T&T urges firms to remain ‘vigilant to risk’ as confidence grows

Turner & Townsend has urged clients to “remain vigilant to risk” despite the industry appearing to be on the verge of a new era of confidence.

The consultant’s Autumn 2024 UK Market Intelligence Report has found growing positive sentiment in construction after new orders grew by 16.5% in the second quarter of the year compared to the first.

This represents a 28% rise compared to the same quarter in 2023, which is one of the biggest yearly upswings in more than a decade.

But the report found construction output had decreased by 0.1% during the quarter with the largest declines coming from infrastructure, private new housing, industrial and public new housing. 

It said programme delivery continues to suffer from acute labour shortages, reflecting the importance of establishing the right commercial models. 

Contractors told T&T they expect this to be their most significant hurdle, with a lack of staff undermining project efficiency, causing delays, reducing productivity and creating operational bottlenecks.  

The capacity crunch is increasingly constrained by large numbers of insolvencies in the sector and is being compounded by contractors’ cautious and selective approach to new work, the report said, adding that this combined with ongoing cost challenges, pressures on viability remain despite lowering inflation and interest rates.

The firm is advising clients to “aim for more equitable transfers of risk and encourage the procurement of partners, not just suppliers, to enable better quality bids and enhance the working relationship with the supply chain”. 

T&T UK managing director for cost and management Martin Sudweeks said: “It is encouraging to see confidence in the sector beginning to return as we find some relief in the form of lower interest rates and a rise in new orders.  

“However, despite the cooling of tendering conditions and general weakness of the construction sector, this is far from a buyer’s market and businesses will need to be careful about how they manage risk to deliver major programmes successfully.

“As we head towards the Chancellor’s budget this Autumn, organisations should be looking to establish sophisticated commercial models that can balance the risk and reward for both the client and suppliers.  Careful apportioning of risk, while promoting incentivisation and collaboration, will be the keys to success as we deliver the next generation of transformative real estate and infrastructure projects for the country.”

The report put the firm’s tender price inflation forecast for real estate at 3% and for infrastructure at 4.5%.

It said the projection for real estate has remained steady as the key drivers around costs have not materially changed despite rising confidence.  

However, proposed reforms to the National Planning Policy Framework and lower interest rates are expected to cause a steady increase in activity, with these factors forecast to push inflation in real estate tender pricing to 3.6% by 2028.

The forecast tender price inflation for infrastructure is expected to rise to 5% next year due to public sector capital investment and remain at this level until 2028.