Sharing financial risk is the best way for the sector to weather the economic storm

With construction rates slowing down and market predictions casting a long shadow over the months ahead, the industry needs to take stock and find the right solutions to ride out the economic storm.

It was in October that almost 17,000 construction firms were declared to be “at significant risk” of collapse, according to data from audit and tax firm Mazars. That figure was up 54% on the previous quarter and high inflation was really starting to “run riot”.

Finding the right answers within the industry has been made all the more important given our political situation – with our leaders offering little prospect of  respite from the gloomy financial outlook. Jeremy Hunt’s autumn statement made this clear, forcing the industry to focus on what can be solved right now.

>> Also read: Quintain’s way helps lift Wembley out of the doldrums

Recently, Quintain and John Sisk & Son, our longstanding partner of 18 years, did exactly this, signing our largest construction deal to date to build 769 homes at Wembley Park’s North East Lands development. What is more, the construction contract was agreed at a fixed rate of £227m.

Finalising a fixed-rate construction contract during a period of inflation not seen since the 1980s is not without risk. However, despite the fallout from Brexit, covid and recent failed economic government policies, we want this deal to demonstrate what can be achieved when trust, long-term collaboration and solid contract-making are put at the forefront of a deal – a must for industry in this economic climate.

At every stage of the build, ourselves, our suppliers and our contractors have taken on a portion of the burden, ensuring that no one party stands to risk it all in the face of rising costs

With our chosen framework of contractors for our North East Lands project we have built in a culture of collaboration right from the get-go, with all contractors and suppliers working closely with us from the start of the project. This cohesive approach, while rewarding quick decision-making and fostering constructive debate, has allowed us to ensure we are delivering an exceptional, standardised product – and adopting off-site manufacturing technologies to do so.

However, the crux of the deal was the fair allocation of financial risk. At every stage of the build, ourselves, our suppliers and our contractors have taken on a portion of the burden, ensuring that no one party stands to risk it all in the face of rising costs, while others are in the clear.

We are not reinventing the wheel with this deal. We are simply putting the right mechanisms in place that will ensure our projects can progress in the current economic climate, bringing in our contractors and their supply chain from day one, identifying the key material packages needed, agreeing a fixed price for the costs and putting shovel to ground.

By fixing those costs, we are insulating ourselves and our partners from the full impact of any price volatility, maintaining best-in-class build practices, while delivering much-needed homes for London.

Building in this market is therefore about delivering the best product at the right price, instead of a race to the bottom. It supports on-time payments, which are no easy feat in this economy, reciprocity in the contract and quality performance reviews.

This market is only going to get tougher in the next year, encouraging poor behaviours and deal stand-offs that we simply cannot afford

An autumn report from Gleeds showed that 70% of contractors reported that material prices were still causing problems for the industry, with 77% of contractors believing that growth was suffering as a result. Most firms, including Quintain, have no appetite to slow down in delivery, so that is why action must be taken.

This means developers, contractors and all those operating along the supply chain are coming out from behind the curtain and having the tough – but necessary – conversations needed to continue building in the capital and indeed across the UK. This market is only going to get tougher in the next year, encouraging poor behaviours and deal stand-offs that we simply cannot afford.

Setting the right procurement mechanisms in place to protect your partners, matched with trust and collaboration, is in everyone’s best interests and will ultimately help to eliminate uncertainty from an uncertain market.

It is important for the industry to remember that most opportunities lie in the periods of most uncertainty. Doing the right deals, with the right partner at the right price, will only compound this success.