must map out risk to avoid falling foul to chaotic process
Construction clients must urgently assess the risk profile of their projects and programmes and brace for the impact of Brexit, according to Turner & Townsend.
Analysis from the global professional services company points to a weakened supply chain that is highly vulnerable to Brexit shocks as a result of high risk-exposure, low margins and faltering order books.
Research as part of the business’ latest quarterly UK Market Intelligence report shows order books for the 2019/20 financial year at 48 percent full across the industry – only 3.3 percent higher than six months earlier as Brexit uncertainty chokes off financial commitment to new projects. The figures are backed by recent IHS Markit / CIPS statistics, which reported the first monthly contraction in construction activity for 11 months in February.
Nationally, tender prices are expected to rise by 2.4 percent for building projects and 3.6 percent for infrastructure over 2019, but the benefits are not likely to be felt by contractors amid ongoing inflation in material and labour costs.
Statistical analysis as part of the UKMI shows highlights a long-term shift to single stage construction tenders, placing greater risk onto contractors. Nearly 40 percent of tenders awarded in the last quarter of 2019 were single-stage, compared to just 25 percent for the same period in 2015.
Paul Connolly, UK Managing Director of cost management at Turner & Townsend said such structural shifts are likely to be compounded by Brexit and called for clients to urgently assess their exposure:
“After years of negotiation, all Brexit outcomes still remain on the table for the construction industry, including no deal.
“What we do know is that the industry itself is ill-prepared for a major shock, with low margins, faltering tender pipelines and risk piled up in the supply chain. Clients need to act now to map dependencies – from plant, materials and finished goods to labour – to understand and model the potential impacts on cost and schedule.”
Turner & Townsend’s UK Market Intelligence reports outlines ten key areas that need consideration as part of Brexit action plans to manage project risks, including stockpiling, alternative sourcing from outside EU or EU gateway markets, the impact of tariffs, and contract resilience.
Paul Connolly continues:
“The effect of the current extension to the Brexit negotiations is an eleventh-hour reprieve. Although it does not provide clarity, it’s a welcome window in which to ramp up contingency plans to maintain key projects and programmes.”
Read the full report to discover trends across each region in the UK.