Industry surveys reveal long-term fears over inflation

Three leading industry bodies have revealed that consultants and engineers currently share long-term fears over rising inflation and the subsequent impact on wages, energy, project delivery and client confidence.

The ongoing Ukraine crisis has compounded existing challenges of materials’ supply and prices, caused by the after effects of Covid-19, escalating global demand, and supply chain disruptions. 

A snap survey of members of the Association for Consultancy and Engineering (ACE) has revealed long-term concerns over inflation, with 80% of respondents viewing it as an issue in the next 12 months and beyond. 

All members stated that inflation was an “operational concern” – 20% said it had led to higher energy costs with anecdotal responses revealing the extent of this impact. One company shared that gas and electricity costs for their HQ “had tripled.”  

There were also concerns around client confidence, with 20% stating that it had already been impacted. As well as apprehension over projects stalling owing to material price increases, there were worries over the impact inflation was having on the overall economy, and on the pipeline of projects next year. 

Wage inflation was also flagged as an issue, with 60% saying it had negatively impacted recruitment. Half of respondents stated they are increasing staff wages as a result.  

Despite increased costs, 30% stated they were not significantly changing their approach this year, and only 20% indicated that they will be passing on costs to clients. Even in these challenging economic circumstances, 90% of respondents are still expecting their business to grow in 2022. 

Commenting on the snap survey results, Stephen Marcos Jones, CEO of ACE said: “Our snap poll reveals the impact inflation is already having on consultancy and engineering. Times are tough across the entire construction supply chain and our members are also feeling the pinch – whether that’s in increased wage or energy costs, or in weakening client confidence. 

“There are several practical steps that could be taken to mitigate inflationary impacts. The government has already offered support to households on energy, but there is no reason equivalent support could not now be expanded to businesses. Public sector clients could also help by adapting contracts to increase day rates in line with inflation. These are just two examples of tangible support for our sector, and we look forward to sharing these ideas and more with officials over the coming weeks.” 

Similar feedback was reported by the Midlands branch of Civil Engineering Contractors Association (CECA), which said its members are reporting dramatic rises in fuel and material costs, as well as extended lead times for materials that can lead to hold-ups.

Its feedback from members backs up research that was recently carried out by the Construction Industry Training Board (CITB) that showed that 51% of firms said that rising prices and materials was the biggest challenge facing the industry. It was only the second time since the CITB survey began in 2005 that this was raised as the number one issue.

Lorraine Gregory, director of CECA Midlands, said: “I have been in post for just a matter of weeks and have been travelling across the region meeting civil engineering contractors of all sizes. These are the companies that are at the heart of construction projects across the region – whether its new roads, railways, infrastructure, homes or other buildings. They are, therefore, key to economic growth and to our very way of life.

“Nearly all of them have said the same thing – that costs are spiralling and that its taking longer and longer to be able to get hold of materials. It’s vitally important that these cost rises can be brought under control because it is simply unsustainable for them to keep on rising at the rate they are going up by.”

The Construction Leadership Council (CLC) has set out plans to mitigate the impacts of steep inflation that are hitting companies across the sector, and has brought together experts from across the sector to look at the options available to reduce these impacts. 

The CLC is seeking to co-ordinate industry effort to minimise risk and reduce the impact of inflation where it can, and the CLC’s plan includes:

• Developing market intelligence about risk hotspots;
• Publishing guidance on price inflation indexation, and commercial issues;
• Preparing case studies on good practice in response to current inflation;
• Running industry briefings on conflict avoidance;
• Researching long-term capacity loss from Ukraine, Russia and Belarus, and impacts on sector.

CLC member and Mace Group chairman and chief executive Mark Reynolds said: “Across our industry we are seeing businesses facing real challenges with inflation that are well above those seen in the sector for many years. There is no one party that can tackle this issue alone and we can’t pass the problem on to others to solve. We all must work collaboratively – clients, contractors and everyone in our supply chain – to provide support where possible to limit the impact on firms nationwide.”

The CLC is also seeking views from the sector about how the current crisis is affecting businesses from across UK construction, to guide and inform further action.