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Thu July 18 2019

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Confidence of UK contractors continues to falter

3 Jul A new study by Turner & Townsend has found that the confidence of UK contractors continues to falter against a backdrop of Brexit uncertainty, slack demand and rising input costs.

The company’s latest UK Market Intelligence Report found that firms were operating at only 85.8% of maximum capacity during the last quarter amid Brexit uncertainty, while softening tender prices and rising input costs hit contractor profitability. In contrast, European markets have taken off.

Analysis within the report shows that average materials input costs have risen 15.2% since Q1 2016, immediately before the Brexit referendum. Contractor profitability sits at less than half the level seen in Q1 2016 on Turner & Townsend’s index.

Rising input costs and soft demand in UK compare to buoyant tender conditions for European capitals, said Turner & Townsend.

It said that effective supply chain management essential to maintain UK project programmes, including knowledge sharing and better use of digital tools to drive performance.

Just over half (51.75) of respondents to Turner & Townsend’s survey described tendering conditions in the last quarter as lukewarm.

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By comparison, analysis shows that contractor markets in Europe are booming. In May, Turner & Townsend’s International Construction Market Survey highlighted overheating market conditions in competing economic centres, as they seek to capitalise on Brexit concerns and attract international investment.  Tender prices in Amsterdam jumped 8.8% in 2018, 7% in Dublin and 6% in Warsaw. 

In contrast, London recorded cost inflation of only 2.1% last year and the majority of UK regional markets ranked as lukewarm or cold.

Paul Connolly, UK managing director of cost management at Turner & Townsend said: “Europe’s hot construction markets are experiencing conditions for contractors not seen in the UK since the boom period before the EU referendum, with new investment driving up tender prices and overall cost inflation.  Comparatively, the outlook for UK contractors remains heavily subdued.

“In both cases, successful projects rely on understanding these conditions and engaging with the supply chain effectively to control risk. This means investing time and effort in the supply chain, appropriately packaging up scope and allocating risk at tender stage, and implementing robust controls and reporting once the contractor is appointed.”

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