The firm said that a short window of opportunity now exists to work collaboratively with supply chains, before a slow down in work triggers more serious structural problems among contractors.
In its latest UK market intelligence report, T+T warns clients to be wary of low or even suicidal tendering as contractors cry out for work.
Below cost pricing is already being reported. The cost consultant warns that further erosion of contractor margins could spur a wave of insolvencies impacting future capacity and capability.
The cost consultant anticipates tender price deflation across 2020 and 2021, with tender prices for real estate projects expected to reverse 1% this year owing to waning private sector investor confidence.
Demand in health and social care, life sciences and data centres, suggests more optimism for some more specialist contractors.
In contrast, infrastructure projects are forecast a brighter outlook, with inflation expected at 1% on the back of resilient demand, visibility of pipelines and government stimulus spending.
But these inflation positives will not be sufficient to offset price softening across construction as a whole.
Paul Connolly, UK managing director of cost management, said that how clients respond to this deflationary climate is now critical – their behaviour could either fan the flames or head off a serious crisis.
He said: “The Covid-19 crisis has already blown countless projects off course, but the next headwind the construction industry will have to contend with is deflation.”
He added that despite the outward attractiveness of falling tender prices, a prolonged deflationary period would bring significant hidden dangers to the industry as a whole.
Connolly said: “Transactional supplier dynamics and compromised margins will only damage an already vulnerable supply chain – insolvencies risk disrupting project delivery, eroding industry capacity and ultimately driving prices higher for all in the longer-term.
“Clients will find there is more to gain in the long-term by collaborating more closely with suppliers to ensure a healthy recovery than perhaps securing a fleeting tactical win.
“They must look beyond the transactional to ensure best value and stability, for both their programmes and the construction sector more widely.”
Five ways for clients to foster healthy recovery
- Collaborate with suppliers
- Move beyond the transactional and adopt an enterprise approach to supply chain engagement
- Align with the innovators and nurture them
- A finger on the pulse when it comes to supply chain capability and fragility
- Power up productivity with off-site construction