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Tryg Garanti: UK Construction Industry Review Q3’23

October 15, 2023
Member News

Eyes are focused on key upcoming Government decisions.

Q3’23 Summary

This report started by recognising the legacy of Carillion + within increasing failures seen during Q3’23 (top-left graph) we saw the biggest hit in UK contracting since its collapse as Buckingham Grp Contracting entered administration 4/Sept. Key driver here was issues on large-scale projects impacting cash-flow.

The collapse will draw attention to schemes holding long durations, large volume supply-chains + material liquidated-damages consideration – is the level of risk comfortable? More focus should also turn to receipt payment structures vs timings of payments to supply chains – is the job’s cash-flow cycle workable? Administrator update late-Sept showed fallout including roughly £86m of potential bond claims from around 52x uncompleted contracts

Issues where not only seen on the private side as 5/Sept/23 saw reports of Europe’s largest local authority Birmingham City Council issue section 114 notice effectively declaring itself bankrupt & stopping all new spending. This latest Council casualty was blamed on £760m bill for equal pay claims, installation problems with new IT system + £1bn cut-backs from Government support over past decade. And its important to identify levels of work Industry collapses had in the public sector given the impact that ultimately flows – Jul/23 saw East-Midlands J. Tomlinson enter administration with analysis by Government contracts monitoring service Tussell showing that same month it had 24x live public sector contracts under way holding a combined value £235.6m.

Importance of appreciating project risk being taken on, ensuring right price for sufficient margin generation + robust supply chain have been recognised in multiple reports released this Quarter. Companies taking on work offering thin margins + higher-risk supply-chain & project structures are being mentioned to face issues raising bonds necessary from surety providers.

When decisions are made like the Marks & Spencer’s Oxford Street redevelopment judgement, Biodiversity Net Gains ruling or changing height thresholds behind 2nd staircase requirements in residential projects – full understanding is important as impacts are felt for both current & future works. When further changes/amendments are seen down the line this only increases unease.

This consistency is also needed in the drive to improved renewable/sustainable energy which saw multiple developments taking place but can’t afford situations where lack of clarity impacts growth. Take the current Government strategy to reach net zero by 2050 = 25% of UK energy is still driven from oil & gas with emissions removal supported by Carbon Capture Storage facilities. The policy of Labour meanwhile is to stop all new drilling should they win the next general election. And Sept/23 saw current UK Prime Minister announced more relaxed UK net-zero emissions by 2050 targets vs earlier Government plans. Examples like these place serious question marks for investors & business commitments which impact scaling up & supply-chain developments.

As residential sector’s supply chains restructure to face uncertainty, from an operational side it also appears more confidence in affordable vs private developments. Relations formed with associations + local authorities offer combined wider skill-sets which only help combat various hurdles being seen at different stages of project cycles.

UK Construction’s health + challenges now & expected moving forwards were behind some global names announce structural reforms. Q3’23 closes with serious questions over flagship schemes such as HS2 developing as initially outlined which only supports caution seen by these company leaders. Industry needs more support & commitment from key clients like the Government to ensure no other sectors fall to performance lows being experienced within residential (bottom-left graph). Eyes are focused on key upcoming Government decisions as Industry also continues addressing fire-safety + RAAC legacy reworks

You can read the UK Construction Industry Review Q3’23 here:

Tryg Garanti is a highly valued Patron’s Circle member of the Association. Please visit their company profile.

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