Managing construction costs and labour shortages in volatile times

Our industry is suffering under a barrage of materials and product shortages, price inflation and scarcities in labour and management. Mainly a consequence of Brexit and Covid-19, many overseas construction trades and professionals have returned to their home countries or moved to ‘less complicated markets. There has also been enormous volatility in prices, and material costs are roughly 20% higher than last year.

These issues conflict with client expectations, putting pressure on margins and project delivery.

Developers have a choice to make. They can try to overcome these challenges by accepting the same old risks and achieving the same reliable but unexciting returns. Or they can do different things that challenge the orthodoxy of increasingly complicated contract amendments and transferring risk to the other party – which also transfers opportunity.

Our view is the answer lies not in cheeseparing around cost, but understanding and embracing value. That the fundamental change needed is not in the processes or the protocols, but in new ideas.

Those who are forward-thinking and entrepreneurial will see new opportunities and the value of true collaboration. This involves investing a little more up front, setting up projects correctly, being guided by comparable-scale advisers and having mutually beneficial targets. They will understand that risk is where extraordinary returns are available and that owning risk allows them to control, manage and leverage the associated opportunities.

So before rushing to break ground, work with the supply chain under the direction of like-minded advisers. Identify, and be candid about, appetite for risk-opportunity. Have open collaboration with contractors and suppliers. Accept all parties are entitled to a reasonable return. Work together to set the project up properly. Do all this and the end product is more likely to be what was expected on time, on budget and with the expected quality and content.

There is a reason why only roughly 60% of projects are delivered on time, budget and quality.

Whats your choice?